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Republicans Wrong to Means-Test Drug Benefits

By Marc Levin

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With varying amounts of vitriol, all of the Democratic presidential candidates paint Republicans as the party of the rich. Yet the Democrats' focus on so-called "tax cuts for the rich" ignores the spending side of the ledger where Republicans are increasingly shortchanging the middle and upper classes by promoting government programs that withhold benefits to otherwise qualified people above certain income thresholds.

Such means-testing is a form of government income redistribution that is contrary to traditional conservative economic principles and could prove politically perilous for Republicans. GOP support for means-testing is entirely inconsistent with Republican resistance to proposals for income redistribution on the tax side, such as a recent Democratic plan to increase the earned-income tax credit. However, rather than uphold free market principles and oppose any prescription drug benefit, many Republicans have helped push through a partly means-tested program instead of the Democrats' proposed universal program.

Conservatives make several arguments for means-testing. First, means-tested benefits are less costly than those that are universal. Some also argue that programs benefiting only the poor will be politically easier to scale back. However, while welfare has been reformed since its creation, Medicaid and nearly all other programs for the poor have become increasingly costly.

According to the National Center for Policy Analysis, the U.S. spends more than $350 billion a year on 79 means-tested federal welfare programs, a total that exceeds the defense budget. This is enough money to give $8,939 to every poor person in America, or $35,756 to a family of four. Since 1965, the U.S. has spent $5 trillion on the War on Poverty, measured in 1992 constant dollars. However, the poverty rate today exceeds that in 1965, because much of this money goes into bureaucracy, and the funds that do reach the intended beneficiaries create a disincentive to work.

Former Senator Phil Gramm used a wagon as a metaphor for government, vowing to fight for the interests of the taxpaying Americans who pull the wagon. However, creating more means-tested programs not only burdens all taxpayers, but also prevents the most industrious haulers of the wagon from enjoying the load. Means-testing is fundamentally unfair because it punishes those who work hard and save money while rewarding those who do not.

Likewise, means-testing discourages people from earning more and overcoming poverty because they will lose benefits. A landmark 1970s study by the federal government's Office of Economic Opportunity found that every $1 of extra welfare given to low-income persons reduced labor and earnings by 80 percent. Medicaid particularly punishes work, since recipients lose the entire benefit upon reaching a certain income threshold.

Under the Republican prescription drug plan approved by the House and Senate, a participant with an income at 135 percent of the projected 2006 poverty level ($12,960) with $4,500 in drug spending would lose $2,571 in drug subsidies if he took a part time job earning $200 a month or withdrew $2,400 from an IRA. This is the equivalent of a 107 percent marginal tax rate on the added income, an overwhelming disincentive to work.

In contrast, the universal payroll tax-funded programs of Social Security and Medicare prevent free-riders. Since everyone must pay in and everyone can benefit, irresponsible wage-earners cannot fritter away that portion of their income, and then shift their retirement costs to the rest of society.

Finally, Republicans' support for means-tested proposals obscures the fundamental question of whether the benefit at issue is an essential government function that the free market cannot perform.

The prescription drug bill is not the only example of Republicans pushing means-testing. Many Republicans such as Sen. Pete Domenici (R-New Mexico) continue to support means-testing Social Security. GOP leaders in Texas passed tuition deregulation, which allows the state's public universities to charge middle class parents the full cost of their children's education plus the cost of subsidizing tuition of children from lower income families.

The federal government appropriately means-tests some programs such as food stamps that go primarily to single mothers with children. While middle class Americans are easily able to purchase grocery staples without food stamps, they do not have unlimited access to prescription drugs. Therefore, if we publicly fund prescription drugs, higher education and other benefits that are neither strict necessities nor universally enjoyed by the middle class without regard to cost, everyone should have an opportunity to share equally in the benefits.

Finally, Republican support for means-testing could alienate their middle and upper class base. Although Republican voters generally support lower taxes, they will realize that more means-tested programs mean they get less and less in return on every tax dollar they do pay.

Republicans should stop advocating means-testing and bring their spending policies in line with their traditional opposition to income redistribution.

Marc A. Levin, Esq. is President of the American Freedom Center (www.americanfreedom.org), an Austin-based conservative think tank, and Associate Editor of The Austin Review (www.austinreview.com), a public policy journal.  He can be reached at mrmarclv@aol.com









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