How Obama's 529 Plan Shows The Welfare State Is Doomed

Nice piece over at Reason.

The core of the problem is clear: the growing cost of the entitlement state. As the Congressional Budget Office warned earlier this week, over the next decade, "spending will grow faster than the economy for Social Security; the major health care programs, including Medicare, Medicaid, and subsidies offered through insurance exchanges; and net interest costs." Tax revenues will stay essentially flat at around 18 percent of GDP, while spending, driven by entitlements, will rise to more than 22 percent of GDP. Longer-term projections indicate the cost of entitlements and interest on the debt will continue to rise in the decades after that.

In the bigger picture, the existing welfare state is unaffordable. Either it will have to be cut, or reformed, or paid for—by someone, somehow. The administration and its allies would like to reassure you that the someones who will pay for all of this will be limited to the richest of the rich, but in practice there’s only so much money that can be squeezed out of the extremely wealthy.

Which means that eventually, anyone looking for ways to keep the welfare state afloat will have to go after after the middle class—and, in particular, middle class savers. That’s where the money is. Sure, you can imagine alternatives, like a Value Added Tax (VAT), which might raise enough tax revenue to keep the budget in the clear. But it’s hard to imagine a popular political coalition forming around a regressive consumption tax that gives the government a major new revenue stream.

Be sure to read the whole thing.

posted by BenK at 08:19 AM

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