A Lending Hand - A New Kind of Welfare System
(Continued from; Truly
Radical Welfare Reform)
Before I explain how our welfare system could be based on
loans, I need to point out how much Americans go up and down
in their fortunes. In fact, it may surprise many readers to learn
just how dynamic our society is. The other day I met a former
millionaire developer who is now living in a mobile home. My
own income at one point went from being below poverty level for
years to ten times as much in a matter of five years.
Consider the following excerpt from the 2008 book "Let
Them In," by Jason Riley:
"Poverty is transient for the overwhelming majority of
Americans, so a snapshot of who's in the bottom fifth of income
earners at any one point in time doesn't tell you much. Nearly
86 percent of tax filers in the bottom 20 percent in 1979 had
exited that quintile by 1988. The corresponding mobility rates
for the second-lowest, middle, second-highest, and highest quintiles
are 71 percent, 67 percent, 62.5 percent, and 35.3 percent, respectively.
Overall, an absolute majority of the people in the bottom income
quintile in 1975 have since also been in the top quintile."
In other words, there are a lot of us that are poor at one
time and middle class or higher later in life. I bring up this
matter of social or economic mobility for a reason. I want to
suggest that people are often able to repay the help they get
through government welfare. Why not let people repay the help
they get, if and when they are able to?
The basic idea is this: Through various programs the government
helps those who truly need help, including picking up the health
care bills for those who cannot afford to pay. But instead of
this money being a gift, it is a loan. When and if the recipient
can repay, he or she is required to do so. Now let's look at
some specifics which will make such a system work.
1. First, it seems reasonable that repayment should happen
only when the recipients income is sufficient. It makes no sense
to chase a bankrupt citizen for money owed. With that in mind,
we might have a rule that when income exceeds $20,000 or whatever
threshold, repayment must begin.
2. Second, since we don't want to risk permanently impoverishing
people, the repayment should never exceed 10 percent of the debtor's
current income. Up to that level it is a reasonable assumption
that life can still continue without too much hardship, and progress
can still be made in personal income and career goals.
3. Third, to make it easier to repay, the money should be
withheld from wages. This makes it less noticeable and avoids
potential budgeting problems some debtors may otherwise have.
Since taxes are already withheld by employers at various rates
for different employees, this should not be a significant additional
burden for them.
4. Fourth, this debt--like others--should be a civil matter,
never a criminal one. The debtor should never go to jail for
not paying, unless non-payment was due to fraud, such as lying
about current income. In general, it will be more productive,
even in cases of fraud, for the government to seize assets and
attach wages and use any civil means to collect, rather than
to threaten jail or to spend the money to actually imprison anyone.
5. Fifth, any debt remaining at death will be taken from the
estate of the debtor. There is already a system in place for
determining estate taxes, so this will not require much additional
bureaucracy. The 10 percent rule may mean that many who have
had large amounts of help (think cancer treatments for years)
will never be able to repay the debt in their lifetime. But some
will nonetheless accumulate assets, and this deduction from the
estate is a way to recover at least a part of the remaining debt.
6. Sixth, the remaining debt after death and after whatever
recovery comes from the debtor's estate, is simply written off.
There is no real alternative to this - none that seems fair,
in any case.
7. Seventh, these loans are all added to a common account,
perhaps using the social security number of the recipients. This
may sound like it would require a costly bureaucracy, but it
isn't as complicated as it sounds. Whatever programs make the
payments would simply turn over the additional debt to a common
agregator. As it is, the Social Security Administration administers
almost a trillion dollar system at a cost of just 9 billion dollars
(as of 2010). That's a cost of less than 1 percent of the amount
handled. Importantly, though, even if this system is expensive
to administer, it clearly pays for itself many many times over.
8. Eighth, there should be no interest charged. There are
several reasons for this. To begin with, it would complicate
the whole system unnecessarily. Having no interest makes it easy
for everyone involved to do the accounting and to know where
they stand. Also, if a given person needed a lot of help, their
subsequent payments of 10 percent of their income might not even
cover the interest charges. The resulting lack of progress in
resolving the debt would diminish people's faith in the system,
as well as their sense that it is just.
Finally, there is an additional benefit to not charging interest.
It is that with billions of repayments pouring in over the years
and perhaps trillions in debt owed, the government would be hurting
its own interests if it inflated the currency, since that would
reduce the value of all payments received. In other words, although
it is not an intended consequence, this system would provide
additional pressure on the government to be fiscally responsible,
especially with monetary policy.
Continues here... Objections to This
Welfare Program
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