Friday, July 16, 2010

Devolving entitlements to the states frees federal political capital

ARTICLE: Opinion: It's time to shift spending to states - Jeffrey A. Miron - (Via POLITICO.)

Great article from Politico, and very much in agreement with my view on devolving entitlement programs to the state level. The benefits from this adjustment would include exposing programs like Social Security, Medicare and Medicaid to the competition inherit in the policy market that is our system of 50 states. Again, Jefferson referred to the system as 50 laboratories for experimenting in policy. Devolving this type of function to the state level would also free up tremendous amounts of political capital at the Federal level to deal with issues that are actually intended to fall under Federal jurisdiction; namely national security, foreign affairs, immigration policy, serving as a guarantor of individual rights, and facilitating a federal coordination of these various state programs when they cross state boundaries (the proper usage of interstate commerce).

Political will aside, this development wouldn't be that difficult to implement as our federal pension and health programs are already funded by a separate revenue system (payroll taxes) which could simply be transferred to the state level for collection and expenditure without affecting the rest of federal spending.

But even at the state level, many of the current problems with these programs will be inherited as well. Not all of the answers are readily available, but the age of retirement seems and easy one. When originally introduced, the age of retirement for Social Security was 65 and the average life expectancy was 63. It's no wonder that the most often proposed solution lately is to raise the retirement age. But any adjustment is likely to be moderate and will likely only put off having yet another politically expensive battle to raise the age again in the future.

The problem is setting this value as a constant, instead of determining it by a function that is based on the dependent variable here: the average life expectancy. Peg the age of retirement at or a couple years above the average life expectancy and social security should become more sustainable.

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