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Thursday, June 1, 2017

Trump's Budget and Wyoming, Part 2

Earlier this week I noted that there are some features in President Trump's first budget that could be beneficial to Wyoming. I did not go into detail on those features, though, as the first part of this article was devoted to setting the record straight on Medicaid spending: while critics claim Trump wants to cut federal spending on the program, the fact of the matter is that spending is going to increase. The "cut", which exists only in statist arithmetic, is a reduction in the increase of spending compared to the so called baseline.

The baseline, plain and simple, is a Congressional invention to guarantee a perpetual increase in entitlement spending.
In compliance with the rules of modern Orwellian political English, a reduction in the growth of spending compared to the baseline is then defined as a "spending cut".

In addition to the slowdown in Medicaid spending growth, the president's budget also wants to make similar adjustments to welfare programs such as SNAP (formerly known as Food Stamps). While the federal spending on SNAP is not reported individually, we get a good indication of what the president foresees for that program by looking at "other" mandatory spending. Figure 1 explains:

Figure 1
Source: Office of Management and Budget

For the most part, the budget predicts that actual spending (grey) will track baseline (blue), though at slightly lower levels of increase. However, that pattern changes gradually beginning in 2023, and the reason for that is not that the president plans any significant cuts in benefits. The reasons is instead that the budget expects a higher GDP growth rate than what we became used to under Obama. The budget predicts GDP growth to reach three percent by 2021; any sustained growth above two percent will have a net positive effect on people's lives, including increased demand for labor and rising wages. In combination, those two improvements will noticeably reduce demand for means-tested welfare programs, such as SNAP/Food Stamps.

Overall, nominal spending on food stamps will increase marginally, even as the president expects steady improvement in the economy. However, there is no doubt that the ambition is to transfer more responsibilities for SNAP and other welfare programs, including Medicaid, to the states. So far, we only have limited knowledge of exactly what this means, but it is likely that the reform would center in on block grants.

If this were indeed to happen; if we finally got a real block-grant reform in welfare and Medicaid; it would make a significant difference for the better for all states, and especially for us here in Wyoming. 

The caveat is that the block grant is "real", namely that it really gives states increased control over welfare programs. In order to do so, the block grant reform would have to make a clear distinction between:

--the purpose of the welfare programs, i.e., "what" they do; and
--the design and operation of the programs, i.e., "how" they do it.

If this distinction is upheld strictly, then states will get major opportunities to reform costly programs based on their own principles, their own needs and their own long-term fiscal goals. By leaving the "how" part of the block-granted programs to states, the federal government would in practice open up 50 laboratories for policy solutions. 

In order to make this happen, the federal government would have to restrict its own role to defining what a program is supposed to do, such as alleviate poverty. That would include a basic definition of poverty, preferably the one used prior to the War on Poverty.* The states, on the other hand, would get to decide whether that is best done by means of a traditional, government-run program, or by contracting, outsourcing or privatizing welfare. States would also get control over other essential variables:

Eligibility criteria - outside of the basic definition of the program, states would have control over how long people can stay eligible, if there are work requirements attached to receiving benefits, drug tests, and so on;
Benefits - as part of its definition of the program, the federal government would provide basic funding for a very minimum, subsistence benefit, to which states can add funds if they want to; for example, a person who refuses to participate in work training programs or drug testing would be confined to subsistence welfare, while people who actively train themselves to become employable, who get off drugs and look for work, would qualify for additional benefits;
Charitable contributions - a state could open up its welfare programs to private charities to supplement or replace government funding, thereby opening for welfare recipients to pick their provider of choice; a Baptist may prefer to receive benefits from a charity of his or her faith; an avid liberal may prefer to stay under the government's program; an irresponsible young, single woman who got herself pregnant may want to go to a charity that condones and helps fund abortions; etc. 

Again, these are the opportunities that open up for a state under an ideal block-grant reform that separates "what" from "how". The fiscal benefits from full-fledged block granting are probably not as significant as one might think - at least not in a state like Wyoming where welfare is a relatively limited expense for government - but that does not mean they are inconsequential. It is also important to keep in mind that work-encouraging reforms at the state level do affect the cost of other programs. For example, if people get off welfare, they can also find a way to work their way off Medicaid.

It remains to be seen how close President Trump's block-grant reform model comes to this ideal, and how much of what he proposes will survive Congress. That, however, does not mean we here in Wyoming should sit and passively wait for Congress and the President to start compromising; we need to make sure Congress knows what we want, here in Wyoming.
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*) See my upcoming book The Rise of Big Government: How Egalitarianism Conquered America; Routledge, due out in October. You can pre-order the book by sending an e-mail to orders@taylorandfrancis.com. Please put the title of the book in the subject line, then specify that you want to pre-order this book.

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