Buttigieg Is Right: Not Every Program Can Be Universal. So Which Should?
“Yes, we must deliver big ideas, and yes, taxes on wealthy individuals and on corporations are going to have to go up,” the Mayor said. “We can also be smart about the promises we’re making.”
By Brendan McDermott | Fiscal Policy Analyst for PPI
At last night’s Democratic presidential debate, South Bend Mayor Pete Buttigieg once again criticized Senators Warren and Sanders for proposing to provide free public college tuition to all students, even if they come from wealthy families. “Yes, we must deliver big ideas, and yes, taxes on wealthy individuals and on corporations are going to have to go up,” the Mayor said. “We can also be smart about the promises we’re making. Make sure they’re promises that we can keep, without the kind of taxation that economists tell us could hurt the economy…. If you’re in that top 10 percent, how about you pay your own tuition and we save those dollars for something else that would make a big difference.”
These comments follow a TV commercial in which Mayor Buttigieg argues that the benefits from any free public higher education program should be “means-tested,” or only provided to low- and/or middle- income people, because wealthy people have the means to pay for their children through college. Buttigieg is not the only candidate proposing to means-test certain benefits: Sen. Elizabeth Warren proposes means-testing benefits for her universal childcare and student debt relief plans, and both Sens. Warren and Sanders propose means-testing their aid aimed at students’ non-tuition costs. Still, critics claim that Mayor Buttigieg’s critiques of universal programs are unfair, as such programs can be more politically durable and easier to administer. Sen. Sanders also claimed that because he would pay for benefits for the wealthy with taxes on the wealthy, creating a universal program can still be economically progressive.
These points have some merit, and many fundamental government services — from Social Security to streetlights — are provided universally today. But Mayor Buttigieg is correct that real fiscal constraints exist, and the government cannot provide every worthwhile public service to everyone. A combination of Republican tax cuts and the growing costs of an aging society have already put the national debt on track to nearly double over the next 30 years to 144 percent of gross domestic product, the value of all goods and services the American economy produces in a year. It will take meaningful tax increases and spending reductions just to stabilize the debt. Given these constraints, leaders must choose which needs would be best served by universal programs and which can be sufficiently met with means-tested programs that save fiscal room for other legitimate needs.
There are also real limits to the government’s power to tax. If the government raises taxes on labor, people may decide it is a better use of their time to stay home than to earn more taxable income, and the tax hike will be less effective the larger it is. While it is difficult to estimate the tax rate that will raise the most revenue from high-income people, two prominent studies estimate that the rate is between 63 percent and 73 percent.
The United States isn’t close to that point today — the average person in the highest-earning 1 percent pays roughly a 47 percent rate on the last dollar they earn from work, accounting for federal, state, and local taxes. The revenue-maximizing tax rate on income from capital is lower, but the federal government taxes capital below that rate as well. Still, money raised and spent for one purpose cannot be spent on another, and the limits on the government’s power to tax restrict the scale of possible government spending. Policymakers who criticize or defend proposals for universal programs should explain whether universality is the best model to resolve the issue in question, not debate the merits of universality as a general principle.
Typically, successful universal programs solve problems in markets that are not always related to a person’s income. For example, Social Security ensures that all Americans can enjoy a dignified retirement after a lifetime of hard work and replaces the income of people who are too old or disabled to work. Medicare, meanwhile, ensures that these communities have adequate medical care. Other universal programs ensure that everyone pays for “public” goods, which are goods that everyone needs but that private actors do not have an adequate incentive to produce. The government taxes the community and provides such goods to ensure that it is adequately provided.
These are not the only models of successful universal programs today, and there may be other appropriate models besides those already in use. But due to our limited power to raise tax revenue, those who want to make some programs universal — as well as those who want to criticize other candidates’ universal program proposals — need to justify or critique universality on an issue-by-issue basis, not on its general merits.