Interview With Senator Wallop, Part Two
By Peter and Helen Evans (06/30/04)
Following is part two of an on-going collection of interviews which will eventually be a book, America, The Great Experiment: What's America For?
Helen: So where did this idea of 'entitlement' come from?
Senator Wallop: Well, it started in this country with social security, which was originally designed to make sure people didn't just disappear into black holes when they retired. But, if you look at the original social security, most people weren't expected to live long enough to qualify for it. But then along came Wilbur Mills and put pension indexing into place. He did that for his Presidential needs. It didn't do much for his Presidential needs, but it did a great deal for the concept that we were owed this comfortable retirement, and that social security, which had been designed as a 'supplement' for retirement, now was seen as a 'level' of retirement. You have many of the same tactics by the labor unions pushing for minimum wage. It isn't because the unions are particularly devoted to workers at the bottom of the labor market. It's because, every time the minimum wage is raised, it raises the index on which their wages are based.
Helen: I didn't realize that. Quite a reverse tactic.
Senator Wallop: Sure. Well, look. The concept of minimum wage is crazy, if you really stop to think about it. If $8 an hour seems right, why not $20 an hour? If it's coming by order of the government, why stop at any level? Why not just say everyone should get what Gates gets?
Peter: You can see the inflationary impact of that! One of the most cogent rebuttals of the concept I've heard is by Thomas Sowell who said that if you impose a minimum wage you automatically create a whole class of unemployable people. For example, if the minimum wage is established at $8, then people who had previously been barely employable at $5 an hour would be let go by employers who are smart enough to realize that they'll go out of business employing someone at a wage higher than what they're worth. Employers resort to illegals, paying them cash to keep them off the books, etc.
Senator Wallop: Yes, there's a wonderful phrase that, "in the welfare state, there's many a middle class liberal who has grown wealthy providing for the dependency of those on welfare." The dependants never emerge from the state or class to which they've been assigned. Really, that whole concept of creating dependent constituencies, by assigning people to a class of existence out of which they are not expected to emerge, is only there because, as dependants, they are a powerful political presence.
Peter: A predictable, dependable voting bloc.
Senator Wallop: The liberals are telling these people, "you can't depend on Republicans or Independents to take care of you. I'm the one who will guarantee you your indexed margin of existence." It's an unbelievable sort of plantation complex. In other words, "I'll see to it that you have just enough to eat, I'll see to you that you have just enough to stay alive, but you haven't got a chance of getting out of here, because I need you dependent on me."
Helen: Isn't that one of the misconceptions? The poor are the poor, the rich are the rich and they will never leave their station in life. There is no upward or downward movement based on merit.
Senator Wallop: If you look at the statistics in this country, the economic classes are constantly changing. Which is why, even in a country which is hard America and soft America, there are people who find their way out of dire or poor circumstances. They find their way out of their dependencies. Also, let's take some other issues people talk about. When you take a look at the average "poor" family, you'll find they have it much better than "poor" families in other countries. They have televisions, they have microwaves, one or two cars, cells phone, etc. This American poverty level would be a pretty classy existence in other countries.
Peter: Dinesh D'Souza's cousin said he wants to come to America, "where even the poor people are fat!"
Helen: So, we don't have a class system in the usual sense. People can move out of their circumstances or class. We don't need entitlements for them to move.
Senator Wallop: No we don't. We, instead have a constituency system or a plantation system. It isn't the class system. The problem is they don't want you to emerge from it, they want you to remain where you've been assigned.
Peter: "They" being... ?
Senator Wallop: The elite, the liberals. At least they consider themselves the elite. They are the ones who determine what your benefits are going to be and which of your needs are going to be satisfied. They promise to get those benefits so long as you promise not to emerge from dependence.
Peter: As long as you promise not to get those benefits for yourself.
Senator Wallop: I'll mention that Sowell quote again, "there is many a middle class liberal who has become wealthy providing for those he seeks to keep in a state of dependency."
Helen: Some think of the "elite" as those in the upper media, those in academia, of course the Left in government, but also some of the "helpers" in non-profits are the elite.
Senator Wallop: That's another funny dependency. They are dependent on the tax codes to maintain their status as non-profits. Their revenues aren't taxable and the money they spend isn't taxable until it becomes, one way or another, private income. If you take a look at the 1986 tax act, which I was instrumental in drafting in the Senate, when it was a real tax reform. However, by the time it got through the committee, and by the time the Senate worked its will on it, and by the time the conference committee got done with it and it came back to the floor as a conference report, I was trying to filibuster my own bill! Because it had been so destroyed.
One of the things we sought to do when we set out was to get rid of all the tax deductions, in exchange for a vastly lowered tax rate with only one or two levels of taxation. I, being a Yale graduate, got a letter from the President of Yale, saying, "Dear Senator Wallop: If this bill goes through and you get rid of all charitable deductions, then Yale will cease to exist as the great private institution you've know it to be." And I wrote him back saying that you have just told me that Yale is, by definition, not "a great private institution" but a dependency of the government! In fact, if you are dependent on the tax structure for charity, then you are dependent upon the increased taxation of the people of Wyoming, who will never benefit from the tax structure that benefits Yale.
What we were trying to say was that state taxes were not to be deductible, but of course high tax places like New York and California went berserk. They said they would never be able to fund their states if that happened. I was at pains to try to point out that the people of Wyoming didn't need to subsidize the people of New York State for the deductions of the taxes that their state saw fit to impose upon them, where none of our people would ever have a chance of benefiting from them. It comes down to "someone's tax deduction is someone else's tax increase."
Peter: So non-profits are not private, they are outgrowths of the tax structure.
Senator Wallop: Well, that's how it's come to pass that medicine in this country is so essentially out of control. Largely because there is no market for medicine. Companies were essentially able to deduct their contributions to employee medical benefits as a cost of doing business. For instance, if I'm your employer, and I give you both Blue Cross and Blue Shield, that cost to me is deductible from my taxes as a cost of doing business. So basically it doesn't cost either of us anything if you come to me and ask for dental insurance to be added to the benefit package. That's what unions did. They added benefits more often then they added to the wages, because, under the tax code, the benefits were all deductible and, essentially, cost free to the company.
So when you go to the surgeon or the dentist and you're all covered, there is no constraint on your actions. You can just say, "Give it to me."
Helen: You can get three more "second opinions," or get treatment for aches and pains that you would just live with if you had to pay for them yourself.
Senator Wallop: Yes, when it doesn't cost anything and is readily available, we use it sometimes unwisely. And there was no cost to the doctors to treat your minor complaints. They were well paid by the insurance. It has come down to the fact that it's a bizarrely un-tethered piece of the economy. And the tax structure is what un-tethered it.
Peter: What you're saying is that a whole class of transactions, those relating to medical expenses, are exempted from market forces because of the tax structure. The invisible hand has been shackled.
Senator Wallop: Some of them are coming back into the market, because finally it's getting to the point where no one can afford what's going on. If you look at the history of labor union contracts, it's the the benefits, retirement or medical, that are, by and large, where "compensation" has been most likely to be increased. Because it wasn't an out-of-pocket expense to the companies, but an "out-of-taxes" benefit.
Peter: Well, wages would fall into that category as well, wouldn't they? Wages are pre-tax expenses for any business.
Senator Wallop: Yes, but wages get taxed, benefits do not. That's what keeps the benefits out the market feed-back loop.
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