"Creeping Socialism" Would Be Good For America

Ike was referring to the New Deal

-by Bob Hertz

Donald Trump, Mitch McConnell, Rush Limbaugh, Newt Gingrich, and CPAC conservatives constantly complain that Democrats would impose “European-Style Socialism” on America.

To which the natural question is:

"And how bad would that be?"

Will Americans really be corrupted by national health insurance, mandatory vacations, paid maternity leave, rent subsidies, or child allowances?

After all, Australia hasn't been destroyed yet-- despite having gun control, a national health system, a minimum wage over $16.50, 4 weeks mandatory vacations and 2 weeks guaranteed sick leave.

Here is today’s political secret:

Millions of older Americans already have social insurance, and they love it.

They strongly approve of Social Security, Medicare, and military pensions. They aren’t really opposed to socialism or (more accurately) Social Democracy-- they just don’t want to extend it to minorities or to younger workers.

Some conservatives wax nostalgic about life in America “when men were free.”

Yes, free to work until they dropped, free to be dependent in old age on their relatives, and free to go without medical care.

Prior to the New Deal, all social and employment risks were borne by the individual. If a worker was injured, they bore the cost of that injury themselves. If a senior citizen was no longer able to work and had no savings, they would be left destitute. If an individual lost his or her job, there was no compensation or unemployment benefits. For many, it meant hunger and impoverishment.

In 1930 a mill owner was asked if he thought his workers could really live on $2.50 a week. “Why, I’ve never thought of paying men on the basis of what they need. I pay for efficiency.”

Government provides more insurance now than it used to-- and life for almost everyone is better because of it. If Medicare, Social Security and Unemployment Benefits were seriously reduced, we would have 1932-level poverty all over again.

Actually, some conservatives predicted economic doom with every social improvement of the last 120 years-- including female suffrage; the eight hour day; the end of child labor; worker’s compensation; Social Security; Civil Rights laws; and Medicare.

This reflected a Social-Darwinist belief that life is tough-- and if we protect the losers, this generosity will eventually hurt the nation. In this belief, government support for families weakens them, whereas markets make them strong. Men should be forced to support their family without government subsidies, because that's what real men do. Communities without strong families will fail, and they should fail until they learn the lessons of struggle. If we rescue people who have made bad choices, they will never become relatively chaste, hard-working, or productive. They and their children will make bad choices forever.

When Harry Truman proposed National Health Insurance, the AMA accused the White House of “trying to turn a brave, risk-taking people into a bunch of dainty, steam-heated, rubber-tired, beauty-rested, effeminized, pampered sissies”—easy pickings for the godless Soviet cold war foe.

Any day in Sweden, we were led to assume, free dentistry would mutate into a secret state-police apparatus and a sprawling archipelago of reeducation camps.

Note: This is not to say that every single federal program has been beneficial. AFDC. urban renewal and the Vietnam War come to mind immediately as governmental disasters. (though frequently they were advanced by liberals, not socialists.)

In any event, today there are still millions of Americans who are frankly ‘living poor’:

• unable to afford to pay basic bills

• working low-wage jobs, if they can even find them

• begging each other online for money to pay for medicine

• indebted for life over education and housing

There is no good excuse for the economic terror that suffuses American life

• Nobody should be so poor they have to sell their blood plasma to avoid starvation.

• Nobody who gets ill should have to desperately fundraise to stave off bankruptcy or death.

• Nobody should worry about repaying a gigantic pile of student loans.

• Nobody who gets fired should panic that it will mean destitution.

Bernie Sanders says it best:

“If today you’re making $10 an hour, if you have no health care, if you can’t afford a higher education, how free are you, really? And that’s the discussion we need. What does freedom mean?

Freedom does not mean that you’re sleeping out on the streets. Freedom does not mean that you’re $100,000 in debt because you went to college. Freedom does not mean that you can’t go to the doctor when you’re sick.

Freedom does not mean paying 50 to 55 percent of your income on housing. Freedom means that you have decent housing at a cost that you can afford.

A mother with a new baby who is forced to go back to work immediately because she lacks paid family leave is not free.”

What this mother needs-- what we all need-- used to be called The Social Wage.

The Social Wage is nothing less than the rights of citizenship, which are free after paying your taxes.

The rights of citizenship must not depend on getting a good job,

We need universal programs-- not employer mandates, which are easy for low-road employers to avoid. (When the ACA mandated health insurance for employees over 30 hours a week, many corporations reduced the work hours to 29. When Congress mandated paid leave for COVID, some businesses just fired people who got sick.)

Pro-rated benefits are also a failure. If a person works half-time, it does no good to give them half of a health insurance plan.

We must stay away from programs that are narrowly tailored to the poor. Means testing is the enemy-- always. People resent paying taxes for programs from which they are excluded.

As Michael Lind reminds us, “Means-tested programs are usually designed to be humiliating and punitive-- in order to reassure taxpayers that the poor and undeserving are being disciplined.

These programs require the beneficiaries to do detailed record-keeping, provide frequent verifications, yet they are often punished with repeating lockouts from benefits.

Welfare programs may create a perverse incentive for recipients to not merely "look" poor, but indeed remain poor enough to obtain or retain benefits.

Universal programs are always better. Middle-class beneficiaries can complain when the program is not working correctly, and are much more likely to get an attentive hearing. If we make a program part of the fundamental infrastructure for everyone, it will generally be high-quality. “

What we need now are big, blunt interventions. We need flat and equal benefits wherever possible. We should make on-budget, direct payments to beneficiaries-- not skimpy and devious ‘tax credits.’

Government should be a spender, not a lender. We must give people grants, not loans.

If this means higher taxes, then raise the taxes. There is nothing wrong with using the power of government to collect taxes on a progressive basis. We can identify basic needs, figure out what programs would satisfy them, and then establish a tax level high enough to fund them.

Instead, both Democrats and Republicans in recent decades have enacted multiple “tax credits” in place of honest spending programs. Clinton and Obama were leaders in this wretched process. These credits allow them to claim they are helping the public, while supposedly limiting the size of government.

Politicians can then brag that Americans have lower tax rates than Europeans.

However-- the millions of Americans who are hit with health insurance premiums, medical co-pays, college costs, nursing home costs, and day care costs are probably worse off despite lower taxes.

The more a government spends on social insurance, the less likely households are to fall into debt. Social insurance includes pensions, health care, family allowances, parental leave, job training, income support, unemployment spending, et al. Public spending on these policies enables households to build up assets and reduce debt.

The whole concept of offering people loans to buy public goods-- like higher education and health care-- is a manipulative and futile alternative. Putting people in debt for college at first seemed cheaper than public programs. It does not require new taxes-- ah, the holy grail.We can pretend that student debts are a national asset, even while they cause great damage to workers.

America has substituted bankruptcy as the unofficial fall-back rescue plan Our refusal to pay more taxes dumps the unsupported into bankruptcy court, to sort out the inevitable losses. Instead of raising taxes for free public hospitals, for example, we ‘mandate’ private hospitals to provide emergency care. Then we require the hospitals to chase patients for payment. Then we allow the patients to declare bankruptcy, although even that ordeal is not available to everyone. It is a deeply stupid and wasteful cycle, all created by a refusal to raise taxes for public goods.

Instead of honest new taxes, we also wind up with grotesqueries like the new Republican family leave proposal. It relies on workers taking advances against their own Social Security benefits. This fervent devotion to not raising taxes leads to the awful idea of raiding other social programs instead.

The truth is, we can have nice things!

This is not a call for the government to sieze property and take control of industry. Again, we are Social Democrats rather than full-bore Socialists.

Instead, we want to expand public goods and to strengthen social insurance.

What follows is a summary of universal programs we can enact right away.

Part One Add a Child Allowance to Social Security

• We propose $500 a month per child, $6,000 a year

• It would be paid on behalf of 20 million children a year, ages 0 through age 5

• The benefit would be paid to all parents, regardless of income or employment status

Would we be paying some mothers not to work? Absolutely! The women who stay home are just as deserving as those who want to work.

Every family caring for minor children would receive a check each month-- $500 for every child under age 6 that they are taking care of.

This benefit will be taxable, which claws back a portion when the benefit is paid to a wealthy family.

This replaces the gimmicky and porous “tax credits”-- which often exclude the poorest families, and may not even be available until tax filing time.

Compare the directness of a monthly allowance, versus the current IRS instructions for claiming a child care credit:

Add up the total amount of your care expenses that qualify for the credit. The maximum amount of expenses you're allowed to claim is $3,000 for one person, or $6,000 for two or more people.

• If your employer gives you money to pay child care expenses, or if you have money withheld from your pay on a pre-tax basis, you must subtract this money received from your allowable expenses.

• Compare your claimed expenses with your earned income and, if you're married, your spouse's earned income. Take the smallest of all these amounts. These are your "allowable expenses."

• Your credit is a percentage of your allowable expenses. That percentage ranges from 20% to 35%. The higher your income, the smaller your percentage, and therefore the smaller your credit. There is no upper limit on income for claiming the credit.

The larger Earned Income Tax Credit is no better. Benefits change as income rises, with four phase-in rates and three phase-out rates. It is adjusted by filing status and number of children. The rules regarding child eligibility are complex due to issues such as separation and divorce.

For individuals, the IRS guidebook for the EITC (Publication 596) is 37 pages long. But the rules are so complicated that more than two-thirds of all tax returns claiming the EITC are done by paid preparers…..and all this for a modest maximum credit of $6,432 with 3 or more children.

The principle of social insurance is this:

“Nearly all families have to pay the costs of of raising children …

We either pay for it wholly on our own, or we create a risk pool where we all pay a little out of every paycheck and draw down what we need, like Social Security.”

Estimated cost:

$120 billion a year-- but then minus the taxes collected from wealthier families with young children.

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How to Pay for it:

Increase the Social Security payroll tax by 1.0%. This would raise about $80 billion.

This would be split 50-50 between employer and employers. Thus, a worker making $4,000 per month would see a new tax of $20 per month.

Employers must pay their .50% for anyone on payroll, even their so-called contingent or gig workers.

We do not expect our programs to be paid for by just the rich. Every family benefits, so every family should pay at least something.

Part Two Federalize Unemployment Insurance programs under Social Security

The federal government should establish the UI system as a fully federal program, funded by increased Social Security taxes.

This would allow states to eliminate their UI programs, and keep any surpluses they currently have in their state UI trust funds.

At the same time, the federal government should buy out the debt of all state UI trust funds that have a negative balance.

• This would remove the state variations in eligibility and benefits, If a 60% wage replacement level is the best formula, then that formula will apply in every single state.

• This will end the race-to-the-bottom among states to have lower tax rates for employers.

Some states are quite frankly looking to push poor people away; therefore the Federal Government has to act as the protector of the disadvantaged. One would think that we are still fighting the Civil War and Reconstruction. The former slave states (and a few Western allies) are determined to limit federal welfare laws-- or if possible, to actually nullify them.

According to Steven Attewell, this all began in the 1930’s. “Roosevelt’s staff members could not design a simple unemployment insurance (UI) system, financed by a single federal tax and managed solely by a national Social Security Board. Instead, they designed a complicated workaround in which a federal “regulatory” tax would be forgiven if states enacted their own unemployment insurance systems. This elaborate system was needed to get past the rigid ‘federalism’ of the Supreme Court of the time.

Because states have funded their UI system with payroll taxes on local employers, reducing these taxes has often been the first bargaining chip that states can offer when trying to compete with one another to attract new firms from out of state. The lower the payroll tax rate, the cheaper it is to hire workers.

Corporations responded to this leverage to extract concessions, so that some do not have to pay in at all. The result has been a relentless depletion of UI reserves. In the 2008 recession, for example, 32 states had to borrow billions of dollars from the U.S. Department of Labor because they let their UI funds run dry."

It is time to stop this state’s rights nonsense-- not only on unemployment, but also gun laws, voting rights, environmental legislation, mining and logging rights, water management-- and any other areas that allow states to preserve bigotry and cheap labor.

The purpose of unemployment insurance is to save workers from having to accept low-wage, dirty, and grueling jobs just to survive – at least in the short run. The people who run cheap-labor businesses in agriculture, meat-packing, etc. rely on desperate workers who have no other options. If better unemployment benefits force these employers to raise wages, that is a good thing.

Cost of nationalizing the UI system

During the pre-2020 period of low unemployment, the total outlay in all states was about $3 billion per month.

Obviously, the required outlay will be much higher during times of crisis. I think we can assume a maximum outlay of $150 billion in a very bad year.

Therefore, annual revenues of about $120 billion should be sufficient to sustain the program and create reserves.

How to pay for it

• Increase the Social Security payroll tax by 1.50%, to raise $120 billion a year.

- Employers must pay 1.0 per cent, employees pay .50%

• Wealthier employers and employees will generally pay more than today-- because the tax will be imposed on all wages and not the current FUTA cap of $7,000.

• Employers must absolutely pay their 1% for so-called contingent or gig workers. These workers will be included in any federal unemployment program.

Part Three --Improve the Affordable Care Act

A. Kill the Subsidy Cliff

We must guarantee that no one has to pay more than 8% of their income for health insurance - even if their income exceeds the ACA subsidy limit of $51,040.

This could impact 2 to 3 million persons. Right now they are either getting crushed by unsubsidized premiums, or staying uninsured, or buying risky short term coverage.

The annual cost of these greater subsidies should be in the range of $10-$15 billion a year.

B. Kill the Family Glitch

More and more employers no longer pay for full family coverage. They only subsidize the premium of the employee. They charge extra (and often a lot extra) to add a spouse and children.

If the employee’s spouse has a good job of their own, this may be acceptable to all.

However-- if the spouse is a homemaker, or only has part time work, this can be a huge problem. It may cost $1,000 a month or more to add a spouse and children to a corporate plan.

Due to the ‘family glitch” in the ACA, families are not eligible for premium subsidies in the exchange.

A spouse with children and a modest family income should get that ACA subsidy.

Somewhere between three to six million people are impacted by the family glitch.

The cost of new subsidies could be $20 billion a year.

If we really believe in ‘family values’, we can show it by spending actual public money on families.

C.-Extend Medicare’s protections to all, including:

a. Protection from balance billing

In general, providers cannot charge seniors more than 115% of the approved Medicare amount. Surprise bills and chargemaster bills simply do not exist in Medicare. Extend this to all patients!

b. If a Medicare claim is denied–– the patient is not automatically liable for the bill.

If the patient could not have been expected to know that the claim might be denied, then they will not owe for the care. The provider takes the loss.

Today, even veterans can face brutal debts if their claims are denied. We need to enforce limited liability for everyone, not just seniors.

c. Chargemaster bills to emergency patients should already be illegal.

When an actual contract cannot be formed-- as in medical emergencies-- the courts have a long history of constructive intervention. The doctrine of quasi-contract would limit charges to the amounts that are actually and customarily paid to and accetpted by hospitals.

Courts can force hospitals to accept an average market price right now, versus the dishonest and opportunistic chargemaster rates,

d. Predatory pricing for drugs could already be subject to antitrust enforcement

In hesitating to use antitrust against the excessive pricing of drugs, the United States is an international outlier. (What else is new?) Governments outside the United States are already using their antitrust laws to rein in excessive drug pricing.

D. - Health Insurance contracts must be reformed

- Emergency care must be exempt from the deductible. (Co-pays up to $250 are acceptable. Co-insurance for emergency care is not acceptable.)

- Drugs must have their own deductible, versus the overall plan deductible. In other words, drug coverage must start after perhaps $250 in drug expenses, and not wait until the full plan deductible is met.

If a person’s drugs cost $10,000 a month and their co-insurance is 20%, that is not acceptable.

(An appalling 40% of current ACA plans do not have separate drug deductibles. A majority of plans, even in the Medicare arena, do not count high drug expenses toward the maximum out-of-pocket limits.)

- Out of pocket maximums must be related to family incomes. A family maximum of $14,300 is much too high for a $50,000 annual household income. Their maximum should be no more than $5,000.

- Out of network care must count toward out of pocket maximums. The plan deductible must also count against out of pocket maximums.

Cost of these measures:

• Killing the Subsidy Cliff and the Family Cliff - $35 billion

There are a variety of decreased deductions, taxes on offshoring, and higher taxes on incomes over $400,000 that would easily raise $35 billion

• Medicare-style consumer protections

No tax cost – just better enforcement against the health care and insurance industries.

SUMMARY

WHY WE NEED MORE ‘CREEPING SOCIALISM’

Europeans frequently have more days off in August than some Americans have for the entire year.

However, this did not happen because European nations have any innate wisdom or generosity.

It happened because strong unions demanded more benefits, and got them.

Postwar employers were afraid of union wage demands, and frankly afraid of Communists:

• The Dutch government after World War II introduced unemployment insurance and old-age pensions, as a quid pro quo for wage moderation.

• The Swedish government offered compulsory health insurance, an expanded system of disability insurance, and an array of retraining programs--- in return for labor’s acquiescence to wage restraint and non-violence

• The Danish government offered an expanded system of sick pay in 1956.

• The Austrian government extended social insurance concessions to labor,

In America the ‘good union jobs’ of the 1950’s did not come from some magic of the manufacturing process. There never was an actual ‘social contract’ in the 1950’s. There was just a series of hard-fought labor contracts that guaranteed health insurance, paid leave, family wages and pensions. (Before the unions, in fact, manufacturing jobs were extremely dangerous, high-turnover, low wage enterprises.)

In many Western European countries service-sector workers have also become unionized. Somehow their hotels and restaurants remain in business.. It is possible to mandate better scheduling practices, for example. In Germany the requirement is 16 weeks notice for schedule changes, and in Denmark it is 26 weeks. In a number of European nations, firms must provide a guaranteed minimum number of hours to their workers. In Las Vegas, the Culinary unions have enforced fixed schedules.

In Germany, part-timers receive the same salary and benefits as full-time employees. When Wal-Mart imposed its American labor practices in its German stores, public pressure and pro-labor enforcement drove Walmart to leave the country.

(An Amazon warehouse-- with its radical speed-up and second-by-second monitoring of workers-- would probably never even opened in these countries. Every employer in Sweden and Germany must have a safety council run by workers.)

Since the 1970’s, many American workers have been hammered by what Michael Lind callslabor arbitrage.

“You can shut down a unionized factory in the Midwest, leave your older workers with nothing, and open up a new factory employing cheaper, more docile labor in South China or Mexico. The profit of your firm goes up because the wage share of the profit has gone down. The Chinese or Mexican workers are producing cars or i-phones at the same rate as American workers-- they’re just paid less.”

The CEO of a crowdworking company explained his business model:

“Before the internet, it would be really difficult to find someone, sit tham down for ten minutes and get them to work for you, and then fire them after those ten minutes.

But with technology, you can actually find them, pay them the tiny amount of money, and then get rid of them when you don’t need them any more.”

Many employers have come to assume that good business practice means a disposable labor force. (Rather like men who have always wanted temporary sex partners.) More and more areas of American labor have no collective bargaining environment at all.

It seems certain that the number of ‘good jobs’ will continue to diminish. That is why benefits must flow from government, Increasing ‘tax credits’ will not be enough to fix the problems of the low-wage social contract. The day has passed when private employers can be expected (or mandated) to provide benefits. Traditional union organizing of one-workplace-at-a-time might still be heroic, but it is agonizingly slow and uncertain.

When employer benefits go away for so many workers, we must improve social insurance. The federal government must become a substitute for aggressive unions.

Otherwise Jeff Faux will be correct:

“A non-union America will be a low-wage America. Most people will work harder for less. Employer contributions to pensions and health care will be a thing of the past. No longer even remotely threatened with organized resistance, employers will make “on-call” contingent work the norm. People will spend their working lives patching together a marginal income with constantly changing temporary

and part time jobs- with the predictable increase in personal and family stress. Few workers will have vacations and paid sick-days, and even fewer a forty-hour week. Unions, after all, are the people that brought us the weekend.

Employer-employee relations will increasingly resemble what they were before the New Deal. Laws against discrimination and employee protection may remain on the books, but without pressure from unions they will be harder to enforce. The humiliations of working life under raw capitalism will reappear: abusive supervisors, dirty and unsafe workplaces, being ordered about like a child, daily

assaults on one’s dignity, impossible demands, speed-ups, and wage theft by employers.”

Worker’s incomes overall will be increasingly volatile. Workers may spend long stretches receiving unemployment benefits. Some will be laid off at age 60 with no chance whatsoever to start a new career. Can we expect a jobless truck driver to spend two or more years and $50,000 in tuition to get a degree in nursing? Will he instead wind up like the guys standing outside the local hardware store, waiting to be chosen for one day of work?

It is patronizing to tell fast-food workers or home health aides who cannot escape from poverty that the solution to their problems is to get a bachelor’s degree in computer science or invent an app. Their dream is to enjoy a middle class standard of living even if they are not an engineering genius or a brilliant venture capitalist.

The vast majority of people are not equipped for a freelance, transactional model of employment. We must have federal benefits during and after this transition.

CONCLUSION

Our goal is ambitious, but not terribly complicated.

We want to make it possible for a full-time service worker to afford middle-income goods and services.

With this arrangement, most families will not have to spend all of their money-- and even go into debt-- to afford a middle-class standard of living.

Instead, the best option is to lower the cost of social services through universal programs funded by progressive taxation.

 Child Care and Maternity Leave-- Social Security will provide monthly cash for each child

 Unemployment Insurance-- Social Security will pay benefits reliably and automatically

 Health Care-- There will be no surprise hospital bills, or crushing drug costs.

We may need to add housing subsidies, assistance with utility bills, and tuition-free vocational schools. This can be done in the same framework as the Social Wages described in this paper.

Lane Kenworthy outlines a vision of social insurance:

Think of a stereotypical member of the modern ‘precariat,’ working irregular shifts at a coffee shop and driving for an on-demand ride service. In the contemporary United States, such a life can seem hopeless-- grueling, unpredictable, with a danger of real privation. Now imagine the same person in a country where everyone has government-provided health insurance, access to good-quality child care and preschool, paid parental leave, paid sick leave, free or low-cost college, a decent pension, and subsidized rent. With benefits provided by government rather than by employers, people will have a better life even if their income remains modest.