Chapter 10:  Managed Poverty

 
 

In the general course of human nature a power over a man's subsistence amounts to a power over his will. Alexander Hamilton in The Federalist Papers.

 

        In this chapter I will examine the actual results of several liberal policies as contrasted with their ostensible objectives. It is quite possible that you, the reader, will agree with the objectives that were used to justify the implementation of these policies since they are usually presented as ways to help some people who obviously need help or to make the rich pay their fair share of the cost of government or in some cases to promote the general welfare of the nation. Once they are implemented we seem to have a tendency to ignore the actual results of them.
        I have already dealt with the Federal Reserve System at some length but it must be considered here as an example of a liberal policy that failed. The Fed was established to eliminate bank panics and establish a stable monetary policy. After the Fed took control of our money the nation experienced a sharp recession in the 1920s, a depression of unprecedented magnitude and duration in the 1930s, a horrendous level of inflation in the 1970s, and inflation over the last 50 years that has totalled over 1,000%. In short the Fed would have to be considered a failure even if its record had been far better than it actually was. It is true that bank panics have been virtually eliminated since the mid-1930s but the credit for this accomplishment belongs not to the Fed but to the Federal Deposit Insurance Corporation. Since the establishment of the FDIC, bank deposits, up to a specified limit, have been guaranteed by the federal government and bank panics have been eliminated. Many banks, some of them very large, have failed but depositors have usually lost nothing because the FDIC has usually made good even the losses that exceed the amount the agency is obligated to pay. This has been good for bank depositors, very good for bankers, and not very good for taxpayers. The Federal Savings and Loan Insurance Corporation guarantees deposits in savings and loan institutions in the same way the FDIC guarantees deposits in banks. In the recent S&L crisis the federal government spent over $200 billion to avoid depositor losses caused in large part by illegal or grossly negligent behavior on the part of those who controlled individual S&Ls.
        Another liberal policy that was implemented by Congress early in this century was the graduated personal income tax. This tax was imposed only after the Constitution was amended to permit it because it was held to be unconstitutional before the adoption of the 16th amendment. Initially the effect of this tax on middle and lower income Americans was so slight as to be almost negligible. It has since been revised and changed many times. At the present time the tax code includes an earned income credit provision under which individuals who have earned income below a specific amount receive a payment from the government rather than paying any tax. When their income rises to certain level they are required to pay taxes. The spread between the income at which they receive a payment and the income at which they begin to pay it is very slight because the  income tax is assessed on Americans with very low incomes.
        For many years the tax code included loopholes that permitted Americans with very large incomes to pay little or no income tax and some of these loopholes still exist. Even with no loopholes at all it is quite possible that the tax remitted by individuals to the IRS is actually paid by the nation's consumers. There is a wide income differential between individuals who make their living in different ways. In most cases these differentials are dictated by the law of supply and demand. In other words employers pay their employees only as much as they must to attract the workers they need. If these differentials are based primarily on pre-tax earnings then the people who remit the tax to the IRS are actually paying that tax. If the differentials are essentially based on after-tax earnings then the amount of the tax is essentially added to the cost of doing business. The logical way to determine which way these differentials are determined would be to compare the differentials existing before the establishment of the graduated income tax and those that exist at the present time. The results of such a comparison, however, would be fatally flawed by the fact that technological advances in the interim have created many new jobs that did not exist before the advent of the income tax and the very existence of these jobs has skewed the relationship of the income differentials of jobs that existed then and still exist.
        There is a hypothesis that may indicate whether income differentials are determined on the basis of after-tax or pre-tax earnings and it is a hypothesis that could become reality. Assume that Congress decides to eliminate the income tax and replace it with a sales tax. A sales tax is a tax that is assessed on specified purchases by the ultimate consumer. It is not the same as a value added tax. The latter is imposed on products at various stages between the purchase of the raw materials and the sale of the finished product. This is a hidden tax, the consumer never knows what part of the purchase price of any item represents tax. With a sales tax the consumer knows exactly how much tax he pays.
        If the income tax were replaced by a sales tax the effects on different individuals would vary greatly. In this case any part of current income that is saved will incur no tax liability. The rate of the sales tax would be determined with a view to raising approximately the same amount of revenue raised by the income tax. If all goods and services are subject to the sales tax then an individual who earns $40,000 a year and spends $40,000 a year will pay the same amount of tax as an individual who earns $80,000 a year and spends $40,000. Since the latter was paying to the IRS much more money than was the former the latter will find his income substantially increased. This is an extreme case since people with higher incomes will almost always spend more on consumer items than people with low incomes. People with higher incomes, however, will usually save more of their income than people with lower incomes so the basic principle illustrated in the example above will apply in all cases where the sales tax paid by an individual who spends all of his income is compared to that paid by one who saves part of his earnings.
         Thus it is obvious that when a sales tax is substituted for an income tax there will be a few people who will pay roughly the same amount in both cases. Most taxpayers, however, will find that they will pay either more or less after this change is made than they did before. Virtually all of those who will pay less will be those with relatively high incomes and virtually all of those who pay more will be those with relatively low incomes. Those whose tax will increase the most will be those who earn relatively low incomes and, under the income tax law, were allowed to claim several dependents. If food items are exempt from the sales tax, these people, and lower income people in general, will derive a greater benefit from this exemption than those with higher incomes will. This, of course, is due to the fact that people with lower incomes spend a higher percentage of their incomes on food.
         Up to this point it appears that substituting a sales tax for the graduated income tax would result in lower income Americans paying more in taxes while those with higher incomes will pay less but this is not the end of the changes that this substitution would make. The upper income Americans will not significantly increase their purchases of consumer items because in most cases they were already buying nearly everything they wanted. On the whole these people will simply save the extra money they will have. Since lower income Americans will pay more in taxes they will not be able to purchase as much in consumer items as they previously did. Because these people comprise the bulk of the population reducing their consumer spending will have a great and nearly immediate effect on the entire economy. The change in the tax situation thus sets up an imbalance that the economy itself will attempt to correct. This change has resulted, in effect, in an increase in income for wealthier Americans and a decrease in income for lower Americans. Theoretically the economy could respond by increasing the income of lower income Americans or decreasing the income of upper income individuals. Because the economy will be either contracting or expanding at a slower rate than it previously was it is inconceivable that the economy will attempt to increase the incomes of lower income Americans. Because upper income Americans have, in essence, experienced a substantial increase in their incomes the economy will automatically attempt to reduce their earnings. A detailed explanation of how the economy will attempt to do this would be too lengthy to include here but it would be manifested in a reduction in the demand for certain goods and services. This imbalance has resulted from the fact that the money remitted to the IRS by affluent Americans was actually paid by consumers. When the income tax is eliminated the overall level of prices still includes the tax component which now goes to those who no longer have to pass it on to the IRS. The economy will eventually reduce the incomes of most affluent Americans to the approximate level of the income differentials that would have existed had there been no income tax.
        This will take some time and in the interim the economy will be greatly affected. If Congress, in the near future, does eliminate the income tax in favor of a sales tax, the Fed will probably move to increase the money supply in an attempt to exert an expansionary pressure on the economy. Inflation resulting from an increase in the money supply will accelerate the change in income differentials because it will be easier for employers to withhold pay raises to employees who profited from the elimination of the income tax than it would be to actually decrease their salaries. In any case, regardless of how long the process takes, the economy will eventually establish approximately the level of income differentials that would have existed had there been no income tax, at least in those areas of the economy where a free market exists.
        If Congress substitutes a sales tax for an income tax and the scenario described above is played out it will prove that, under the present circumstances, the money remitted to the IRS as income tax is actually paid by consumers. Now what would be the result of this change if the differential in incomes that presently exists is actually based on pre-tax incomes? In this case the economy would be permanently dampened and affluent Americans would enjoy a large, permanent increase in their earnings while lower income Americans would experience a substantial, permanent loss of income. This could only happen if the economy itself, meaning the decisions of all consumers and producers, did not exert the pressures described above. To me this situation is absolutely inconceivable.
         If the income differentials that presently exist are largely based on after-tax earnings it means that lower income Americans are paying more tax than what they actually pay to the IRS and Americans who earn their own living but pay no income tax to the IRS are actually paying a part of the tax of others. In this situation the level of prices and wages reflects the fact that the cost of most of the graduated income tax has been passed on to the consumer. When a sales tax is substituted for an income tax this structure would not immediately change and until it does change consumers would continue to pay in the price of consumer items that component of the price that represents income tax and in addition they would also pay the sales tax. The component of the price of consumer items that was formerly remitted to the IRS will represent an increase in income to affluent Americans.
        This may sound like an argument against replacing the graduated income tax with a sales tax but in actuality it is not. As long as we have a graduated income tax people with lower incomes will actually be paying more tax than they think they are paying and will not object to high tax rates because they think someone else is paying those taxes. In addition to that, the graduated income tax requires the large bureaucracy of the IRS to collect the income tax and the IRS is very prone to violating the rights of taxpayers. A sales tax could be administered and collected by a much smaller agency and one that would seldom have occasion to violate the rights of American citizens. Initially the change would benefit the affluent and penalize the poorer classes but the economy itself would correct that situation by means of the decisions of employers and consumers. When all consumers know how much they pay in taxes they will support tax cuts and will oppose extravagant government spending. In the present situation lower income Americans, who constitute the bulk of the population, tend to favor government spending because they believe that it is paid for by someone else and sometimes feel that it benefits them.
        The social security system is another popular liberal policy that is not understood by most Americans. The original premise of this system was that workers who were presently employed would pay a small tax that would be used solely to provide a small pension for Americans who had reached retirement age and retired. When the system began in 1937 the rate of the payroll tax was 2% and it was collected only on the first $3,000 of annual income. 1% of this tax was paid by the employer and 1% was withheld from the employee's salary and remitted to the government. The employer's contribution to the system was a cost of doing business and as such it was passed on to consumers. This half of the tax is thus paid by consumers.  The retirement age of 65 was set with reference to the life expectancy of Americans at that time.
        The money was deposited in a social security trust fund which could be used only for the payment of benefits and expenses associated with the payment of benefits. The original tax rate and the income cap remained unchanged until 1950. At the end of 1949 the fund had a balance of just over $11.8 billion and total expenditures for that year were slightly less than $1.1 billion. In 1950 the tax rate was increased by 50% to a total of 3% including both the employer's contribution and the employee's contribution. In almost every year since 1950 either the tax rate or the income cap, or both have been raised. Total expenditures from the fund have also increased constantly. These increases have resulted from the addition of a disability insurance, expansion of benefits to people not previously covered, increases in the level of benefits necessitated by inflation, and an increase in the number of beneficiaries that resulted from an increase in life expectancy.
        The system was never intended to collect money from workers and invest that money to create a retirement fund as is done by private pension plans. It was, from the first, intended that the system would collect money from people currently employed and promptly pay it out to beneficiaries. Nevertheless it was necessary to maintain a balance in the fund to guarantee payments in the event of an economic slowdown that might reduce the system's income. This surplus is promptly invested in government securities. When this annual surplus was large it caused the interest rates on government bonds to be lower than it would otherwise have been. If the government had not had access to the surplus in the trust funds it would have had to sell more securities on the open market and that would have driven the interest rates on those securities upward. When the government had automatic access to the surplus of the trust funds it sold less securities on the open market and sold them at a lower interest rate than would otherwise have been possible. The government then paid this lower interest rate on the money borrowed from the trust funds. The government thus paid a lower interest rate on all of its bonds and the surplus in the trust funds earned less than it otherwise would have.
        During the Johnson administration the government changed its accounting methods so that the social security trust fund was included in the general budget. The money in the fund was still dedicated to the payment of social security expenditures and could not be used for any other purposes. In a manner of speaking the money in the fund was used for other purposes of the government since the government borrowed the money and spent it. In actuality the securities in which the trust fund money was invested constitutes a part of the national debt and must be repaid but it was included in the budget as revenue. By this accounting method the federal deficit in any given year was reduced by the amount of the surplus that accrued in the social security trust funds in that year. By any rational accounting method it would have been added to the deficit because it was money borrowed by the government. In similar fashion the amount of the national debt should have been increased by the amount of the social security surplus but it was not. If a corporate accountant kept books this way he would probably end up in prison. When presidents and legislators do it they get reelected. In 1990 Congress prohibited this practice but it is still being done. This is why we are being told that we have in 1998 a balanced budget and it is also the reason we are being told that federal government income is projected to exceed expenses by about $1.5 trillion over the next ten years. All but $169 billion of that projected surplus represents a surplus in the social security trust fund.
        That $169 billion is the only real surplus that is being projected but the politicians are debating how we should spend a $1.5 trillion surplus that will never materialize. It is the height of absurdity for Bill Clinton and others, including both Republicans and Democrats, to argue that some of this $1.5 trillion surplus should be used to safeguard the social security system. Almost all of it is already dedicated to social security payments and, unless the law is changed, cannot legally be diverted to any other purpose!
        Before doing anything about the problem of social security it is logical to consider what the status of the program is at the present time and the projections for its future. At the present time the rate of the tax is 6.2% for employees and 6.2% for employers. The maximum income on which this tax is collected was $68,400 in 1998. In addition employers and employees each pay 1.4% to the hospital insurance fund which funds the medicare program. This tax is applied to all income with no upper limit. In comparison to social security, the medicare program is an exceedingly complex matter that is far beyond the scope of this small book.
        At the end of 1997 the old age and disability insurance funds combined contained a surplus of $655.5 billion. Most of this surplus was invested in special issue government securities bearing interest at varying rates depending on the date of issue. These securities cannot be sold to the public, either by the Treasury Department or by the trustees of the social security trust funds. The interest on these bonds is paid in the form of additional special issue government securities.
        At the present time a portion of a recipient's social security benefits may be subject to income tax, depending on the total amount of the recipient's income. The maximum amount of benefits subject to income is 85% of the recipient's benefit amount. This money does not go into the general fund but is returned to the social security trust fund. The net effect of this tax is that social security recipients with high total incomes receive somewhat less in benefits from the trust fund. This is, of course, an income redistribution scheme but it is one that actually accomplishes the objective for which it was ostensibly established.
        Every year the trustees of the funds issue three projections of probable income and expenditure figures for the next 75 years. One is called the high cost projection and it is the most pessimistic of the three. One is called the low cost prediction and it is the most optimistic of the three. The third is called the intermediate projection and it is roughly halfway between the other two.
        Under the intermediate projection the fund's income from payroll taxes is expected to exceed its expenditures until the year 2013. Expenditures are projected to increase faster than income from payroll taxes after 2013 because the "baby boom" generation will begin retiring in large numbers thus increasing the number of recipients. Total annual income of the fund is expected to exceed annual expenditures until the year 2021 due to interest collected on the fund's surplus. Beginning in 2021 it is projected that the fund will draw on its surplus funds to meet its obligations and the fund is expected to be exhausted by the end of 2032.
 The low cost projection predicts that expenditures will exceed income from payroll taxes by 2018 but the fund will not be completely exhausted within 75 years. The high cost projection predicts that expenditures will exceed income from payroll taxes by 2006 and the fund will be exhausted by 2022. I have no way of knowing how accurate these predictions are. Based on the overall history of government predictions it would seem that they might not be very reliable. Government predictions in economic matters usually seem to err in the direction preferred by politicians. If that is the case here it would seem that the projections might be unduly pessimistic because Congress seems to prefer to have the funds run a large surplus.
        With the exception of three or four years the fund's surplus has increased every year since the program began sixty years ago. As previously pointed out our politicians have found a large surplus very useful in that it has permitted them to hide a part of their deficit spending. If a large surplus can be maintained, and especially if the surplus continues to grow, part of the payroll tax is actually converted to a regressive income tax. Congress borrows the money and spends it. If the borrowed money is never repaid and the surplus continues to grow the amount of the surplus has been collected from lower income Americans and used as general revenue. The government will continue to pay interest on the borrowed money but the interest will be in the form of government bonds. Since the government includes the surplus in its general revenue for bookkeeping purposes the increase in the national debt will show up as a decrease in the deficit. Therefore Congress will find it desirable to increase the payroll tax to increase the surplus in the funds. If the borrowed money is never repaid the surplus is converted to a form of regressive income tax, even though it is still, theoretically, owed to the people who paid the payroll taxes.
        The logical approach to this problem would be to advance the age of retirement. Actually this has already been done. The retirement age will increase gradually in future years to age 67. If the retirement age were increased to the point where it would bear the same relation to life expectancy that it did in 1937 this in itself would probably insure that the program would be well funded for many decades with no increase in payroll taxes. This would be just as fair to recipients as the program was in 1937 but it would admittedly be unfair to new retirees compared to those who have retired in the last thirty years or so. This approach would undoubtedly be politically unpopular among older Americans though it might be popular with younger Americans. It is far more likely that Congress will simply increase the rate of payroll taxes and possibly increase the cap on taxable income. The income cap is already indexed to the inflation rate but Congress could increase it and then index the increased cap to the inflation rate. This is what Congress has always done in the past and they will probably do it again.
        In the early days of the social security program there were about 37 workers paying the payroll tax for each person who received benefits. In 1997 there were 3.4 workers for every recipient. Less than 80% of the payroll taxes they paid was paid out in benefits. More than 20% percent of them were added to the surplus. The intermediate projection predicts that by 2072 there will be 1.8 workers for each retiree.
        There is some reason to doubt the accuracy of all three of these projections. They are based on the assumption that, even as the number of retirees increases rapidly with the retirement of the baby boom generation, the number of workers will decrease because the birth rate decreased substantially following the baby boom years. In actuality it is highly improbable that the number of workers employed would decrease significantly due to the lower birth rate that followed the baby boom years. The reason is that our economy would have to replace the large number of retirees and Congress would probably increase our limits on legal immigration to provide the needed workers. It appears to me that what actually transpires in the future will lie somewhere between the intermediate projection and the low cost, optimistic projection.
        The fact of the matter is that there is no urgent social security crisis! By the most probable estimate there will be a shortfall in about 35 years. By the most pessimistic estimate there will be a shortfall in about 15 years. The payroll taxes paid by workers over the past 30 years have resulted in a fairly large surplus in the trust funds at the present time and, without any changes, are expected to result in a very large surplus 20 years in the future. Politicians are telling us that they must take action now and the reason they are telling us that is because they want to maintain as large a surplus as possible for as long as possible.
        The best action that Congress could take right now would be to eliminate payroll taxes on the first $10,000 of earned income. This would create sound economic expansion which would result in more jobs and higher real incomes. Both of these factors would tend to increase the revenue from payroll taxes. This increase in revenue probably would not completely offset the loss from exempting the first $10,000 of earned income but it would offset much of it. The surplus would then grow more slowly and this would not be a bad development because it would leave a slightly smaller surplus to be used by politicians to mislead the American people about the size of the budget surplus or deficit and the amount of the national debt. If this were done the payroll tax might well have to be increased at a future time but it should only be increased by the amount that is needed and at the time it is needed. When that time arrives it should be increased only to the amount necessary to maintain a surplus equal to six months of expenditures and the legislation should provide for an automatic increase in payroll taxes whenever the projected revenue for a given year is expected to be less than sufficient to maintain such a surplus. This legislation should also provide for a cut in payroll taxes whenever the revenue is expected to substantially exceed the amount necessary to maintain such a surplus. If this were done the social security system would function in the way its founders expected it to function.
        l have dealt with the social security matter at some length but the next liberal program that I will consider can be disposed of quickly. This is the corporate income tax. This is a favorite of liberal politicians who portray it as a policy intended to make the rich corporations pay their fair share of government expenses. In acuality the amount of this tax is treated as a cost of doing business and as such is passed on to the consumer. Thus this tax which is portrayed as gouging the rich is actually paid by the consumer. The people who control our large corporations do not complain about this tax because they like it. They like it because, as previously explained, it makes it easier for them to expand the size and power of their corporations.
        Another liberal policy is the assortment of government subsidies lumped together under the heading of the farm program. These subsidies were ostensibly intended to make it possible for small farmers to continue to make a living on the land in the 1930s. The benefits, however, were never limited to small farmers and instead of benefitting small farmers they have made corporate farming profitable when it otherwise would not be profitable. In 1970 it was revealed during a debate in the House of Representatives on the farm program that Courtaulds, a corporation of which the English royal family owned a major share, collected $120,000 the previous year for not planting cotton on a 38,000 acre plantation it owned in Mississippi. The House then cut the maximum amount of subsidies that would be paid to one farm from $55,000 to $20,000. The Senate restored the maximum to $55,000 but added a provision requiring recipients of the subsidies to reveal any foreign ownership. What began as a liberal program ostensibly intended to permit American farmers to remain on the land ended up contributing to the profits of foreign entities that had displaced American farmers. These farm programs have not been successful in keeping farmers on the land but they have made it possible for corporations and other large farmers to receive a lot of money from our taxes.
        Still another liberal policy that has not lived up to its promises is the policy that created subsidized housing programs. We have spent a huge amount of money on these programs, provided housing for a few poor people and created windfall profits for those in the private sector who took advantage of the various benefits offered to those who provide this type of housing. The "Low Income Housing Tax Credit" program of 1986 is an example of these policies. It provides a tax credit of $1.00 for each $.60 to $.70 investors invest in a low cost housing project. The money these investors contribute is used as "seed money", in other words they provide enough money to make it possible to borrow the rest. In exchange for this credit they agree to rent some or all of these units to people making 60% or less of the median income in the locality. They must rent these units at an "affordable" rent as decided by HUD. The developers usually build in localities where the "affordable" rent is approximately the market rate. Thus the low income families pay about the going rent and the investors receive a fine tax break. The same type of results have been achieved in the past with other housing programs that were set up differently.
        Our public welfare programs have been much in the news in the last few years. The Republican party claims that they have "reformed" the welfare system. Their reform basically consisted of limiting welfare payments to the beneficiary for a period of two years. Shortly after these new regulations took effect the results seemed to be quite positive as several states reported significant decreases in the number of people receiving welfare payments. The reform legislation, in the form in which it was finally adopted, did not, as far as I have been able to determine, mandate any decrease in the size of the federal bureaucracy. The estimates that I have heard of the amount of each federal welfare dollar that is used to pay the cost of administering the programs are between 70% and 80%. This means that the cost of welfare will not be significantly reduced even by draconian cuts in payments to beneficiaries if the administrative costs are not reduced by an amount far in excess of the amount that would be proportional to the cuts in benefits.
        One prominent liberal contended that welfare benefits to the poor should not be reduced until we have first eliminated government subsidies to the affluent part of our population. It might seem strange that this proposal was not enthusiastically supported by other liberals if one accepts at face value the claim of liberals that one of their primary concerns is to achieve just treatment for the poor. If, as I have explained, the liberal movement is controlled and directed by the planners it is not strange at all.
        Even though I believe that welfare programs should be reduced only after we have eliminated all distributions of tax dollars to the affluent part of our society this does not mean that I believe we should continue spending for welfare at the current rate. The administration of our welfare programs could be done by the private sector much more economically than it is done by the federal government. The administration of these programs could be delegated to existing charities through branches of those charities created solely for this purpose or it could be administered by the private sector by means of contracts with individuals. In either case the results would be about the same.
        What would the results be? Let us assume that the present requirements remain unchanged or revert to what they were prior to the recent welfare reform. Since the payments to beneficiaries would be unchanged they would represent somewhat less than 30% of our present expenditures. For purposes of calculation I will assume that the benefits paid would be 28% of our present expenditures. There is a considerable amount of fraud involved in the operation of our present welfare system. There is no logical reason to expect that such fraud would increase if the system is administered by the private sector but since we all know what larceny lurks in the hearts of those who operate the Salvation Army and similar organizations I will make the gratuitous assumption that fraud will increase. I will therefore assume that the amount paid in benefits will increase by 10% due to an increase in fraudulent claims. When this amount is added to original 28% the total of benefits actually paid increases to 30.8% of the amount we presently pay. The charities or businesses who administer the program would be paid a percentage of the benefits received by the recipients. I believe this would be a profitable business if those who administer the program receive 10% of the benefit amount, or even less, but rather than err on the optimistic side I will stipulate a figure of 15%. When we add this to the cost of the benefits the total is now 35.42% of the present cost. Some supervision by the federal government would still be necessary to insure that the program is correctly administered. The reasonable cost of this supervision would probably be less than 5% of the benefits paid but since this will be an operation of the federal government I will triple that figure and make it 15%. The total is now 40.55% of the present cost. I believe that I have overestimated the cost of administering welfare payments in this way but just to be on the safe side I will increase the amount by 20%. The cost is now 48.66% of what we are presently spending and in all probability it would in actuality be considerably less and welfare recipients would receive the same benefits they presently receive. In short we would cut the cost of welfare by more than 50% with no decrease in benefits at all. By contrast the welfare "reform" program cut benefits significantly but, I suspect, reduced the total cost of the program by a very insignificant amount.
         The cost of the program could be further decreased by a significant amount if those parts of the current system that are demonstrably of little value were simply eliminated. These would probably consist mostly of vocational education programs that train people for trades that the trainees do not pursue.
        There are other liberal economic policies that merit consideration but I will have to limit myself here to one final example. The Employment Retirement Income Security Act of 1974 contributed greatly to the problems with health care that presently plague the nation by limiting the cost to large corporations of providing health care to their employees and at the same time increasing the cost of health insurance purchased by individuals and small businesses. A full explanation of this matter is beyond the scope of this book but there is another provision of the same act that can be explained quite briefly.
         ERISA made the federal government responsible for the payments to retirees of all private pension plans whenever those plans lack the money to make these payments. This means that the government  is obligated to collect money from taxpayers who are not covered by private pension plans and pay it to those who are in the event that any of these plans are unable to meet their obligations. The employers' contributions to these plans are a part of the compensation paid to their employees. The employee is promised a specific monthly pension the amount of which depends on years worked and average salary. Every year the employer is required to make a contribution to the plan that will, prudently invested, be sufficient to pay the pensions of all elegible employees when they reach retirement age. The amount of the contribution necessary to do this will depend primarily on the return on the plan's investments in the past and the return expected in the future. The plan can be left with insufficient funds to meet its obligations as a result of the failure of the employer to make all of the necessary contribution or if the employer goes out of business. In either case it should be a matter that involves only the employer and the employee; there is no logical reason why the rest of the population should be forced to pay what the employer promised but was unable or unwilling to pay.
        The amount of money involved in these plans is huge. About four or five years ago the General Motors plans were underfunded by $20 billion. The cost to the taxpayers of making good on this guarantee could well dwarf the cost of the S&L bailout. The solution to this problem is utterly simple. Congress should simply repudiate all government responsibility under these plans for employees hired after the date of the legislation that repudiates the government's responsibility for them. Employees hired after that date would have to be covered under separate plans established by the employers for them and these plans would not be guaranteed by the government. Employers should not be permitted to make any contributions to these new plans unless their plans covered by ERISA are fully funded. The federal government would still be responsible for notifying employees covered under the new plans of the status of their plans annually. To pay the cost of providing this information the government would impose a small charge on each plan for each covered employee. Even liberals should favor making this change since the present situation may very well result in money being collected from relatively poor people and given to those who are more affluent.