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On Free Coffee And Entitlement Spending

Posted By Conn Carroll On February 8, 2008 @ 2:19 pm In Economics | Comments Disabled

Rep. Scott Garrett (R-NJ) introduced a CPAC panel titled “Reforming Entitlements Without Raising Taxes” with the following anecdote (this is a very rough transcript):

When I arrived here this morning I was impressed to see that the hotel had set up tables to provide free coffee and pastries to conference attendees. I loaded up with fruit, a muffin, and coffee, but of course when I got to the end of the table I discovered that the items were not only not free, but that the hotel was selling them at extremely high prices. I immediately returned the items. This is exactly why we face such a crisis in Medicare spending: when consumers think something is free they consume more of it. If that coffee had been free I know I would be seeing a lot more of you in the audience holding cups of coffee right now.

Receiving a rousing reply of nodding heads, Garrett went on to introduce panelists Alison Fraser of The Heritage Foundation, Peter Ferrara of Institute for Policy Innovation, and Jim Martin of 60 Plus Association.

Ferrara was by far the feistiest of the bunch, warning strongly against any compromise with liberals on the issue. He started off with some good and bad news: good news – since 1950 federal spending has stabilized at around 20% of GDP; bad news – if we don’t change our policies on Social Security, Medicare, and Medicaid that will soar to 40% in 40 years. Throw in local spending government spending would be more than 50% of GDP. Ferrara warned that any bipartisan committee on entitlement reform would produce a raise in taxes and pushed the line: “There is no substitute for victory.”

The Heritage Foundation’s Alison Fraser was more circumspect, highlighting some opportunities for action. In the short term Fraser advocated changing the entitlement mentality, pointing out that Bill Gates gets the same benefits as a retiree living off her savings. She said Congress should work to imit benefits for wealthy individuals. Long term Fraser would like to see a defined contribution plan that capped tax payer contributions.


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