Archive for the ‘welfare unaffordability’ Tag

The High Cost of Free   4 comments

These days, the political landscape is excited by Bernie Sanders’ promise of free stuff to the poor and the middle class at the expense of those wicked “rich” people. Free medical care, free schooling at least through a BA degree, free welfare, a $15 an hour minimum wage, and … well, you get the point. He is the modern day Herbert Hoover, promising a car in every garage and a chicken in every pot … or a tofu roast, perhaps for our vegans.

We were having a conversation with a young relative who is visiting and she was talking about how she is so proud that she doesn’t rely on her parents’ health insurance to pay her medical bills. Instead, she’s covered by Medi-Cal, which is completely free.

Free??? For whom?

Medi-Cal costs California’s taxpayers more than $4 billion a year, which explains why California has the highest state income tax in the nation at $13.5%. Under the ACA, Medi-Cal balooned to cover 12.7 million people, 1 of every 3 Californians. California hailed the new enrollments as a success, because it cut California’s uninsured population in half. Unfortunately, the system is very strained and may well bankrupt the state if there is not substantial increases in taxes on those who are not eligible for Medi-Cal.

California lost nearly 1 million population between 2004 and 2013, according to Reason magazine. Texas gained 600,000 from California while losing about 350,000 to California during that time period. In fact, states in all regions of the country except the northeast and Mid-Atlantic areas received more Californians than they’ve sent to the Golden State.

That represents an income drain of $26 billion annually. California’s population continues to increase through natural births and foreign migrations, but folks don’t stay in California.

As California loses population to other states, it manages to grow its tax revenue. Californians aren’t getting better government service for this money because of the state’s debts and pension obligations, which continue to grow as part of the budget.

There are nearly 10 million Californians living below the poverty line and many more who have seen little growth in wages for nearly two decades. They pay for high-quality education, reliable and safe public transportation, functional courts and colleges, and they desire a tax system that encourages employment and wages growth.

“Those citizens and their hopes are the first casualties of a political system that cuts services and raises taxes, fees and fines to finance ever-greater retirement, health care and corrections costs. When that happens, they receive fewer and shoddier services despite higher tuition, taxes, fees and fines, utilize deteriorating infrastructure, and seek work and wages in a less robust employment environment.” David Crane, Govern for California, Bay Area News Group article.

Tax increases don’t solve the problem. Spending on services continued to decline as revenue surged. There is no clear solution in a country caught up in the “free everything for everybody” parade.

There is a failure to understand the most basic principle of economics — there is no such thing as a free lunch. It is impossible for someone to get something for nothing. It may be free to you, but it costs someone somewhere something for you to eat lunch. The person (or persons) footing the bill incur an opportunity cost — there was something they could have done with those higher taxes that they can no longer do. Maybe they would have used those stolen dollars to start a business that would have created jobs that poor people could have worked at that would have provided them with the money to pay their own health care costs, but because those tax-payers didn’t have the money (because they were working to pay someone else’s medical expenses), the business was never created and the jobs don’t exist.

Eventually, those taxpayers not driven into bankruptcy by the ever-increasing theft of their earned income pick up and move stakes to states that don’t take so much of their income because (surprise, surprise!) those states don’t offer such generous welfare programs.

Eventually, California will run out of other people’s money to spend and the poor will be left without services. That might take a century or it could happen by the end of this decade. California’s contribution to its Department of Transportation is slated to drop 30% over the next two years. I’d say that fiscal crisis is coming sooner rather than later.

There is no such thing as a free lunch … or free health care … or free education. We might hope that weren’t the case, we might be of the opinion that it shouldn’t be the case, but whatever our desires, the fact is that it always costs something for that “free” service to be given to you and sooner or later, those who earn the actual money get tired of living on the edge of poverty so they can support young ladies who want “free” everything. Meanwhile, her parents — whose health insurance she is proudly not using — are expecting their income taxes to go up to unsustainable levels in the near-future.

I’m sure that won’t affect the conviviality of Thanksgiving at all.


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