: Grandfather-Clause Politics Beware the Disappearing Medicare

[Guest guest]

> washingtonpost.com

>

> Grandfather-Clause Politics

>

> By Michael Kinsley

>

> Friday, November 7, 2003; Page A31

>

> The mega-investor Warren Buffett famously lives in Omaha, but he owns two

> houses in Laguna Beach, Calif. Buffett's three houses became a small issue

> in the recent California recall campaign, in a way that needn't detain us.

> What's interesting is that in a letter Buffett wrote to the Wall Street

> Journal, which published it on Monday, Buffett contrasted the tax burdens

> on his two virtually adjacent California houses. One house is worth about

> $2 million, and the property tax bill on it runs about $12,000 a year. The

> other California house is worth $4 million, but annual property taxes are

> only $2,700. Double the house, one-fifth the tax burden -- and both in the

> same state. Buffett's point was: Crazy, no? Answer: Yes, crazy indeed.

>

> The craziness comes from Proposition 13, the storied anti-tax initiative

of

> 1978. In many ways Proposition 13 created the political world we live in.

> It was the first big and successful conservative use of " initiative and

> recall " -- the provisions in many state constitutions, especially in the

> West, allowing citizens to enact laws by popular vote and to vote out

> incumbents without waiting for their official terms to expire.

>

> The specific craziness of Prop. 13 was that it didn't just roll back

> property tax assessments. It ordained that major increases in property tax

> assessments could occur only when a home changed hands. For a

> quarter-century now, California real estate prices have continued to soar.

> As Buffett points out, the result is wild disparities in tax burdens. The

> biggest factor in setting your California property tax bill is not the

> value of your house, or your general financial condition, or the tax rate

> set by your local community. It is how long you have owned your property.

>

> This creates perverse effects similar to those of rent control. People

stay

> in big houses they no longer need because moving to a smaller place would

> mean a huge property tax hit. With these houses off the market, people who

> do need a bigger place have fewer to choose from and must pay more to get

> one. But the real perversity is one of fairness. What possessed the people

> of California to vote for a system in which two identical houses,

> side-by-side, carry radically different tax burdens?

>

> The answer to that is grandfather-clause politics. A " grandfather clause "

> is a provision in a legal document that says, roughly: Whatever

> unpleasantness this document involves does not apply to anyone who is

> already doing whatever-it-is the document is about. If you're in the hot

> tub, you can stay there. But if you're not, you can't jump in. The term

> originated in post-Civil War laws imposing a poll tax, but exempting

anyone

> whose grandfather had been eligible to vote (nudge, nudge). California's

> Prop. 13 was a sort of rolling grandfather clause. Anyone who owned a

house

> at the time it passed was exempt from big tax increases -- until that

> person bought a new house, when he or she became " grandfathered " once

again

> at a new level.

>

> A more straightforward, almost literal, example of grandfather-clause

> politics is President Bush's Medicare reform proposal. (And the various

> Democratic proposals generally do the same thing.) As Bush describes it,

> the process of saving Medicare from financial ruin will primarily involve

> adding new services and offering delightful new options for the nation's

> wonderful senior citizens. But just in case seniors don't find these

> options quite so wonderful, Bush promises that all current and imminent

> retirees will be allowed to opt out of nirvana and retain their present

> arrangements. Unsaid but implied: Future retirees will not have this

> choice. These folks (possibly including you) will be stuck with the new

> options, which are not going to solve the Medicare problem or are not

going

> to be as pleasant as Bush portrays them.

>

> Bush's most recent round of tax cuts includes a gimmick that isn't exactly

> a grandfather clause but has the same political use and effect. Some of

the

> cuts are scheduled to expire after nine years. This helps the 10-year

> budget outlook appear less catastrophic, although nobody believes it will

> really happen. Politically, that doesn't matter. People can enjoy their

tax

> cut and worry about what happens nine years from now in eight years and 10

> or 11 months.

>

> The appeal of grandfather-clause politics to politicians is obvious. The

> people enjoying some benefit now are going to be more attached to it than

> those who may get it in the future. People are more attached to advantages

> they enjoy now than to advantages they will be due in the future.

> Grandfather-clause politics is a way to buy off the noisiest elements of

> opposition among voters, or even within individual voters.

>

> The good thing about grandfather-clause politics is that it greases the

> wheels of change. Medicare reform may be impossible without buying off

> seniors. Grandfather-clause politics takes a great character flaw of

> democracy -- its short time horizons, its overvaluing of today and

> undervaluing of tomorrow -- and performs a bit of jujitsu, using that flaw

> against itself. But grandfather-clause politics is undemocratic and

usually

> unfair. Why should side-by-side neighbors pay wildly different property

> taxes? Why should general tax revenue from today's workers be used to

> exempt current Medicare beneficiaries from reforms that today's workers

> will have to endure?

>

> Crazy, no?

>

> <mkinsleymkinsley

> http://www.washingtonpost.com/wp-dyn/articles/A10316-2003Nov6.html

>