In a recent post on Illinois’ plan to nearly double its state income tax, Megan McArdle writes:

The state of Illinois is allegedly close to a deal to nearly double its income tax, from 3% to 5.25%….. The income tax increases…. are both workable and necessary. Conservatives will holler, but Illinois is not going to eliminate its entire deficit by cutting spending; the cuts needed too deep, the citizenry dependent on the services. Whether or not you think these programs should exist, they do now, and you can’t simply throw people off who planned their lives around them.

Economist David Henderson responds:

It’s not just conservatives who would holler: libertarians would probably holler even louder. But think about her reasoning. McArdle is saying, in effect, that if a government program has been in force for many years–people “planned their lives around them”–it should be kept….. I saw her on John Stossel’s show the other night making a cogent case for making most drugs legal. She’s probably aware that one of the most effective lobbies for the drug war in California is the prison guard’s union. Although it stayed out of the Proposition 19 battle, it was instrumental in defeating an initiative in 2008 to lighten prison sentences for drugs. Certainly many prison guards, as well as “drug court professionals,” as the article linked to above puts it, have “planned their lives” around this program. Yet that didn’t stop McArdle from advocating a end to the drug war. As well it shouldn’t have. The bigger issue is that with McArdle’s decision rule–keep even bad government programs in place if enough people have depended on them long enough–promotes the government ratchet that Robert Higgs talks about. The net effect is a bigger and bigger government.

This issue is a common challenge facing libertarians or indeed anyone who wants abolish a longstanding government program: what do about the interests of people who depend on that program, sometimes to the point of “planning their lives around it.”

My own view is somewhere in between McArdle’s and Henderson’s, but closer to the latter. It is indeed true that there are people who depend on government programs that should be abolished, and in some cases it would be unjust to simply cut them off immediately. But that doesn’t mean we should simply leave the programs in place forever. There is a wide range of options in between going cold turkey and feeding the addiction indefinitely. For example, we could lower program benefits without eliminating them completely. We can also continue paying current beneficiaries, but gradually eliminate the program for future ones (who generally rely on the program less). Another option might be to give some or all of the beneficiaries a lump sum “severance payment” to cushion them through the transition they face.

There are also some relevant moral distinctions to be made between different classes of program beneficiaries. There is a difference between an ordinary citizen who relies on a program he or she had no hand in creating and a politically sophisticated, powerful interest group that aggressively lobbied for its establishment and perpetuation. That’s the distinction between, say, a low-income old lady who lives off a Social Security check and big agribusiness interests that lobby for massive farm subsidies and then whine about having become dependent on them.

It’s also worth noting that people who rely on government programs, even those who are not politically sophisticated, are aware that such programs are subject to change by future legislation, and that they accept the risk of such change when they decide to participate in the program. That doesn’t mean they have no legitimate reliance interests. But it does diminish the extent to which the rest of us are morally bound to fully compensate them for their losses if the program is cut or abolished.

Finally, reliance interests cut both ways. If some people have “planned their lives” around existing government programs, others have planned their lives around existing tax rates. Doubling state income tax rates imposes considerable harm on the latter. That doesn’t mean that Illinois is morally required to never raise them. But it does mean that any reliance interest rationale for increasing taxes in order to pay for programs must take account of reliance interests on the other side.

Obviously, the above analysis is only relevant in the case of programs that we should eliminate in the absence of reliance interests. If the program is justified on other grounds, then the reliance rationale for it becomes superfluous. But the presence of reliance interests shouldn’t stop us from abolishing or at least cutting back, government programs that should never have been created in the first place.