Entitlement Reform Will Not Rescue the Economy – Don't Listen to the GOP

The need to stop entitlement abuse was a core theme of the Romney-Ryan campaign, which claimed that 47% of Americans were takers receiving free government benefits that promoted laziness and created a dependent class who would rather collect benefits than work. Is the abuse of entitlements sucking the life out of the federal treasury? The evidence doesn’t support such a charge.

First, let’s define our terms. Wikipedia defines an entitlement as a guarantee of access to benefits based on established rights or by legislation. Using that definition alone, we could count almost all entitlements as comprising Social Security (including retirement and disability benefits), Medicare, and other safety net spending mostly including Medicaid. These are not gifts, but rather hard earned shares of our economy.

(If somebody truly wants to debate entitlements we should also look at the unconscionably great difference between the 1% and the 99% in this country. Private sector workers – and perhaps in the next wave, public sector workers – have seen their wages stagnate and pensions and retirement options shrink to the vanishing point, while highly paid CEOs rake in fortunes and have not a care in the world about what retirement will hold in store for them. That’s worth a whole other post here sometime soon.)

In 2011, Social Security payments totaled $720 billion or 20% of the $3.64 trillion federal budget. Medicare added $491 billion (13%); Medicaid added $297 billion (8%). Other safety net programs (unemployment benefits and such) added another $360 billion (10%).

But a new Center for Budget and Policy Priorities analysis of budget and U.S. census data shows that more than 90 percent of the benefit dollars that entitlement and other mandatory programs spend go to assist people who are elderly, seriously disabled, or members of working households — not to able-bodied, working-age Americans who choose not to work. Moreover, Social Security and Medicare are not government giveaways. Most Americans pay a monthly share into Social Security and Medicare which their employer matches.

Moreover, says the CBPP, the vast bulk of that remaining 9% goes for medical care, unemployment insurance benefits, survivor benefits for the children and spouses of deceased workers, and benefits for retirees between ages 62 and 64. Seven out of the nine percentage points go for one of these four purposes.

There are certainly issues of fraud and mismanagement that need to be addressed. In 2009, 89,000 of the $250 stimulus checks mailed out to Social Security recipients went to dead people – waste totaling $23 million – according to About.com. In 2006 - 2007, some 1,800 other dead Americans got a total of $200,000 in pain meds from the government. Some 4,000 low income deceased Americans got housing assistance totaling $15 million in 2008. There is other abuse, some much bigger. For instance, some 173,000 dead farmers got $1.1 billion in subsidies from 1999 - 2005 (about $6,300 per deceased farmer). The Portland Oregonian newspaper reported in 2008 that as much as $11 billion in fraudulent Social Security disability benefits have been paid out.

All these are shameful abuses that shouldn’t have happened; outright fraud, bad accounting or lax oversight shouldn’t be tolerated. A little extra money put into enforcement and tightened accounting should pay big dividends here. The Oregonian, for instance, reports that Social Security’s reviews of disability claims have a phenomenal rate of return, in 2007 saving $11.74 for every $1 spent.

Still these waste and abuse numbers are tiny compared to the federal budget, which in 2011 was $3.64 trillion.

Finally, it is worth noting that in 1940, not long after Social Security was established in the 1930s, a man reaching retirement age of 65 could expect to live another 12.7 years, a woman, another 14.7 years. By 2007, men and women in the US could expect to live five years longer. So the issue of whether or not to increase the age of full Social Security retirement or making other adjustments to the formula is worth discussing.

At the present rate of growth of the population over 65, the Social Security trust fund will have enough money to continue making full payments for about another 20 years. After that, savings will be exhausted and the system will have only current income to pay benefits, which will likely cause benefits to be reduced to 75% of their full level. Well before then, we should begin looking at how to rejigger the structure and/or formula to ensure long-term fund stability. (That as well is worth a whole post of its own.)

It is, to me, an outrageous charge that we are an entitlement society. Americans work hard for what we have, do our best to save for our older years, and constantly have to fight against forces of wealth and power to retain a reasonable share of the nation’s wealth. Rather than curtailing access to hard earned benefits, we should be looking at how to make retirement and our older years more secure.