Tuesday, November 30, 2010

It’s the Entitlements, Stupid

It seems that practically everyone wants practically everything from the government. And they're getting it. A budget disaster is sure to follow.

More Americans are getting government assistance than ever before while the number of folks paying federal taxes is dwindling. That withering equation will thwart any effort to solve the federal deficit and could eventually bankrupt the nation, experts warn.
47 Million People on Food Stamps

"We have a very large share of the American population that is getting checks from the government," "And an increasingly smaller portion of the population that's paying for it,”

According to the nonpartisan Tax Policy Center, roughly half of all Americans are part of a household that gets some government assistance — Social Security, subsidized housing, food stamps, jobless benefits, Medicare, or some other federal benefit. Entitlements and federal pensions cost the government an astounding $2.4 trillion in 2010.

That amounts to more than 64 percent of federal expenditures, the highest percentage since Franklin Delano Roosevelt's New Deal first introduced massive government entitlements in 1935.

America's graying population is exacerbating the problem. Over the past two decades, the number of people enrolled in Medicare has risen 38 percent to 47 million. Twenty years from now, more than 80 million will be in the program, according to government estimates.

And within nine years, President Barack Obama's federal healthcare makeover will deliver federal aid to another 20 million Americans to help them buy health insurance, the Congressional Budget Office reports.

Not only will we not balance the budget without fundamental entitlement reform, we'll never get the deficit below $1 trillion without it. The federal deficit is expected to top $1.45 trillion this year and 2.1 trillion in 2011.

In terms of cost, the worst offenders are Medicare, Medicaid, Social Security, and the new healthcare program. Medicare, Medicaid, and Social Security alone, which made up 8.4 percent of Gross Domestic Product (GDP) in 2007, are projected to reach 18.7 percent of GDP by 2050. To put that in context, a 10 percent increase in share of GDP today would amount to $12,000 per household.

Meanwhile, about 45 percent of households now earn so little in wages, or use so many tax credits and deductions, that they pay no federal income taxes at all. That's up from 39 percent in 2005. And to add to that daunting statistic: More than 13 percent don't even get hit with Social Security or Medicare payroll taxes.

The government doesn't track how many entitlement recipients pay no taxes, but logic would dictate that programs designed to benefit the poor, the elderly, and the unemployed would largely benefit those who contribute little or no income or payroll taxes, experts say.

A comprehensive report from the Congressional Budget Office found that, by the end of 2010, Social Security will take in less money than it pays in benefits. A long-term analysis of estimated revenues indicates Social Security will be able to pay 100 percent of the benefits promised only until 2037.

Afterward, the program will be able to pay about 76 percent of promised benefits unless changes to the system are made. But despite concerns about the federal deficit, American voters and legislators traditionally have been reluctant to cut back on federal entitlements.

Not even the Republican's ambitious "Pledge to America," released with much fanfare in the run-up to the midterm elections, treated the subject with much gravitas or specificity. "We will make the decisions that are necessary to protect our entitlement programs for today's seniors and future generations," the GOP missive reads. "That means requiring a full accounting of Social Security, Medicare, and Medicaid, setting benchmarks for these programs and reviewing them regularly, and preventing the expansion of unfunded liabilities."

In Europe, where government generosity is even greater than in the United States, the sputtering economy has forced deep program cuts, offering undeniable proof that even "untouchable" programs such as pension benefits and unemployment aid can be trimmed.

The public here remains conflicted on the matter. A recent National Journal poll found that 35 percent of Americans want the government to deliver all of the benefits the retired and needy are entitled to, even if it means raising taxes.

But another 34 percent of those polled say entitlement programs should be made "financially sustainable" through a combination of benefits cuts and tax hikes.

Federal entitlements have climbed steadily for 75 years. Today, more than 47 million Americans get food stamps, up 45 percent from 2008. Nearly 10 million now get federal jobless aid, double the number from two years ago. Do the math. Continuing to pay all promised benefits will ultimately require taxing the nation into stagnation and poverty.

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