‘Entitlements’ are a favorite target of those who want to trim the federal deficit, especially in this political season. But just as there are many misconceptions about government spending and taxing (the subject of my Sunday column), many people don’t understand what is meant by an ‘entitlement program’ or how big the major entitlement programs are.
To put it bluntly, if you think that Social Security and Medicare are not entitlements or that there are easy reductions in entitlement spending sufficient to close the federal budget deficit, you don’t really know the facts.
For many people, the term “entitlement” apparently has come to mean “a government program I don’t like that gives money to people who I think don’t deserve it.” But the correct definition is precise. It relates to constitutionally required congressional functions of “authorization” and “appropriation.” For any Treasury money to be spent, Congress must pass a law authorizing the project or program in question. Then a separate bill must be passed that appropriates money to be spent.
When Congress authorizes a program so that anyone who meets certain criteria has a right to the benefit, it then must pass an open-ended appropriation bill directing the payment of whatever sums necessary to pay the specified benefits to however many people meet those criteria. Such a program is what is meant by an entitlement.
The major entitlement programs are Social Security, Medicare, Supplemental Security Income (SSI), Medicaid, food stamps (now called the Supplemental Nutrition Assistance Program or SNAP) and Temporary Assistance to Needy Families (TANF replaced the old AFDC — Aid to Families with Dependent Children — program). Federal subsidies to cotton, corn, wheat and other crop producers also are entitlements as the authorizing farm bills make an open-ended promise to make specified payments to any farmer who meets certain criteria, regardless of the eventual total cost.
(Basic unemployment compensation is an entitlement that is a special case because the cost is shared by the federal and state governments and benefit levels vary by state. Moreover, benefits beyond the usual 26 weeks are determined by specific congressional appropriations and not everyone may get them.)
When Congress authorizes a program but makes no open-ended promise to pay all who are eligible, it is not an entitlement. In this case, Congress appropriates specific amounts each fiscal year. Those funds must be divvied up and spent under stated rules. Not everyone who meets the stated criteria necessarily receives a benefit.
The Women, Infants and Children nutrition program is not an entitlement, nor are Section 8 rent subsidies or student financial aid.
All of the programs I’ve mentioned carry out “income redistribution” since they take money from one group, taxpayers, and give it to another group specified by the programs’ authorizing legislation. The fact that Social Security and Medicare beneficiaries paid FICA taxes is no more relevant than whether SNAP, TANF or farm subsidy recipients ever paid income taxes. To public finance economists, these programs all redistribute income. All entitlements thus redistribute income, but not all income distribution programs are entitlements.
Many voters seem convinced that government budget deficits could be eliminated and taxes simultaneously lowered just by cutting entitlement programs, yet exempting Social Security and Medicare. This would be difficult.
When the government sorts outlays into broad categories, all income redistribution programs fall into four of them: “Health,” “Income security,” “Social Security” and “Medicare.” For fiscal year 2011, these total $2.3 trillion out of total federal outlays of $3.8 trillion and compare to a budget deficit of $1.4 trillion. So the gap could be closed with a 57 percent across-the-board cut in all four areas.
But Social Security and Medicare alone cost $1.23 trillion. And many ardent “tea partiers” want these left untouched. If they are left alone, eliminating everything in the other two income redistribution categories of “Health” and “Income Support” would cover only 80 percent of the $1.4 trillion deficit.
Fine, say many. But understand that this would mean complete elimination of Veterans Administration health services, now strained by veterans wounded in Iraq and Afghanistan. It would mean total elimination of all federal funds for unemployment benefits.
It would eliminate Supplemental Security Income for hundreds of thousands of people with Down syndrome, severe spina bifida and other serious disabilities. It would end all Medicaid funding of nursing home bills for hundreds of thousands of the elderly. For thousands of nursing homes across our country, Medicaid is by far the largest source of funding. And it would eliminate all federal student aid.
Confronted with these real-world choices, many ardent advocates of slashing entitlements start to backpedal and talk about cutting welfare payments to illegal immigrants. But the facts are that such outlays are tiny, not even a rounding error in relation to the gap between revenue and spending. The choices simply are harder than many want to admit.
© 2010 Edward Lotterman
Chanarambie Consulting, Inc.