The Entitlement Ogre: Funding for Everyone

With America’s largest and oldest entitlement program, Social Security, expected to raise some $40 billion more in revenue this year than it must pay out in benefits, many people in Washington are declaring America’s budget woes over.

They are not. Social Security surpluses will last only until the baby-boom generation begins to retire early in the next century. When the day of reckoning comes, the legacy we will have left our children and grandchildren will be a nation in which everyone--rich and poor, young and old--is owed something by a government that lacks the funds to meet these obligations.

Social Security surpluses, unfortunately, have given Washington an excuse for doing nothing. But this is precisely the time, with six solid years of economic growth behind us and Social Security solvent again, for Washington to think the unthinkable: Who are the entitled and what should they be entitled to?

There are, of course, disagreements on where responsibility for the deficit lies--whether the problem is excessive Pentagon spending, inadequate taxes, ill-conceived domestic-spending priorities or a combination of these and other factors.

But the real cause of the mess is a system of entitlements for mostly middle-class constituents whom Congress shows no inclination to offend. If 90% of those who talk about cutting fat and balancing budgets were honest, they’d have to echo the words of the executive who looks at a chart of plummeting profits and says to a colleague: “Cut the fat? Are you nuts? We’re the fat!”

To be sure, almost everyone says something must be done about entitlements. But since few spell out what entitlements are, the rhetoric is the equivalent of saying something must be done about cancer while ignoring malignant tumors.

The 1987 “Catalog of Federal Domestic Assistance,” published by the Office of Management and Budget, contains 1,052 assistance programs administered by 51 federal agencies dispensing more than half a trillion dollars.

Except for the authors of this eight-pound, 1,400-page report, perhaps no one--let alone an ordinary taxpayer--could even name more than a small portion of these programs. But this much is clear: Neither Michael S. Dukakis nor George Bush will really be able to rein in the budget deficit until he faces the consequences of spending programs which, if left unchanged, will force our children into the poorhouse.

Entitlements, in this sense, refers strictly to those benefits the government owes individuals who meet certain criteria--e.g., age, income, disability. They are open-ended; government must spend whatever is necessary to cover all those who qualify. Many benefits increase automatically each year based on legally established cost-of-living formulas, regardless of need or availability of funds. This frees Congress from tough choices that risk offending huge constituencies.

Entitlements are distinct from general-purpose allocations for such things as transportation, space research, environmental protection, block grants and other domestic programs called “discretionary” because there are no statutes specifying criteria that bind government to spend anything at all on them. In this category fall “pork-barrel” programs: water projects, sewage treatment, harbor dredging, cranberry research, etc. Whether worthy or outrageous, domestic discretionary programs account for only 15% of the budget (down from 24% in 1980).

It is widely--and wrongly--assumed that entitlement programs are for the poor. The “welfare system,” for example--entitling needy Americans to a minimum standard of living--is part of the pyramid, but an amazingly small part. Indeed, “means-tested” entitlements, those for which financial need must be demonstrated, account for only 8% of federal outlays. Non-means-tested entitlements, those for which plutocrats are just as eligible as the poor, account for 38% of the federal budget. Only about 20% of outlays for non-means-tested programs go to the poor. In sum, less than 15% of total federal spending, or $150 billion, goes to the poor--and only half of that is targeted for them exclusively.

As more and more rhetoric stresses the need to increase spending on the poor, the non-poor have been getting more and more of the entitlement pie. Ten years ago, a book published by the Institute for Socioeconomic Studies, “An Inventory of Federal Income Transfer Programs,” noted that only 23% “of all federal outlays are provided, even in part, to individuals who must demonstrate insufficient incomes and/or assets to qualify for such aid.” That’s considerably more than today’s 8%.

The bulk of entitlement programs are for those quite capable of taking care of themselves.

“If you want to build a house or chicken coop, get a job, start a business, get a college degree, improve your neighborhood, pursue an idea for an invention, or even build a tennis court or golf course, it is likely you can do it with funds from the federal government,” writes Matthew Lesko in the introduction to his book “Getting Yours: The Complete Guide to Government Money” (Penguin). Already behind the times, Lesko says there are 1,000 programs dispensing “over $700 billion in grants, loans, loan guarantees and direct payments. That works out to an average of $4,800 for every adult living in the United States.”

According to Lesko, if you can’t find a program to support what you want, that does not mean the program doesn’t exist. “In fact, most likely there is one.” His advice: If you think government largess isn’t for you, remember that “with so many programs covering so many different areas, it’s hard to be ineligible for all of them . . . . “

Lesko’s best seller includes programs genuinely designed for the truly needy, but a careful reading indicates that those most entitled in America are the middle class. If, a generation ago, pride dictated starving before accepting welfare, today’s savvy yuppie tries to lead the stampede to the public trough.

But even yuppies have been far outpaced by their parents and grandparents. The non-means-tested biggies are retirement and health benefits: Social Security, Medicare, Civil Service retirement and veterans’ benefits.

Another category, farm subsidies, warrants mention because expenditures have ballooned tremendously in recent years. Those subsidies are “means-tested” in quite the opposite way that, say, food stamps are: the greater a farmer’s land holdings, the greater his subsidies.

Keep in mind the rapidly aging population, the extended life spans that medical science has made possible and the huge inflation in medical costs (in recent years, twice the general inflation rate). As the overall population ages and more of the elderly enjoy the benefits of modern medical science, these entitlement costs will rise dramatically.

No group has profited more from the entitlement complex than the elderly. Federal pensions and medical insurance for the elderly grew by $112 billion between 1975 and 1985. Social Security alone costs more than $220 billion a year, Medicare about $70 billion, Civil Service Retirement $30 billion and military retirement $20 billion. Together, they total $340 billion, more than a third of the federal budget. Only about 20% of this money goes to the elderly poor.

Yet some elected officials have suggested that the projected surpluses in the Social Security trust fund over the next two decades will be enough to create a series of budget surpluses, even enough to pay off the national debt. The Heritage Foundation’s Peter Ferrara, an expert on Social Security, noted recently that these assessments are riddled with wild miscalculations; under the current system a “demographic wind shear” will start to hit Social Security in about 20 years--when baby-boomers start collecting from the system instead of contributing to it. Without reforms that address this reality, the resulting deficits will make today’s seem as small as the Eisenhower Administration’s.

Now we have new federally provided health insurance; the bill the President recently signed is expected to cost $31 billion in its first five years, with only 5% of the money going to help the low-income elderly. The new program entitles Medicare recipients to unlimited hospital care after a single deductible payment of $520 each year, limits recipients’ co-payments and pays for prescription drugs.

What are working parents entitled to? Given the increasing tax loads they must bear to pay for retirees’ entitlements, it’s no wonder two incomes are needed to support most households.

Under a day-care entitlement bill introduced by Sen. Christopher J. Dodd (D-Conn.), for example, federal day-care aid would even be available to a couple earning as much as $45,000 a year. Douglas Besharov and Paul N. Tramontozzi of the American Enterprise Institute point out that in 1972, nearly 80% of federal day-care aid benefited low-income families; today, about half goes to middle-class parents. Indeed, little of the last 15 years’ after-inflation increase of 497% in the cost of federal tax credits for child-care expenses has benefited the poor; in 1983, for example, those with adjusted gross incomes under $15,000 got only 16% of such credits.

Simply listing the number of veterans’ programs in the President’s fiscal 1989 budget suggests how entitled some Americans have become. Compensation for service-connected disabilities, contract hospitalization, educational assistance, domiciliary care, state home care, hospitalization, housing (direct loans), housing (guaranteed and insured loans), life insurance, nursing home care, and plenty more all the way to burial benefits. What’s important to notice is how little of this package is intended to compensate veterans for service-related activities.

What must be faced is this: The federal budget cannot be brought to heel until lawmakers tell the truth about entitlements and do something about them.

All else is budgeting at the margin--trimming a few billion here, a few there. Unfortunately, while Congress has been doing some of that, under pressure from Gramm-Rudman-Hollings deficit ceilings, it has been establishing new entitlement programs that, like previous ones, will grow and grow in the years ahead.

Who’s entitled to what in America? Today, it seems all of us are entitled to something. And it will eventually bankrupt our economy.