from a WASHINGTON POST STAFFER

2 04 2011

Growth of Dependence on Government

At a time when everyone is willing to talk about budget cuts, there seems to be an ever present white elephant in the room. That white elephant is entitlement programs in our country, especially our failing Social Security program. Even the most fiscal conservative Republicans have been hesitant to go near this topic since getting coming into office this January. Even the right wing of Congress, the Republican Study Committee, has had little to say in this area of spending cuts. This has perhaps become such an unpopular topic politically as many of those whom would be negatively impacted by cuts to these programs are part of the electorate. Politicians see this as a risky endeavor to take up as it could cost them their next election. Perhaps these serious financial cuts will not occur until there is at least a Republican majority in the Senate where members can take “riskier” moves without imminent threat of defeat at the polls.

Increasing Entitlement Beneficiaries

Today nearly half of the U.S. population is living to some degree off the other half. Those who are receiving entitlements are shifting from parasitism, whereby an organism lives off of a host species, to a parasitoid, an organism that lives off a host and in doing so, kills the host. This unsustainable growth is now a constriction on business and the free market as a significant contributor to the high unemployment rates. The entitlement programs go against America’s founding principles as a land of freedom and opportunity. These very programs are stripping citizens from the ability to work hard, produce, and create to support themselves. It was this incentivizing system that allowed America’s industries to innovate and grow at rapid speed. America needs elected officials to exhibit true leadership by initiating real reform efforts of these programs and by reshaping the entitlement mentality.

There are two major trends that coincide on this issue. First, there is the dramatic increase in the number of Americans who rely on the entitlements, which was about 64.3 million as of 2009. Second, there is decreasing number of citizens paying taxes, in 2008 43.6% of citizens were not paying any taxes. The Social Security crisis will slowly unfold over the next 23 years as 77 million baby boomers begin collection social security checks as well as pulling from the Medicare and Medicaid programs. As America begins to see the largest generation in our Nation’s history go into retirement, an unsustainable drain on federal funds will have detrimental effects as thus I will take a closer look at the Social Security reform debate.

Currently, Medicare, Medicaid, and Social Security make up over 40% of all non-interest federal program spending. That spending is expected to grow to over 60% by 2030 as 10,000 baby boomers retire per day and begin cashing in on these benefits. Together these programs will allow for government dependence of nearly 80 million baby boomers. Social Security is based solely on age and not financial class and therefore, millionaires and billionaires will collect checks as well as receive drugs at a subsidized cost. Allowing for equal benefits regardless of financial class is slightly more democratic in that it does not act as a disincentive to people to provide for themselves in order to qualify for the funds. However, this does create a much larger class of people that the government is now on the hook to support. The projected cost of these programs is $184,000 per person. The vicious cycle of dependence will only increase as these levels of funding burden the economy and cause younger generations to go on welfare. These three mega programs go virtually unchecked as they operate outside of the annual budget process. These programs are given automatic priority over all other budgetary costs or needs. This is why Congress would need to create specific legislation to shorten the budget period and allow for debate over these programs on a regular basis.

The Remedies

Congress’s authority to modify provisions of the Social Security program was affirmed in the 1960 Supreme Court decision in Flemming v. Nestor, wherein the Court held that an individual does not have an accrued “property right” in his or her Social Security benefits. The Court has made subsequent decisions that clearly state that the payment of Social Security taxes conveys no contractual right to Social Security benefits. This is a significant point because in essence if an individual does not have a “property right” in regard to his or her Social Security, then the government can revoke that benefit without having to give the individual due process. The underlying moral duty to fulfill Social Security promises does not trump the basic constitutional principle that a legislative enactment such as this cannot bind a future Congress in the sense that the legislative enactment cannot be repealed or altered.

Our current legislature faces as a quandary as the entitlement pay outs have exceeded the amounts available. The entitlement programs by definition legally obligate the U.S. to make payments to any person who meets the eligibility requirements established in the statute that creates the entitlement. However, a provision of the Antideficiency Act prevents an agency from paying more in benefits than the amount available in the source of funds available to pay the benefits. Although these laws have not been followed by Congress, the Social Security Act states that Social Security benefits shall be paid only from the Social Security Trust Funds, and the act appropriates all payroll taxes to pay benefits. Legally, if there were insufficient funds in the Social Security Trust Funds to meet pay out obligations, beneficiaries would have to wait until the Trust Funds receive an amount sufficient to mail out checks, unless Congress made amendments to the laws. This is something that the Social Security Trust Fund has noted will come about, stating in August of 2010 that the combined OASI and ID Trust Funds are projected, “to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2037.” The Trustees best estimates show that in this year the

The first option for reform is to move the retirement age from 65 to 70. This is clearly one of the simplest ways to improve, legislatively, the broken system. The biggest impediment to this option is the push back from soon to be retirees. Americans claim they want a smaller government, however, individually; most citizens are not willing to give up any benefits they currently receive from our large government. The AARP is willing to recognize that Social Security will run out of funds in the next few decades, however, even still they state in their literature that with social security reform measures, “extreme policy solutions aren’t necessary.” They have pieces that do state that the age should be pushed back; however, their moderate approach only seeks to push the age to 68 by 2028 and to increase the age to 70 by 2040. This is an easy proposal for AARP to make, considering the majority of their members may not be living in 2028, and even fewer will be living by 2040. It is essentially kicking the ball down the field to a time at which people are comfortable discussing. The AARP has also suggested, not surprisingly, increasing the payroll tax to fill the shortfalls. They have suggesting raising the payroll tax raised by nearly another 2%, further funding the expansion of government. It is a stance that liberals frequently take in this country, even when a government system is failing, the answer for them seems to always be: throw more money at the problem. There are few if any good examples of when increasing revenues for the government increased the effectiveness or efficiency of a social program. When Social Security was created, the life expectancy was much lower than it is today, and therefore, it was never intended to pay out to individuals for twenty years as it does today. By legislatively pushing the eligibility requirement to the age of 70, the money would be spread over a thinner pool of eligible retirees, a change that is especially needed for our retiring baby boomer class.

The second frequently discussed option is to privatize social security. One of the biggest threats to our economy is not only entitlements, but the dependency on entitlements. The modern trend of dependency includes the utter refusal of citizens to create and maintain private retirement accounts. The vast majority of adults either chose not to think about or partake in retirements plans or they do not worry about retirement funds as they have grown accustomed to the government bailing citizens out. Studies have shown time and time again, that if workers could invest what is currently taken from them in the form of Social Security payroll taxes, they would retire comfortably. The reason the U.S. government does not choose such an approach, is that they simply to not believe people to be smart enough or capable enough to do this for themselves. It becomes a debate over the chicken or the egg. Are the adults in the U.S. truly not self-sufficient, or have they grown this way after the many decades our society has been nurtured and cared for by the federal government? In his 1999 State of the Union Address, President Clinton proposed what he called Universal Savings Accounts, a market-based retirement account plan that would be dubbed an “add-on”. Proposals were for these add-ons to be funded through workers paying additional amounts of money into the accounts, mandatory increases in the payroll tax, and general tax revenue. Most proposals included combinations of voluntary individual contributions and general tax revenue. These proposals ultimately failed, but proved that Republicans and some Democrats recognized the need for some form of privatization. The Democrats are divided on this as many see any form of privatization as a threat by way of the fact that it diverts money away from social security and literally weakens the program. However, this is likely one of the better solutions as it would divert money out of the hands of the Federal government who often takes money out of this program for other purposes. By allowing the money to be invested privately, it would have a chance to grow and mature, without the need to raise the payroll tax. Additionally individuals should be able to own their specific private accounts. This could also motivate and persuade individuals to begin saving money in separate private markets after seeing the growth of their private payroll tax retirement accounts.

The Old Age Survivors Insurance and Disability Insurance program is a statutory entitlement program. Beneficiaries do hold a current legal right to receive benefits if they meet the Social Security Act’s eligibility requirements. However, Congress has reserved the “right to alter, amend, or repeal any provision of this Social Security Act.” and the U.S. Supreme Court has also affirmed the authority Congress holds in modifying provisions of this program. Due to the fact that it negatively impacts retirees directly, one of the largest voting groups, it will likely take real change initiated in the Senate and White House where terms are longer and give more cushion before entering the next election cycle. Congressmen and Congresswomen and have unfortunately shown that they are more concerned about re-elections than they are about drafting legislation to fix America’s failing financial wellbeing.

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