The federal government spent $3.6 trillion in fiscal year 2011. Mandatory spending totaled about $2.0 trillion, or 56 percent of all federal outlays. That category includes spending for entitlement programs and certain other payments to people, businesses, nonprofit institutions, and state and local governments. For the most part, those programs are governed by statutory rules that specify eligibility criteria and benefit amount
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–Congressional Budget Office
Welfare Now the Largest Portion of the Federal Budget
The Congressional Research Service (CRS) released a report, (Spending for Federal Benefits and Services for People with Low Income…) on October 16 revealing that welfare spending–a system of assistance which began in the Great Depression of the 1930’s– is now the largest portion of the federal budget. Funding exceeds that provided for defense, Medicare, and Social Security.
In FY 2008, the combined federal spending for health, cash aid, food assistance, education, housing & development, social services, employment and training, and energy assistance programs designed for low income recipients totaled $563 billion. By FY 2010, the total had reached $733 billion.
The breakdown is as follows:
(Nominal dollars in Billions)
CATEGORY fy 2008 fy 2010
Health 248 335
Cash Aid 130 141
Food Assistance 59 94
Education 42 58
Housing & Development 40 52
Social Services 36 40
Employment & Training 6 8
Energy Assistance 3 6
TOTALS 563 733
Dramatic Increase in Welfare
The Heritage Foundation notes that “total means tested welfare spending (cash, food, housing, medical care and social services) has increased seventeen fold since the beginning of Lyndon Johnson’s Waron Poverty in 1964.”
A Wall Street Journal Report maintains that “the federal government has become an entitlements machine. As a day-to-day operation, it devotes more attention and resources to the public transfer of money, goods and services to individual citizens than to any other objective, spending more than for all other ends combined…in 1960, U.S. government transfers to individuals totaled about $24 billion in current dollars, according to the Bureau of Economic Analysis. By 2010 that total was almost 100 times as large. Even after adjusting for inflation and population growth, entitlement transfers to individuals have grown 727% over the past half-century, rising at an average of about 4% a year. In 2010 alone, government at all levels oversaw a transfer of over $2.2 trillion in money, goods and services…[in] 2010 [entitlements] accounted for just about two-thirds of all federal spending.”
Welfare and entitlement programs which began at a relatively modest scale during the Great Depression now represent an increasingly overwhelming share of an American economy that is falling ever deeper into a deficit hole from which it may not be able to escape.
Bill Heniff of the Congressional Research Service defines entitlements as “programs that require payments to persons, state or local governments, or other entities if specific eligibility criteria established in the authorizing law are met…[they are] legal obligations of the federal government…”
A List of Federal Entitlements
A commonly accepted list of federal entitlements includes:
529;
Home Mortgage Interest Deduction;
Hope or Lifetime Learning Tax Credit;
Student Loans; Child and Dependent Care Tax Credit;
Earned Income Tax Credit;
Social Security-Retirement & Survivors;
Pell grants;
Unemployment Insurance;
Veterans Benefits;
G.I. Bill; Medicare;
Head Start;
Social Security/Disability;
Supplemental Security Income;
Medicaid;
Welfare/Public Assistance;
Government Subsidized Housing;
Food Stamps
(Clearly, all programs are not equal. Some, like Social Security, reflect payments over many years by workers for their own benefit. Some reflect a solemn moral obligation, like those provided to current or retired members of the armed forces and their families.)
Combined Implications
for the Federal Budget of Entitlements & Welfare
At a time when military threats from China, Russia, Iran and North Korea are increasing dramatically, President Obama’s long-term spending priorities, centered around welfare, would make national defense the lowest budget priority, according to analyst Robert Bluey.
Jessamyn Conrad, author of “What You Should Know About Politics…But Don’t” notes that “Baby boomers, the huge generation of Americans born from 1946 to 1964, helped buoy the economy by creating a large, able workforce when they were young, but now that they are retiring, around 80 million of them will be eligible for benefits from Social Security and Medicare over the next twenty years, creating a drain on the nation’s coffers.”
The Heritage Foundation echoes this sentiment. “Decades ago, politicians promised baby boomers lavish health and retirement benefits but provided no way to pay for them. Now we are faced with consequences of their neglect. Our national debt held by the public equals nearly 70 percent of GDP and is growing rapidly. Medicare and Social Security face almost $46 trillion in long-term unfunded obligations…”
In a 2011 study, the Congressional Budget Office’s study, “Reducing the Deficit: Spending and Revenue Options” noted that:
“If current laws remain unchanged, deficits will total $7 trillion over the next 10 years [adding to the already existing deficit of $16 trillion]…Beyond the coming decade, the aging of the U.S. population and rising health care costs will put increasing pressure on the budget.
If federal debt continues to expand faster than the economy–as it has since 2007–the growth of people’s income will slow, the share of federal spending devoted to paying interest on the debt will rise more quickly, and the risk of a fiscal cliff will increase.”
The study noted that debt would become 109% of the economy in just over a decade from now. The CBO has predicted that by 2021, entitlements will account for 12% of America’s entire GDP, up from the current rate of 9.9%. One major effect will be that by 2037, the U.S. debt will be almost twice the size of the entire American economy. The CBO also notes that according to current trends, entitlement spending will nearly double by 2050.
When President Obama took office, the debt stood at 40% of GDP; it will increase to 70% this year.
Pollsters Scott Rasmussen and Douglas Schoen noted that “During the stimulus negotiations, [the Obama Administration] undermined welfare reform–one of the great policy successes of the last generation–by creating a spending formula that rewarded states for having more welfare dependents.”
Writing in the Daytona Beach News-Journal, columnist George Will calls this questionable fiscal path of increasing deficits “Mugging our descendants.” “In 2010,” he writes, “Government at all levels transferred more than $2.2 trillion…to recipients…Before 1960, only in the Depression years of 1931 and 1935 did federal transfer payments exceed other federal expenditures.”
The challenge to budget planners from entitlement programs has been described by Paul Johnson from Auburn University‘s Political Science Department:
“It is often very hard to predict in advance just how many individuals will meet the various entitlement criteria during any given year, so it is therefore difficult to predict what the total costs to the government will be at the time appropriation bills for the coming fiscal year are being drafted. This makes it even harder for government to smooth out the business cycle or pursue other macroeconomic objectives through an active fiscal policy-because these objectives require careful pre-planning of the size of the budget deficit or surplus to be run.”
The Congressional Research Service notes that “most entitlement spending bypasses the annual appropriations process altogether and is funded by permanent or multi-year appropriations in substantive law. Such spending becomes available automatically each year, without legislative action by Congress.”
Implications for Social Security, Medicare and Medicaid
The rise in welfare and entitlement spending has substantially jeopardized the stability of Social Security, Medicare and Medicaid.
The Pew Research Center found that Social Security, Medicare and Medicaid, despite widespread support from the public, are considered financially troubled.
On October 13, Seattle Times reporter Brian Rosenthal wrote that younger Americans are not counting on post-retirement government assistance. “Recent survey data” he reports “indicate that Americans ages 18-29, despite being overwhelmingly liberal, support some conservative ideas for changing the structure of entitlement programs. Roughly 86 percent of them favor allowing workers to put their Social Security taxes into a private account, as some Republicans have proposed, according to a November 2011 survey…74% of millenials support allowing Medicare participants to ‘use benefits toward purchasing private insurance…”
Politicians Benefit Even When Programs are Ineffective
Spending on individual programs are key selling points for politicians eager to gain the support of block groups, even when those programs fail to achieve their objectives. A prime example is government-sponsored job training programs. To administer the programs, patronage jobs are established with managers appointed or “recommended” by elected officials, which strengthens their position. To staff the programs, government union positions are needed, which pleases the unions who in turn strengthen their support of the same politicians. Therefore, before a single constituent is provided with viable job training, key stakeholders are satisfied. Whether the program achieves its stated objectives become, as a result, secondary.
Reform Efforts
All of the spending has not eliminated poverty. According to the latest Census data, 46.2 million Americans fall below the poverty line.
Limited efforts towards welfare reform have proven effective. ABrookings Institute study on never-married mothers reveals that the 1996 collaboration between Republicans in Congress and President Clinton requiring adults on welfare to work provided substantial improvements for those mothers.
“According to Census Bureau data, between 1996 and 2000, the percentage of never-married mothers in jobs increased by about a third (to 66%) while the poverty rate for these mothers and their children declined by about a third (to 40%.)
President Obama, however, has rejected the successful welfare reform law, and “has jettisoned the law’s work requirements, asserting that, in the future, no state will be required to follow them,” according to aWashington Post article by Robert Rector, who helped draft the reform law. The legislation required that a portion of able-bodied adults in the Temporary Assistance for Needy Families (TANF) program, work or prepare for work. “Those work requirements were the heart of the reform’s success: welfare rolls dropped by half, and the poverty rate for black children reached its lowest level in history in the years following…the members of Congress closely involved in drafting this law have asserted that Obama’s action contradicts the letter and intent of the statute.”
The two parties have distinctly different views
Cornell University’s Suzanne Mettler writes: “President Barack Obama came into office with a social welfare policy that aimed to reconstitute what can be understood as the ‘submerged state”: a conglomeration of existing federal policies that incentivize and subsidized activities engaged in by private actors and individuals. By attempting to restructure the political economy involved in taxation, higher education policy, and health care, Obama ventured into a policy terrain that presents immense obstacles to reform itself and to the public’s perception of its success. Over time the submerged state has fostered the profitability of particular industries and induced them to increase their political capacity, which they have exercised in efforts to maintain the status quo.”
CNN Money notes that “Independent deficit hawks — as opposed to the political ones seeking votes — gave mixed reviews to President Obama’s 2013 budget proposal. They commended the president for offering measures that would start to move U.S. fiscal policy in a more sustainable direction. But they said his budget as a whole does not go far enough: It fails to really tackle costs for the big entitlement programs such as Medicare, which they say will be essential if lawmakers want to reduce the country’s long-term debt.”
On the other hand, Rep. Paul Ryan states:
“With few exceptions, government’s approach has been to spend lots of money on centralized, bureaucratic, top-down anti-poverty programs,” Ryan stated. “The mindset behind this approach is that a nation should measure compassion by the size of the federal government and how much it spends.” This has “created and perpetuated a debilitating culture of dependency, wrecking families and communities.”
The Republican Study Committee argues that several steps, in addition to repealing Obamacare, could be taken to address the problem of budget-busting welfare and entitlement spending. They argue that the successful 1996 Welfare Reform model, which the Obama Administration has seemingly rejected, should be used as a model, and propose three specific legislative reforms:
1. 1. The State Health Flexibility Act, dealing with Medicaid and CHIP, would provide states with maximum flexibility to innovate and tailor to the needs of their unique populations while shifting federal funding from an entitlement formula to a stable block grant at current spending levels.
2. 2. The State Nutrition Assistance Flexibility Act, dealing with food stamps and 5 other food welfare programs in the Farm Bill. The bill would combine the 6 programs into a single block grant at 2008 levels, with maximum flexibility for states to improve their food welfare efforts. Programs under this block grant would be subject to strong work requirement for able-bodied adults.
3. 3. The Welfare Reform Act would require the president to annually disclose the total welfare expenditure as a separate budget category. Once unemployment falls below 6.5%, the legislation sets aggregate spending for this category at pre-recession levels, adjusted for inflation.
Conclusion
It is obvious that the entitlements and welfare programs have become unaffordable. Common sense reforms must be both enacted an adhered to immediately.