AMERICANS and the Entitlements Dilemma

AMERICANS AND THE ENTITLEMENTS DILEMMA

1. ENTITLEMENT

COST GROWTH

– A THREAT TO

OUR

PROSPERITY

a. ELEMENTS OF WELFARE

b. WHAT IS AT RISK?

c. WHY IT’S GROWING

d. SOME APPROACHES TO REDUCE THE

THREAT

2. WORKFARE

AND THE

SOCIAL SAFETY

NET

a. AN ELEMENT OF THE “SOCIAL SAFETY

NET”

b. WORKFARE HAS A HISTORY OF SOME

SUCCESSES

c. WHO IS HELPED?

d. WHAT IS CURRENT STATUS?

e. NON-GOVERNMENTAL SUPPORT

GROUPS

3. GRIDLOCK - -

OR IS THERE

ROOM FOR

COMMON

GROUND?

a. SAFETY NETS: A VIEW FROM THE

RIGHT AND FROM THE LEFT

b. RIGHT vs LEFT VIEWS ON SOME OTHER

RELATED ISSUES

4. A PLAN - -

COULD YOU GO

ALONG WITH

THIS ?

a. MOVING FORWARD WITH A PLAN

b. CONSIDER THESE ELEMENTS

c. RE-ASSERT WORKFARE AS A KEY

SOLUTION ELEMENT; HELP

CHARITABLE GROUPS TO HELP

d. CONCERNED ABOUT GIVING UP

PRINCIPLES ?

e. BUT WHAT ABOUT THIS PRINCIPLE ?

TOPICS

The growth of welfare spending is unsustainable and will drive the United States into bankruptcy if allowed to continue. President Barack Obama’s fiscal year 2011 budget request would increase total welfare spending to $953B — a 42 percent increase over welfare spending in FY 2008, the last full year of the Bush Administration.

THE CURRENT “SAFETY NET” ENTRAPS THOSE IT “SAVES”

The federal government runs over 70 different MEANS-TESTED anti-poverty programs , including food stamps, public housing, low-income energy assistance, and Medicaid - - to meet the physical needs of tens of millions of low-income families. However, the historical record of these programs gives evidence to their failure to aid recipients from a position of dependence on the government to being able to provide for themselves. In fact dependency on government is demonstrably growing.

The programs need to be reformed to achieve the following: 1. Rein in the out of control spending; 2. Set a path whereby a more sustainable financial footing is achieved and is less able to be thrown out of kilter in the future; 3. Re-structure the Programs so the monies applied serve the Needy and offer a hand up towards more self-sufficiency and much reduced (and sometimes abused) government dependency

THE CURRENT “SAFETY NET” NEEDS SOME REFORM

This article summarizes some data and thoughts

related to the reforms noted.

Our nation’s long-term fiscal outlook is unsustainable. Publicly held debt currently nears 70 percent of gross domestic product, the most common measure of an economy’s size. Our current policy path leads to debt of nearly 200 percent of GDP over the next 30 years.

In all likelihood, such high and rising levels of debt will have a disastrous impact on the U.S. economy long before they reach that level.

This figure shows Federal spending over the period 1990 to 2007 has averaged about 3% of GDP over revenues collected. The overage in 2008-2010 reached about 10%. This is certainly a poor situation in itself, but it’s the projected, steadily growing deficits starting around 2018 that causes the true concern.

Despite broad awareness that the country must address its fiscal problems, lawmakers have made scant progress toward addressing our true long-term budget challenges. Those challenges are rooted in the aging of the population and fast growth of health care costs, which will push expenditures on Medicare, Medicaid, and Social Security far above the levels of federal revenues over the next 25 years.

As we’ll discuss

shortly,

the concerns we

face are these

The figure records 1st half

of 20th Century with total

gov’t debt averaging 35%

of GDP. In the last half of

the 20th Century, the debt

averaged about 55%.

Today our debt runs about

60% GDP and we face

heading into the

uncharted territory of

200% GDP.

Social Security accounts for more than 20 % of total federal spending. But our population is aging, and Social Security’s costs under current law will increase by about 20 % over the next 25 years — from 5 percent of GDP in 2012 to 6.2 percent of GDP in 2035. Social Security has been financed chiefly on a “pay-as-you-go” basis, which means that current workers pay for current beneficiaries.

This arrangement worked well as long as there was a consistently high ratio of workers-to-beneficiaries. But, as shown in the Figure with our aging population, this ratio will decline from 3 workers per 1 beneficiary now, to about 2 to 1 in 2035. This is one of the key reasons for the trend in funding shortfall.

SOCIAL SECURITY

The federal gov’t spends around $1T a year on health care programs. Different communities: the elderly; the disabled; military and civilian federal employees; low-income individuals and their families; and others - - benefit from these programs. The two largest programs are Medicare and Medicaid. As shown in the Figure health care costs are large and getting larger.

Why the rapid cost growth? There are many reasons. A major factor is that a significant portion of health care in the U.S.A. is financed through “fee for service” payments, which pays health providers for services they deliver but not necessarily for quality of health achieved. But this process can encourage unnecessary, ineffective, or even harmful care.

Healthcare

Higher income Nations tend to spend more on

health care, and as the Figure shows, the

U.S.A. has the highest per capita

Health Care costs in the world.

OTHER COST CAUSES:

When the budget is being managed so that a service cost associated with borrowed money is larger than such needed National funding as Education or product R&D, then clearly the overall management focus needs to be questioned. Education and R&D are both critical seed corn for the future of our Nation.

We need involved Citizens. A good sense of priorities seems to be AWOL.

When costs rise faster than revenues taken in, the Government is accumulating further debt plus the associated interest costs paid for the borrowed money. Some perspective is given in the Figure.

Having discussed some of our financial challenges, it might be helpful to conclude this portion of the discussion with a broader view that puts the quantitative picture of government REVENUES and SPENDING in perspective. The Figure does just that.

Using data for year 2011, we see that REVENUES

were $2.3T. The major

contributors are:

Individual income taxes (47 %); payroll taxes (36 %); corporate

taxes (8 %); Estate taxes ( .2 %) and a compendium of various

‘Other’ taxes ( 8.8%).

Using data for year 2011,

we see that EXPENDITURES were

$3.6T. an OVERAGE of

nearly 57%. The major

contributors are:

Major Healthcare Programs (25 %); Social Security (20 %); Defense (19 %); Interest On the Debt(6 %) and a collection of All Other Spending (30 %).

The preceding financial perspective is critical as we now turn to some current policies and potential solutions for our Entitlements including the “Social Safety Net”.

1. ENTITLEMENT

COST GROWTH

– A THREAT TO

OUR

PROSPERITY


b. WHAT IS AT RISK?



THREAT

2. WORKFARE

AND THE

SOCIAL SAFETY

NET


NET”


SUCCESSES

c. WHO IS HELPED?



GROUPS

3. GRIDLOCK - -

OR IS THERE

ROOM FOR

COMMON

GROUND?




RELATED ISSUES

4. A PLAN - -

COULD YOU GO

ALONG WITH

THIS ?







PRINCIPLES ?


TOPICS

THE SAFETY NET - - PRO & CON

In the broadest terms, “SOCIAL

SAFETY NET” (SSN) programs provide

assistance for low-income households,

and help insure individuals against the

risk of falling into poverty.

PROPONENTS OF THE SSN SAY: “ SSN

alleviates the impact of poverty, and

gives income security to those

individuals who, through no fault of

their own, are at economic risk.

CRITICS OF THE SSN SAY: “ SSN

income assistance creates a cycle of

dependence on gov’t , dampens work

force participation, and is ineffective.”

The first components of the contemporary SSN were created in 1908, as a response to increases in workplace injury and demands from reformers. These WORKERS’ COMPENSATION (WC) programs provided cash benefits for medical care, or payment for worktime lost. In 1935, President Franklin Roosevelt’s New Deal policies, during the widespread unemployment and poverty of the Great Depression, established two important social insurance programs:

1. Old Age Social Security (OASS)

2. Unemployment Insurance (UI)

THE SAFETY NET: SOME HISTORICAL PERSPECTIVE

Today, Old Age Social Security provides retirement benefits to individuals age 62 and over, their dependents, and survivors.

Social Security was expanded in 1954,

under President Eisenhower, with the

addition of Social Security Disability

Insurance (SSDI) to cover disabled

individuals who are unable to work.

Benefits for OASS, Survivors’ Insurance,

and SSDI are financed through federal

payroll taxes on current workers.

Unemployment insurance provides

temporary benefits for recently laid-off

workers and is primarily run at the state

level.

The Social Security Act of 1935 also

created a new means-tested program:

(AFDC)


MEANS-TESTED programs provide benefits to those individuals and families with income and assets below a determined level. These programs may also provide direct financial support to specific groups (such as workers, the elderly, the disabled, or single mothers and their children) or for specific expenditures (such as nutrition, housing, or health care)


In the mid-1960s, aiming to raise the basic welfare of the poor. President Lyndon Johnson enacted two of today’s largest MEANS-TESTED programs:

1. Food Stamps (now called SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM, “SNAP”) 2. MEDICAID

Unlike the AFDC program, SNAP and Medicaid do not provide cash assistance to low-income families but instead provide in-kind benefits of food and health care. Medicaid provides health insurance for low-income individuals. States set the eligibility requirements for specific “covered groups” including the elderly, the disabled, children, parents, and pregnant women.

In 1996, President Clinton replaced AFDC with the TEMPORARY AID TO NEEDY FAMILIES (“TANF”) program. With growth, increased taint of fraud across many of these programs has been reported.

The Earned Income Tax Credit (EITC) was added to the social safety net by Presidents Ford and Reagan. The EITC provides cash benefits to low-income families but only to families with working members. All of the ‘SOCIAL INSURANCE’ programs (e.g. Social Security, Medicare, Unemployment Insurance), and the largest MEANS-TESTED programs (e.g., Medicaid, SNAP) are “ENTITLEMENTS”. All people who meet the eligibility requirements are “entitled” to benefits if they choose to participate. Non-entitlement, or “DISCRETIONARY” programs can only serve as many people as budgets allow. TANF is the largest discretionary program by expenditures. Since the 1960s, reforms to social safety net programs have focused on: encouraging employment and job skills (often referred to as “WORKFARE”). But progress has been uneven.

The core concept of welfare reform under Pres. Clinton (the Personal Responsibility and Work Opportunity Reconciliation Act of 1996): TANF able-bodied adults would be required to work or prepare for work as a condition of receiving welfare aid. Under the old, pre-reform AFDC program, the Gov’t mailed checks to recipients, who were not required to do anything in return. Citizens should oppose any return to the old way.

Under the TANF “Workfare” reforms, some 30–40 percent of adult recipients were required to engage in “work activities”, defined as: unsubsidized employment; subsidized employment; on-the-job training; attending high school or a GED program; vocational education; community service work; job search; or job readiness training. Participation was part-time: 20 hours per week for mothers with children under six and 30 hours for mothers with older children.

Despite claims from opponents that welfare reform would lead to disastrous outcomes, the reform “Workfare” law had several successes. E.g.,

• Prior to the reform, AFDC caseloads had not declined significantly since World War II. Within five years of welfare reform, the caseload promptly dropped by close to 50 %.

• As welfare dependence fell child poverty among the affected groups also fell dramatically.

“WORKFARE” HAS DEMONSTRATED SOME PAST SUCCESSES

However, since 1996, TANF work requirements have been weakened, as Congress and the States have used loopholes to circumvent some of the stronger work requirements.

1. ENTITLEMENT

COST GROWTH

– A THREAT TO

OUR

PROSPERITY


b. WHAT IS AT RISK?



THREAT

2. WORKFARE

AND THE

SOCIAL SAFETY

NET


NET”


SUCCESSES

c. WHO IS HELPED?



GROUPS

3. GRIDLOCK - -

OR IS THERE

ROOM FOR

COMMON

GROUND?




RELATED ISSUES

4. A PLAN - -

COULD YOU GO

ALONG WITH

THIS ?







PRINCIPLES ?


TOPICS

THE NATIONAL DEBT CLOCK - -

@ 7:10am 9-9-2012

Meanwhile, back at the ranch - - GRIDLOCK doesn’t seem to be

helping the Citizen to address the problem !

DEMOCRATS REPUBLICANS

LIBERALS CONSERVATIVES

LEFT RIGHT

THE

NATIONAL

GRIDLOCK

A BROKEN BRIDGE MAKES ADVANCING DIFFICULT




1. ENTITLEMENT

COST GROWTH

– A THREAT TO

OUR

PROSPERITY


b. WHAT IS AT RISK?



THREAT

2. WORKFARE

AND THE

SOCIAL SAFETY

NET


NET”


SUCCESSES

c. WHO IS HELPED?



GROUPS

3. GRIDLOCK - -

OR IS THERE

ROOM FOR

COMMON

GROUND?




RELATED ISSUES

4. A PLAN - -

COULD YOU GO

ALONG WITH

THIS ?







PRINCIPLES ?


TOPICS

A LOT OF WORDS ARE NOT A PLAN

HERE ARE SOME PLAN ELEMENTS

A GOOD PLAN STARTS WITH: WHERE DO WE WANT TO GET TO ?

SUCCESSFUL BIPARTISAN SOLUTIONS CANNOT BE AT THE EXTREME ENDS OF THE SPECTRUM AND ARE DISREGARDED:

PRIVATE + GOV’T ADMINISTRATION

FOCUSING ON THE “WORKFARE” APPROACH, I’VE PUT TOGETHER A LITTLE ALGORITHM TO HELP ILLUSTRATE A SOLUTION APPROACH I THINK MANY COULD ACCEPT . • THE NUMBERS USED AND CALCULATED ARE BY NO MEANS OPTIMAL; THEY ARE SIMPLIFIED AND JUST USED TO INDICATE THE CONCEPT. • GOVERNMENT FUNDING TO THE POVERTY LEVEL IS ASSUMED AS THE BASELINE CASE. • THE ALGORITHM USE ALSO HELPS ASSURE IMPARTIAL APPLICATION FOR ALL BENEFICIARIES. RESULTS ARE GIVEN IN THE NEXT 2 CHARTS.

AN INVENTED HERE ALGORITHM

• THE BENEFICIARY, WITH

WORK, WILL TOTAL MUCH

BETTER THAN JUST

BEING ON WELFARE.

• THE GOV’T PAYS OUT

LESS BECAUSE THE

BENEFICIARY’S

EARNINGS ARE ADDED

IN.

• IN OTHER WORDS,

EVERYONE IS

INCENTIVIZED IN A

GOOD DIRECTION.

AN ALGORITHM FOR ‘WORKFARE’

A SIMILAR ALGORITHM IS

APPLIED TO HELP OFFSET

GOV’T HANDOUTS WITH

THE HELP OF VARIOUS

CHARITABLE GROUPS

• AGAIN, THE BENEFICIARY IS

LIFTED ABOVE THE POVERTY

LEVEL.

• AGAIN, THE GOV’T EXPENSE

IS REDUCED, ASSUMING IT IS

BEARING THE FULL BURDEN

OF AID TO REACH THE

POVERTY LEVEL.

AN ALGORITHM FOR CHARITABLE GIVING

Senator J. WILLIAM FULBRIGHT, “In Need of a Consensus,” Penrose Memorial Lecture, delivered to the American Philosophical Society, Philadelphia, Pennsylvania, April 20, 1961.—Proceedings of the Society, August 1961, p. 352.

“To me, (an increasingly important issue is) the inability of so many Americans to identify themselves with something as vast as the United States. Left to wither is the national purpose, national educational needs, literature and theater, and our critical faculties. The national dialogue is gradually being lost in a froth of misleading self-congratulation and cliché. National needs and interests are slowly being submerged by the national preoccupation with the irrelevant.”

A RELEVANT QUOTE FROM FORMER

SENATOR J. WILLIAM FULBRIGHT

• OUR RUNAWAY ENTITLEMENTS PROGRAMS ARE A SERIOUS

NATIONAL ISSUE.

• COSTS ARE OUT OF CONTROL AND WE’RE HEADING FOR

MAJOR NATIONAL PROBLEMS UNLESS WE ADDRESS THEM.

• BUT POLITICAL DIALOG AND ACTION HAVE BEEN

GRIDLOCKED, RESULTING IN NO REAL MOVEMENT TOWARD

SOLUTION.

• A PRIVATE-PUBLIC PARTNERSHIP TO INTEGRATE THE

EFFORTS OF PRIVATE BUSINESS / CHARITABLE GROUPS /

GOV’T IS AN APPROACH MOST AMERICANS CAN SUPPORT.

• SOME SIMPLIFIED ALGORITHMS SHOW THAT WITH SUCH A

PARTNERSHIP, THE NEEDY CAN COME OUT AHEAD, WHILE

THE GOV’T CAN REDUCE ITS CURRENT AND PROJECTED

OUTLAYS.

• AMERICA COULD APPLY SOME OF THOSE SAVINGS TOWARD

OTHER SERIOUS ISSUES SUCH AS EDUCATION, JOB GROWTH,

ENERGY R&D, MANUFACTURING AND PRODUCT INNOVATION

AND OTHERS.

CONCLUSIONS

So those are some elements of a plan to move

forward.

What are your thoughts ?

I know some are concerned that compromise too

often equates to not standing by Principles.

But what about the Principle of: Citizens working

together to keep America Strong, Free and

Prosperous?

BIBLIOGRAPHY FOR THIS ARTICLE

“Confronting the Unsustainable Growth of Welfare Entitlements..”, Katherine Bradley and

Robert Rector, Heritage Fndn Backgrounder # 2427, June 24, 2010,

“Ending Work for Welfare: An Overview”, Robert Rector and Rachel Sheffield, Heritage

Fndn Issue Brief # 3712, August 29, 2012

“State of the Union’s Finances”, The Peter G Peterson Foundation, PGPF.org, 2012

“Poverty and the Social Safety Net”, Dustin A. Cole and Rebecca M. Tippett, Weldon

Cooper Center for Public Service, U. of Virginia, Feb 2012

“George Will Argues Against ‘Spreading Web of Dependency”, Jennie McKee quoting

George Will, American Academy of Orthopaedic Surgeons, Aug 29, 2012

“Liberal vs Conservative Values”, News-Basics.com/2010/liberal-vs-conservative-values,

2010

“Heritage Charts”, www.heritage.org/federalbudget/national-debt-skyrocket

“Clueless About Medicare”, Bryan R. Lawrence, The Washington Post, May 30, 2012

THE END

ACTUALLY, IT’S NOT THE END - - YOUR VOICE IS IMPORTANT TO OUR NATION. CITIZEN INTEREST, DIALOG AND DATA ARE CRITICAL TO GOOD CIVIC OUTCOMES. AND THAT INCLUDES OUTCOMES WHICH SIMPLY ASSURE PROPER CONDITIONS FOR THE FREE MARKET TO WORK.

News & Politics

AMERICANS and the Entitlements Dilemma