Apr 30, 2014 - 3:00pm

10 Truths About America's Entitlement Programs

The urgent need to reform and modernize America’s entitlement programs—primarily Social Security, Medicare, and Medicaid--impacts every single citizen, the health of the nation’s economy, and the country’s ability to maintain its leadership role in the world.

Yet few in Washington are willing to take the lead in educating the public on this topic.

To fill the leadership void, U.S. Chamber’s Executive Vice President Bruce Josten laid out these 10 truths about entitlements in a speech in 2013. The budget numbers have been updated.


10 Truths About Entitlements

 

Truth #1: Entitlement programs are huge, expensive, and reach into every corner of American life.  Social Security, Medicare, and Medicaid already cost almost $1.7 trillion. “These programs also reach into every corner of American life by the way they are financed—direct payroll taxes, borrowing from income tax revenues, and using federal debt,” Josten said.

 

 

Truth #2: Entitlement programs are not self-funding and are a main driver of deficits. Medicare, for example, has had a cash shortfall every year since its creation except two: 1966 and 1974. Medicare’s annual cash shortfall in 2012 was $302 billion. Social Security had a cash flow deficit of $55 billion in 2012. “It is important for citizens to understand this,” Josten said, “Many oppose changes in entitlement programs because they believe they are just getting out what they put in.”

 

 

Truth #3: Entitlement costs are growing at an alarming rate. In less than ten years’ time, the total price for these three programs will soar to over $3 trillion. As Social Security provides benefits to millions of retiring baby boomers, its costs will balloon to $1.5 trillion by 2024.

 

 

Truth #4: Longer life expectancies, changing demographics, and soaring costs explain why entitlements as we know them today are unsustainable. In Social Security’s early years, the ratio of workers to retired beneficiaries was high—16 to 1. By 2035, the ratio of workers to retired beneficiaries is projected to drop to 2-to-1. Said Josten, “Social Security and Medicare as currently structured and financed can’t come close to meeting the demand.”

 

 

Truth #5: Not a single major entitlement program is projected to be financially solvent 20 years from now. Social Security will be unable to pay full benefits beginning in 2033. Absent legislative action, all Social Security beneficiaries would face an immediate 23% benefit cut at that time.

 

 

Truth #6: To keep Social Security and Medicare going for the next 75 years will cost almost $40 trillion. As for Medicaid, no one knows how much it will cost to keep it going, but it will be a lot. “Absent reform, the situation will soon require either economy-crushing new taxes or painful benefit cuts in the programs—or both,” Josten warned.

 

 

Truth #7: Mandatory spending—entitlement programs and interest on the debt—are already squeezing out important investments in other essential programs.  In 2013, they accounted for 65% of all federal outlays and consumed 88% of all federal income and social insurance taxes collected. By 2024, mandatory spending will make up almost 78% of all federal outlays, and 99% of all federal income and social insurance taxes collected.

 

 

Truth #8: We have nothing to fear from carefully crafted, phased-in adjustments to our entitlement programs. America’s entitlement programs have been adjusted and modernized many times over the years to keep up with changes in the economy and society. “Strengthening and improving entitlements in the face of compelling financial and demographic realities is reasonable and achievable.”

 

 

Truth #9: We can reform entitlements without baseline cuts and without breaking our commitment to the nation’s seniors, disabled, and poor. “No one in our mainstream political system today is talking about actually cutting the amount of money spent on entitlement programs. All that’s being discussed is ways to restrain the increases and make the programs sustainable.”

 

 

Truth #10: The biggest threat imaginable to Medicare or Social Security as we know them will be if we do nothing at all. “To do nothing will set into motion the most harsh, extreme, and burdensome entitlement changes of the them all—the massive benefit cuts and tax hikes that would have to be imposed when the programs’ funding just flat runs out.”

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