The federal government is spending 92 cents out of every dollar it receives on entitlement programs, plus interest on the federal debt. That leaves just 8 cents of every dollar to pay for everything else the federal government does — defense, homeland security, education, government operations and more.
In 2013, the federal government collected $2.77 trillion and spent $3.45 trillion, according to the latest update from the U.S. Treasury Department. Entitlement programs accounted for about $2.34 trillion and interest on the $17 trillion federal debt was $221 billion. Taken together, that figure represented 92 percent of federal revenues, which means we are borrowing virtually all of the money needed to run and protect the country.
Most people think of entitlement programs as Social Security and Medicare for seniors, Medicaid and perhaps some other means-tested welfare programs. But there are many more, including veteran benefits, unemployment, the children’s health insurance program, disability income, the GI bill and Head Start.
Who is paying for all of those benefits? Not some 74.1 million children and teenagers (24 percent of the population) who do not work or have low-paying, part-time jobs. Nor are the 40.3 million seniors paying much in taxes.
Nor are most low- and middle-income workers. Workers in the bottom 50 percent of earners pay less than 3 percent of all federal income taxes.
And the number of workers paying into the system is declining even as we speak. The estimated 77 million baby boomers (born between 1946-1964) are beginning to retire at an estimated 10,000 people every day, as they transition from being taxpayers to net benefit recipients.
The Bureau of Labor Statistics says that the labor participation rate—the percentage of people who have a job or are looking for one—has declined to 63.2 percent, the lowest since 1978.
We are facing an entitlement tsunami, with too many people receiving too many benefits—and too few workers supporting them. Members of Congress who recognize the problem are going to have drag kicking and screaming many of their colleagues and our mega-spending president into fiscal responsibility. Here are at least three action items.
Keep the Sequester
For the first time in decades federal spending actually declined (rather than just a decrease in the rate of growth), from $3.54 trillion in 2012 to $3.45 trillion in 2013. The sequester was responsible for some cuts in entitlement spending.
President Obama and the Democrats really want to end the sequester, but Republicans should stand firm.
Continue Cutting Entitlement Spending
Food stamps (known as the SNAP program) have been cut 5 percent, and extended unemployment benefits will soon be phasing out. That’s a good start, but it’s only a start.
Transition to Prefunded Personal Accounts
The private sector has shifted from defined-benefit retirement plans to defined-contribution plans. That is the best way to provide retirement benefits while eliminating long-term unfunded liabilities for the company. Social Security and Medicare must follow the private sector’s lead by shifting to a system of prefunded personal retirement accounts.
Passing pro-growth economic policies would bring in more revenue to help pay for our entitlement tsunami, but that won’t fix the problem. We need to rethink our federal safety nets to ensure the country can afford what it is promising. Without significant changes, entitlements could soon take every dollar of federal revenue.