President Obama placed the “makers” versus “takers” debate squarely before Congress and the country. In its own way, Obama’s stout defense of Social Security, Medicare, and Medicaid served as the preamble to the coming clashes over the debt ceiling, the sequester, and a soon-to-expire continuing resolution funding the government. This trio of fiscal deadlines must, necessarily, concentrate legislative and political minds.
To avert default, a government shutdown, and discomfiting across-the-board spending cuts, Obama and congressional Republicans will have to forge some type of consensus on the future of entitlement spending. It is always possible that consensus will follow the skittering path of the metaphorical can kicked nonchalantly toward the oblivion of insolvency. (More on this in a minute.)
Obama will sign a three-month debt-ceiling bill. He knew that as he drafted his second Inaugural Address, and he similarly knew that it would therefore be necessary to simultaneously confront and negotiate about debt, sequestration, and shutdown this spring—his distraught distinctions about never again negotiating over debt increases notwithstanding.
The sequencing of Obama’s address may also be revealing. Intentionally, he placed his lionhearted defense of the three pillars of the Great Society immediately after the only paragraph drafted specifically for Republicans ears—the one that began, “We understand that outworn programs are inadequate to the needs of our time.” The president called for “new ideas and new technology to remake our government.” If he means this, the Feb. 12 State of the Union address will provide the best and most credible opportunity to specify where, why, and how.
It is worth noting the degree to which entitlement spending constitutes “our government.”
Entitlement spending across all federal programs, including transfer payments to alleviate poverty and provide disability subsidies, gobbled up two-thirds of all federal spending in 2010. In 1960, entitlements consumed less than one-third of the budget. We spent $24 billion on entitlements in 1960 and nearly $2.4 trillion in 2010. According to American Enterprise Institute scholar Nicholas Eberstadt, from 1960 to 2010, inflation-adjusted entitlement spending grew by 5.2 percent annually. At the same time, real per capita income grew by 2.2 percent annually. We have, as a nation, been paying out much more than we have been earning for five decades.
This is not a problem of “taking” or “making.” It is a problem of allotting. And if we don’t do something soon, we will be allotting more than the “makers” can make, and the “takers” will have much less to take.
This will be true despite Obama’s fulsome promise: “The commitments we make to each other—through Medicare, and Medicaid, and Social Security—these things do not sap our initiative; they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great.”
Eberstadt’s new book A Nation of Takers vividly illustrates the rise of entitlement spending and suggests this addiction undermines economic vitality and saps America of entrepreneurial zest. Evidence shows that it is a bipartisan problem and one with deeper roots in Republicanism than the modern GOP would care to admit. Eberstadt brands the galloping growth in entitlement spending a singularly Republican phenomenon: “Between 1960 and 2010 … the growth of entitlement spending was exponential—but in any given calendar year, it was on the whole over 8 percent higher if the president happened to be a Republican rather than a Democrat. This is in keeping with the basic facts of the time: Notwithstanding the criticisms of ‘big government’ that emanated from their Oval Offices from time to time, the Richard Nixon, Gerald Ford, and George W. Bush administrations presided over especially lavish expansion of the American entitlement state.”
The GOP, therefore, is culpable for a good share—and certainly a greater share than perception or rhetoric would suggest—of the allotment problem. Republicans are also responsible for a good measure of the “taking” problem. As The New York Times reported last February, two-thirds of the 100 counties in America most dependent on federal entitlement payments voted Republican in the 2008 presidential campaign.
In other words, Obama’s defense of Medicare, Medicaid, Social Security and other entitlement programs may have been among the shiniest bipartisan lines of the speech.
The larger point is that “making” versus “taking” is a false construct. It was false when, in the context of welfare reform in the mid-1990s, then-Sen. Phil Gramm, R-Texas, said those riding in the wagon had to get out and help pull the wagon. As the underlying numbers indicated, of the 14 million Americans then on welfare, 9 million were children, prompting George Will to write, “Even if we get all these free riders in wee harnesses, the wagon will not move much faster.”
Welfare reform passed, and families and single parents on welfare, in large measure, found jobs. The Earned Income Tax Credit, something Obama protected in the latest fiscal-cliff wrangling, proved to be an important bridge to life outside of welfare.
The structural difficulties facing Medicare, Medicaid, and Social Security are much larger. Charles Blahous, one of two public trustees for Social Security and Medicare, wrote this week that over the past four years, Social Security’s costs have risen 26 percent annually and Medicare’s have gone up 25 percent. The Social Security program’s disability trust fund faces insolvency in 2016, and insolvency for Social Security looms in 2033. Political leaders underestimate the difficulty ahead, Blahous argues.
Current huzzahs for the 1983 Social Security compromise struck by President Reagan and House Speaker Tip O’Neill are genuine. But they ignore grisly details. That deal delayed cost-of-living-adjustments for six months, gradually raised the retirement age from 65 to 67, exposed benefits to income taxes, brought federal employees (and their payroll taxes) into the system, and sped up an increase in payroll taxes. Imagine, if you can, the political will to propose—let alone pass—any one of those remedies now.
As default, sequestration, and shutdown concentrate Washington’s political and legislative minds, it would be well if they also concentrate the mathematical and actuarial minds. If they don’t, eventually, the three pillars of the Great Society and all the entitlement programs protected by them will become, through indifference and neglect—to use Obama’s own words—outworn and inadequate to the needs of our time.
This article appears in the January 23, 2013 edition of NJ Daily as Of Makers, Takers, and Allotments.