Want To Learn About Entitlements? Part 1: The Facts

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Welcome to part 1 of our 3 part US entitlements series: The Facts

Definition:

Entitlements are guarantees to benefits by right or law. In the United States entitlements are Social Security, Medicare, Medicaid, Children’s Health Insurance Program (CHIP), Food Stamps, veterans benefits, Welfare, unemployment insurance, supplemental security income, student loan programs, school food programs etc… The list is huge. In general, if there is a program established and funded by the government that involves monetary payments to citizens, it is an entitlement.

How are entitlements funded?

It depends. Some entitlements, Social Security, Medicare, and disability, have earmarked taxes generated to help the government fund them. When you get back your pay-stub, you have probably noticed sections entitled Social Security and Medicare are on there. These are funds that go into the pool.

The majority of entitlements though do not receive earmarked tax funds, instead are paid through the general slush fund of the government. Social Security and Medicare are interesting exceptions to the general rule and I think it is important to look at them separately from other entitlements.

According to the Social Security Administration’s Trustees Report, Social Security and Medicare are primarily funded through these income tax earmarks. However, there exists a significantly large sum of money in what is called a “trust.” Essentially, the trust is where extra money that the administration receives gets funneled into the treasury. The treasury can use this money to pay for other things, but provides the trust with the guarantee of repayment plus interest. So essentially the government is borrowing from itself, adding liabilities from these entitlement programs.

When funds from income taxes are not sufficient to pay for the programs, the entitlement boards call in money from their trust to cover the difference. The size of the trusts are massive, but not enough to cover the costs of the program indefinitely. Currently the size of the trusts are roughly $3 trillion.

Roughly 60% of the revenue generated for these funds come directly from taxes, the rest comes from interest received from the trust (~10%), reimbursements (~8%) and premiums (~6%). The current rate we pay, in part due to payroll deductions is 15.3%, with half of it coming from businesses and the other from individuals (for 7.15% each).

How much do we spend on them?

Looking at just the main ones, Social Security, health insurance programs (Medicare, Medicaid, CHIP), federal retirees/veterans spending, and social safety net programs (Welfare, Food Stamps, etc.) – we spend about 61% of the federal budget on some sort of entitlements.

This figure is expected to increase as payments for Social Security, and health insurance programs are expected to increase.

Looking at Social Security and Medicare (we include survivors disability, and disability insurance as they share from the same pool), expenditures equal roughly 8.5% of GDP ($1.89 trillion) and are expected to reach 12.1% in 2035 and 12.8% in 2086. The share of taxable income to cover these expenditures would have to rise from the current 17.27% levels to  22-24% in these same periods.

What does the future look like?

Our next installment will cover this more in-depth, as we have some problems to tackle to fund these entitlement programs. But the future is bleak, short-term projections show a fund that will start spending more than it receives. The trust funds will sustain this deficit for the near future.

The programs in the mid-term are in a much more dire situation, that slightly improves in the long-term. (The next part will talk almost exclusively about the problems, and the final will talk about solutions.)

Here are the funds’ exhaustion dates:

Social Security: 2035

Social Security Survivors/Disability: 2033

Disability Insurance: 2016

Medicare: 2024

Expenditures have/will exceed revenues:

Social Security: 2023

Medicare: 2008

Disability insurance: 2009

Survivors disability: 2021

Conclusion:

As you see, entitlements are a major part of our budget, and our economy. They take up significant resources that are set to expand into the near future before tapering off (~2050’s). Entitlements include a diverse range of programs from Social Security to disability, to food and education programs.

The two largest funds, Social Security and Medicare, have had surpluses, as revenues exceeded outlays, but that has ended or will end shortly. These funds are all set to exhaust, so if the government is to meet current obligations it will have to generate funding from additional sources.

 

6 thoughts on “Want To Learn About Entitlements? Part 1: The Facts

  1. Reply Anurag Oct 14,2012 %I:%M %p

    Wonderful niche you have selected. Knowledge can be gained, but most difficult thing to pin down is the IDEA.

    Can you please from where did you get this template. I am surfing the net and had been through more than 100s.

    But yours one is nice and plain.

  2. Reply Lakersfan Oct 15,2012 %I:%M %p

    Here is a perfect example of how the right wing uses the word “entitled” as a pejorative associated with progressives.

    While the word “entitlement” was originally coined by Democrats as a way to illustrate that the receiver of the attached benefits was entitled to them by having worked to earn them, or having been taxed to support them, it has been re-defined by the right as akin to a spoiled child who acts as if they’re “entitled” even though they are not.

    “Earned benefits,” on the other hand, cannot be twisted or misconstrued to mean anything other than what what they are: something the recipient has actually earned, as opposed to something they are being given. Social Security and Medicare are paid into through taxes deducted from employees’ paychecks, or the paychecks of one’s spouse or parent. No one who hasn’t either personally paid into these programs, or been the spouse or child of someone who has paid into these programs, or, in the case of Medicare Part B, paid a monthly premium in order to receive them, can extract benefits from these programs.

    Do not allow the right wing to frame this issue in their terms. These are Earned Benefits. We have payed into them and have earned the refunded annuity. Stop using the term “entitlement”.

    • Daniel McKay Reply Daniel McKay Oct 15,2012 %I:%M %p

      Good point, it certainly does have a negative connotation around it these days. Earned Benefit does sound better… But I wouldn’t argue that they were earned simply because people have put money into them, as much so, it is a civic responsibility to take care of our citizens through these types of programs.

      Great point.

  3. Pingback: Want To Learn About Entitlements? Part 1: The Facts | Political Features | Scoop.it

  4. Reply Robin Feb 4,2013 %I:%M %p

    This is scary stuff. Looking forward to read Parts 2, and finally 3 for proposed solution.

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