[StBernard] Obstacle to Deficit Cutting: A Nation on Entitlements

[Westley Annis]

Here's the original article.  It's always good to know where the articles
come from.

http://online.wsj.com/article/SB10001424052748703791804575439732358241708.ht
ml

BTW, Social Security is not an entitlement but rather a program that both
employees and employers pay into.

http://ssa.gov/pressoffice/pr/trustee10-pr.htm





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	Obstacle to Deficit Cutting: A Nation on Entitlements
	By SARA MURRAY
	Efforts to tame America's ballooning budget deficit could soon
confront a
	daunting reality: Nearly half of all Americans live in a household
in which
	someone receives government benefits, more than at any time in
history.
	
	At the same time, the fraction of American households not paying
federal
	income taxes has also grown-to an estimated 45% in 2010, from 39%
five years
	ago, according to the Tax Policy Center, a nonpartisan research
	organization.
	
	A little more than half don't earn enough to be taxed; the rest take
so many
	credits and deductions they don't owe anything. Most still get hit
with
	Medicare and Social Security payroll taxes, but 13% of all U.S.
households
	pay neither federal income nor payroll taxes.
	
	"We have a very large share of the American population that is
getting
	checks from the government," says Keith Hennessey, an economic
adviser to
	President George W. Bush and now a fellow at the conservative Hoover
	Institution, "and an increasingly smaller portion of the population
that's
	paying for it."
	
	The dimensions of the budget hole were underscored Monday, when the
Treasury
	reported that the government ran a $1.26 trillion deficit for the
first 11
	months of the fiscal year, on pace to be the second-biggest on
record.
	
	Yet even as Americans express concern over the deficit in opinion
polls,
	many oppose benefit cuts, particularly with the economy on an uneven
	footing. A Wall Street Journal/NBC News poll conducted late last
month found
	61% of voters were "enthusiastic" or "comfortable" with
congressional
	candidates who support cutting federal spending in general. But 56%
	expressed the same enthusiasm for candidates who voted to extend
	unemployment benefits.
	
	As recently as the early 1980s, about 30% of Americans lived in
households
	in which an individual was receiving Social Security, subsidized
housing,
	jobless benefits or other government-provided benefits. By the third
quarter
	of 2008, 44% were, according to the most recent Census Bureau data.
	
	That number has undoubtedly gone up, as the recession has hammered
incomes.
	Some 41.3 million people were on food stamps as of June 2010, for
instance,
	up 45% from June 2008. With unemployment high and federal jobless
benefits
	now available for up to 99 weeks, 9.7 million unemployed workers
were
	receiving checks in late August 2010, more than twice as many as the
4.2
	million in August 2008.
	
	
	Still more Americans-19 million by 2019, according to the
Congressional
	Budget Office-will get federal aid to buy health insurance when
legislation
	passed this year is implemented.
	
	The expanding federal safety net has helped shelter many families
from the
	worst of the downturn. Charlene A. Mueller-Holden doesn't fit the
stereotype
	of a person on benefits. Laid off from J.P. Morgan Chase & Co. in
January
	2008, Ms. Mueller-Holden, 38, drew unemployment for 99 weeks.
	
	The Newark, Del., resident knocked $40 a month off her mortgage
payments
	through the federal Making Home Affordable Program, designed to keep
people
	in their homes by helping them modify or refinance their mortgages.
But when
	her unemployment benefits ran out, Ms. Mueller-Holden and her
husband, a
	government employee, couldn't afford the $1,008 monthly payments.
	
	She turned to the Delaware State Housing Authority which, under a
federally
	subsidized program aimed at helping families with children stay in
their
	homes, gave her $1,000 a month for five months toward mortgage
payments. She
	and her two sons ate lunch for free at the local school this summer,
and she
	has applied for free lunch for one of her sons who will be a first
grader
	this year.
	
	Ms. Mueller-Holden's family earned too little to pay federal taxes
last
	year, and received an extension on their state taxes. "Quite
frankly, I
	don't care about the deficit," says Ms. Mueller-Holden. "It's going
to take
	years upon years upon years to pay this all back," she says, so it's
better
	to focus on job growth now and deal with the deficit later.
	
	Government data don't show how many of the households receiving
government
	benefits also escape federal taxes. But there is certainly some
overlap
	between the two groups, since many benefits are aimed at those
earning too
	little to pay income taxes and at people who don't have jobs, and
who thus
	don't pay payroll taxes.
	
	Cutting spending on these "entitlements" is widely seen as an
inevitable
	ingredient in any credible deficit-reduction program. Yet despite
occasional
	bouts of belt-tightening in Washington and bursts of discussion
about
	restraining big government, the trend toward more Americans
receiving
	government benefits of one sort or another has continued for more
than 70
	years-and shows no sign of abating.
	
	An aging population is adding to the ranks of Americans receiving
government
	benefits, and will continue to do so as more of the large baby-boom
	generation, those born between 1946 and 1964, become eligible.
Today, an
	estimated 47.4 million people are enrolled in Medicare, up 38% from
1990. By
	2030, the number is projected to be 80.4 million.
	
	The difficulty of restraining benefits when so much of the
population
	depends on them is now on view across Europe, where efforts to rein
in
	deficits are forcing governments to cut popular entitlements.
European
	countries have traditionally provided far more generous welfare
benefits
	than the U.S. has, including monthly allowances for children
regardless of
	income, free college tuition and universal health care. Public
retirement
	programs are also bigger, since the combination of aging populations
and low
	birth rates means fewer workers are paying into the system.
	
	In recent months, political leaders in Europe have struggled to
convince
	voters that change is necessary. German Chancellor Angela Merkel has
	exempted pensions from her government's planned budget cuts,
reflecting the
	growing power of the retiree vote. French President Nicolas Sarkozy
is
	facing mass protests, including a national strike week, as he tries
to raise
	France's minimum retirement age from 60 to 62. Greece's government
had to
	face down demonstrations this year when it slashed pension benefits,
as it
	was forced to do to get bailout money from other European countries
and the
	International Monetary Fund.
	
	Still, Europe does offer examples that change is possible. Germany
slashed
	benefits for the long-term unemployed in 2004, a step that analysts
credit
	with prompting more Germans to get jobs as well as improving the
country's
	budget balance. Cuts to entitlements are politically possible, says
Daniel
	Gros, director of the Center for European Policy Studies, a
nonpartisan
	think tank in Brussels, "but societies need some time to get used to
the
	idea."
	
	The U.S. government first offered large-scale assistance during
Franklin
	Delano Roosevelt's New Deal. The Social Security Act, passed in
1935,
	created the popular retirement program as well as unemployment
compensation,
	the early stages of what became known as "welfare" and assistance to
the
	blind and elderly. In the 1940s, the G.I. Bill offered unemployment
	benefits, education assistance and loans to veterans. That same
decade,
	Washington began offering free or reduced-price lunches to children
from
	low-income families and, a decade later, monthly benefits to the
disabled.
	
	Lyndon Johnson's Great Society programs brought food stamps plus
Medicare
	and Medicaid. In the 1970s, Supplemental Security Income was created
on top
	of routine Social Security benefits for the poorest of the elderly
and
	disabled, and so-called Section 8 vouchers began subsidizing rental
housing.
	The earned-income tax credit was launched in 1975 to offer extra
cash to
	low-wage workers, and grew in the 1990s to become one of the
government's
	principle antipoverty programs.
	
	Benefits for children were expanded in 1997 with the State
Children's Health
	Insurance Program during the Clinton administration-and were
expanded again
	in 2009. Shortly after President Barack Obama took office, Congress
passed
	the American Recovery and Reinvestment Act, the stimulus bill, which
among
	other things extended unemployment compensation and offered
incentives for
	states to cover more workers.
	
	All this is expensive. Payments to individuals-a budget category
that
	includes all federal benefit programs plus retirement benefits for
federal
	workers-will cost $2.4 trillion this year, up 79%, adjusted for
inflation,
	from a decade earlier when the economy was stronger. That represents
64.3%
	of all federal outlays, the highest percentage in the 70 years the
	government has been measuring it. The figure was 46.7% in 1990 and
26.2% in
	1960.
	
	When the economy recovers, some-but not all-current recipients of
federal
	aid are likely to lose their benefits, which some say is reason
enough to
	keep them going for now.
	
	"If there became an expectation that government was going to provide
over
	half of the population's well-being to a significant degree without
	requiring anything of the recipients, there would be reason for
concern,"
	says Robert Reischauer, a former Congressional Budget Office
director and
	now president of the Urban Institute, a liberal-leaning think tank
in
	Washington, D.C. "I don't think that's where we are or where we're
headed."
	
	The public appears divided on what to do. A new Allstate/National
Journal
	poll found that 35% of voters want the government to make sure
future
	retirees receive all the benefits they've been promised even if it
means
	raising taxes. Another 34% said the government should make
retirement
	programs "financially sustainable" by making some cuts to those
benefits and
	raising some taxes, and 22% said they'd be willing to see benefits
cut to
	restrain the programs' rising costs.
	
	The call for restraining benefits resonates with voters like Robert
	Letherman. "You name it, someone is lining up to get bailed out, or
a
	handout, courtesy of the hard-working American taxpayer," says Mr.
	Letherman, 39, a real-estate developer in Elkhart, Ind.
	
	
	Mr. Letherman says he has struggled through the recession like many
others,
	but doesn't qualify for government assistance. His income has
declined 40%
	since 2007. Some $4 million in development projects percolating in
the
	spring of 2007 have since been shelved.
	
	He supports helping people in need, says Mr. Letherman, but believes
many
	people game the system. Extended unemployment benefits, for example,
give
	some Americans an excuse not to go back to work, he says. If it were
up to
	him, government would be half the size it is now.
	
	He favors eliminating pensions for all government workers, excluding
	military and intelligence personnel, and would impose a nationwide
sales tax
	to pay off the country's debt. "If we continue down the path of
deficit
	spending, the great recession of 2008 will be nothing compared to
what we
	will face in five, 10, 20 years," he says.
	
	Cutting federal benefits while the economy is still weak would be a
mistake,
	some analysts say, because it could hinder recovery by giving
consumers less
	money to spend.
	
	Paul Hester has relied on government benefits since he lost his job
in June
	2009. The 54-year-old microbiologist has a master's degree and was
earning a
	salary of $50,000 at the Indiana State Department of Health. He says
he
	regularly looks for jobs, but has landed only two interviews in the
past
	year.
	
	Influenced by the credit wariness of parents who lived through the
Great
	Depression, the Indianapolis resident has always been thrifty. He
once
	watched his dad walk into a dealership, "plop down $10,000 in cash
and buy a
	car." Mr. Hester has one credit card, and before he was unemployed,
he tried
	to pay it off every month.
	
	He lives on $375 a week in unemployment checks and his
health-insurance
	premiums are subsidized by the federal government under a provision
in the
	fiscal stimulus enacted by Congress in February 2009. His daughter,
a
	college sophomore, pays for part of her schooling with Pell Grants,
a
	federal program for low-income students that is set to expand
because of new
	legislation that increased the number and size of grants.
	
	"I don't like taking government money," says Mr. Hester, but "what
else is
	there?"