There was a very interesting story on the front page of the Sunday New York Times, “Even Critics of Safety Net Increasingly Depend on It,” detailing a range of views of people who have an anti-government political orientation yet depend heavily on government supports.
I want to strongly object to one part of the story that seems to support the notion that we’re becoming an “entitlement society.” The story claims that there’s been a major “expansion of government benefits,” which it says “has become an issue in the presidential campaign.” The Center for Economic and Policy Research’s Dean Baker sees some of the same problems.
Many of the facts presented in the story do not support that conclusion and the ones that do seem to support it are misleading. Here’s the key portion:
In 2000, federal and state governments spent about 37 cents on the safety net from every dollar they collected in revenue, according to a New York Times analysis. A decade later, after one Medicare expansion, two recessions and three rounds of tax cuts, spending on the safety net consumed nearly 66 cents of every dollar of revenue.
The recent recession increased dependence on government, and stronger economic growth would reduce demand for programs like unemployment benefits. But the long-term trend is clear. Over the next 25 years, as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.
There are two things problematic with the comparison between 2000 and 2010. One is that the denominator is revenue when it should be expenditures since revenue has eroded because of tax cuts (acknowledged in the article) and because revenues fall in a recession (2000 had 4.0 percent unemployment, 2010 had 9.6 percent) since the fall in economic activity and income reduces revenue. Revenue as a share of GDP hit a 60-year low in 2010. Here’s what you find when you look at federal budget data: Entitlements (i.e., mandatory spending) as a share of federal expenditures were the same 53 percent of total outlays in 2007 as they were in 2000, so there was no trend towards expansion, at least before the recession hit. The mandatory share rose to 55 percent in fiscal year 2010 and 56 percent in 2011, a small increase.
The second problem is that the article suggests it is describing a situation of expanded benefits when, in actuality, the 2010 endpoint largely reflects that response of existing programs to the recession – more people do get unemployment insurance, Medicaid, food stamps and so on but once unemployment returns to low levels the expanded benefit rolls will retreat. (The American Reinvestment and Recovery Act and subsequent legislation also temporarily expanded the earned income tax credit, child tax credit, unemployment insurance, and food stamp benefits, among other programs – all cost effective fiscal stimulus and prudent economic policies but unlikely to be continued indefinitely.) It is easy to see that the bump up between 2007 and 2010 or 2011 was due to the greater income supports that are generated in a recession; if you take out the “income security” portion of mandatory outlays, which includes unemployment insurance and food stamps, then the mandatory share of outlays was roughly the same 45 percent of outlays in 2011 as its 46 percent share in 2000.
So, there’s no evidence to show we’re becoming an “entitlement society,” just that we’re low on revenues and the economy remains depressed. The citation of the safety net going from 37 percent to 66 percent (of revenues) has nothing to do with permanently expanding program eligibility or higher benefits, but much to do with cyclical factors and revenue erosion.
What about the future path of entitlement spending? Well, the article itself notes that the rise is due primarily to rising medical costs and an older population (i.e., more old people). This is an old story and given that the bulk of the increase is the fast-rising cost of medical services, the answer needs to be controlling the growth of health care costs. It is also the case that these rising health care costs will be a major burden to private-sector employers, so we are not facing a government problem but a national economic challenge. If we were to limit federal health expenditures, a la House Budget Committee Chairman Paul Ryan (R-Wisc.), then the burden of this problem would fall on the elderly, their families, state and local governments, and private-sector employers. This doesn’t solve the problem, it just shifts the costs, likely exacerbating national health care expenditure in the process.