"Entitlements" and the Federal Budget

March 28, 2011

A new Cato Policy Analysis from Michael Tanner examines so-called “entitlement programs” – chiefly Social Security, Medicare, and Medicaid – and how they will push the government’s finances to the brink if they’re not reined in. As he notes in the introduction, if politicians continue to duck the issue, they “will condemn our children and our grandchildren to a world of mounting debt and higher taxes.”

With Congress continuing to argue over a meager $61 billion in cuts to nondefense discretionary spending, Tanner’s paper is a sobering reminder that it’s the major entitlement programs that are pushing us toward the cliff’s edge:

The vast majority of future debt is driven neither by defense nor discretionary programs but by so-called entitlement programs, three in particular: Social Security, Medicare, and Medicaid. In fact, by 2050, those three programs alone are expected to consume every penny that the federal government raises in taxes. That means that everything else that the government does, from domestic programs to national defense, including paying interest on the federal debt, will have to be paid for through still more debt, or else government will have to raise taxes to astronomical levels. As the full burden of entitlement programs kicks in, the federal government will consume more than 40 percent of GDP by the middle of the century. Again, half of that will be for Social Security, Medicare, and Medicaid.

Readers who are interested in understanding why simply “eliminating waste, fraud, and abuse” in government programs is a political dodge rather than an effective solution should read this paper. In addition to explaining the unsustainable nature of the major entitlement programs, Tanner provides an effective overview of the federal budget and its components. Sections on deficits and debt, and why they reflect a spending rather than revenue problem, are particularly important.

For additional reading, see these Cato essays on reforming Medicare and Medicaid.

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