Archive for the ‘ Entitlements ’ Category

Entitlement programs: A Glossary of Political Economy Terms – Dr. Paul M. Johnson

 

 

The kind of government program that provides individuals with personal financial benefits (or sometimes special government-provided goods or services) to which an indefinite (but usually rather large) number of potential beneficiaries have a legal right(enforceable in court, if necessary) whenever they meet eligibility conditions that are specified by the standing law that authorizes the program. The beneficiaries of entitlement programs are normally individual citizens or residents, but sometimes organizations such as business corporations, local governments, or even political parties may have similar special “entitlements” under certain programs. The most important examples of entitlement programs at the federal level in the United States would include Social Security, Medicare, and Medicaid, most Veterans’ Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price support programs.

The existence of entitlement programs is mainly significant from a political economy standpoint because of the very difficult problems they create for Congress’s efforts to control the exact size of the budget deficit or surplus through the annual appropriations process. It is often very hard to predict in advance just how many individuals will meet the various entitlement criteria during any given year, so it is therefore difficult to predict what the total costs to the government will be at the time the appropriation bills for the coming fiscal year are being drafted. This makes it even harder for government to smooth out the business cycle or pursue other macroeconomic objectives through an active fiscal policy — because these objectives require careful pre-planning of the size of the budget deficit or surplus to be run. In the first place, the amount of money that will be required in the coming year to fund an entitlement program is often extremely difficult to predict in advance because the number of people with an entitlement may depend upon the overall condition of the economy at the time. For example, the total amount of unemployment benefits to be paid out will depend upon the changing level of unemployment in the economy as the year wears on. Some very large entitlement programs (including Social Security pensions and government employee retirement programs) have been “indexed” to inflation, so that the size of the benefit is periodically adjusted according to a fixed formula based on unpredictable changes in the Consumers’ Price Index. Perhaps more significantly, the amount of spending on entitlement programs is impossible for the Senate and House Appropriations committees to even attempt to adjust or to control because those committees do not have the jurisdiction to rewrite the laws that specify who gets how much and under what conditions. The various specialized standing committees who do have the jurisdiction to rewrite authorizing legislation each tend to be dominated by members whose political interests lie in expanding their particular entitlement program, not in cutting it back, and the political influence of the organized special interest groups that support the programs tends to be overwhelming on the specialized committees when such proposals arise.

Since the middle 1980s, entitlement programs have accounted for more than half of all federal spending. Taken together with such other almost uncontrollable (in the short run, that is) expenses as interest payments on the national debt and the payment obligations arising from long-term contracts already entered into by the government in past years, entitlement programs leave Congress with no more than about 25% of the annual budget to be scrutinized for possible cutbacks through the regular appropriations process. This very substantially reduces the practicality of trying to counteract the ups and downs of the overall economy through a “discretionary” fiscal policy because so very little of the budget is available for meaningful alteration by the Appropriations and Budget committees on short notice.

Entitlement program: A Glossary of Political Economy Terms – Dr. Paul M. Johnson.

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Social Security and the Federal Debt: Why You Should Be Worried – CBS MoneyWatch.com

But the fact of the matter is, I am worried, and I have to respectfully disagree with Mr. Richtman. Somebody has to pay back the interest and principal on these government bonds, and who will that be? You guessed it — that’s us, through our taxes. Another way to express the value of the Social Security trust fund is that it’s invested in $2.5 trillion of future tax collections. Now I don’t feel so secure.

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Social Security should divest itself from U.S Treasury Bond investments… but how can it be done with some measure of  reducing the risk?

via Social Security and the Federal Debt: Why You Should Be Worried – CBS MoneyWatch.com.

House GOP Leaders Target $1 Trillion Medicaid Cut

House GOP Leaders Target $1 Trillion Medicaid Cut

Thursday, 31 Mar 2011 03:02 PM

By Greg Brown

House GOP leaders reportedly seek $1 trillion in cuts to Medicaid, the federal health insurance program for the poor and disabled.

The savings could come over 10 years and the plan appears in a draft of the Republican fiscal 2012 budget, reports Politico.com, citing GOP sources.

It’s less clear how to the savings would be extracted, but Rep. Paul Ryan, R-Wis., — the man behind the budget plan — has previously suggested that the federal government end hundreds of billions in state grants and instead give recipients $11,000 to buy private coverage.

Paul Ryan (AP Photo) Ryan told Politico in February that Medicaid and Medicare were in his sights for cuts.

On Thursday, the National Republican Congressional Committee issued a news release that included press quotes from Democrats favoring changes to Medicaid, including from Sen. Mark Warner of Virginia and Health and Human Services Secretary Kathleen Sebelius. The quotes were dated from a time when both Warner and Sebelius were state governors.

Any changes enacted in an eventual budget would be a huge shift for Medicaid. As it is now, the federal program covers a percentage of the states’ cost for providing healthcare insurance for the poor. If costs rise, a percentage calculation means rising costs for both the states and for the U.S. Treasury.

Under a cap plan, the amount of money provided would be fixed, although details are not yet clear. In any case, a shift away from a percentage model implies less money from the government to pay for future healthcare, thus the savings.

All of this is happening against a do-or-die struggle on the Hill to come to agreement on budget cuts or simply let the government shut down, an outcome some on Wall Street think would be the moral equivalent of a default on U.S. debt.

At some point between Tax Day, April 15, and the end of May, the United States is likely to hit its $14.29 trillion debt ceiling, a self-imposed spending limit that Congress must vote to raise.

“If the United States actually defaults on our debt it would be catastrophic,” JPMorgan Chase CEO Jamie Dimon said while speaking Wednesday to the U.S. Chamber of Commerce, warning that “all short-term financing would disappear” for U.S. companies, insurers, and for investors.

Meanwhile, the manager of the world’s biggest bond fund, Pacific Investment Management Co., now says that U.S. Treasurys “have little value” due to the country’s $75 trillion in unrecorded debt, five times the size of entire economy.

Bill Gross, in a monthly note to investors, said the figure includes bonds plus U.S. obligations for Social Security, Medicare, and Medicaid.

Without reform of these programs soon, Gross warned, expect inflation, devaluation of the dollar, and low or negative real interest rates.

Congress “must make ‘debt’ a four-letter word,” Gross wrote.

via House GOP Leaders Target $1 Trillion Medicaid Cut.