Reducing Dependency Required to Fix Federal Budget

This article originally appeared in the Washington Examiner

President Obama released a budget plan this week that proposes to increase spending from $3.8 trillion in 2013 to $5.8 trillion in 2022.

As limited-government types wonder how to reverse this trend, they need to confront the following: Americans in every possible demographic group are increasingly dependent on government. That makes it that much tougher to cut spending.

According to the Census Bureau's data from the third quarter of 2010, 49 percent of Americans live in a household receiving benefits from one or more federal and state programs (the red bar on the accompanying chart).

That's 148 million people out of a total population of 304 million. More than one in three Americans lived in households that received Medicaid, food stamps, or other means-based government assistance (the green bar).

The blue bars break down the population living in households receiving benefits from various federal programs. (Note that the bars do not add up to 100 percent because it is common for people to receive benefits from more than one program.)

So-called entitlements, which by law pay benefits to anyone who fits a program's criteria, have the most recipients. Specifically, 16 percent of the population lived in a household receiving Social Security benefits, and 15 percent in a household receiving Medicare benefits.

Twenty-six percent of the population lives in a household where at least one member is receiving Medicaid, the country's health care program for the poor.

These three programs account for the overwhelming majority of social-welfare spending. According to the New York Times' Binyamin Appelbaum and Robert Gebeloff, government at all levels spent $7,500 per capita on 50 benefit programs designed to help citizens. Social Security, Medicare and Medicaid account for $7,000 of the per capita total.

The high number of households receiving entitlements and other government payouts explains the unwillingness of lawmakers (whether Democrat or Republican) to reform them. Yet the problems of financing such largess can only get worse, even after the effects of the Great Recession of 2008 have fully ended.

There are three basic reasons for that:

First, the number of people depending on these government programs is set to soar. Medicare enrollment alone will grow by roughly one-third as baby boomers start turning 65. As a result, with the exception of interest payments on our soaring debt, spending on health care benefits will consume a larger share of the projected increase in the federal budget in the next 10 years.

Social Security spending will likewise increase, though at a slower rate. By 2023, fully 50 percent of the federal budget will be spent on seniors (on top of Medicare and Social Security, about one-third of Medicaid will be going to seniors).

Second, the explosive growth in entitlement dependency since the 1980s stems in large part from expanding the programs (think Medicare part D) and their eligibility criteria. For instance, Social Security's disability insurance expanded to cover back injuries and Medicaid's income-eligibility level was increased. These examples are representative of a wider trend toward covering more people and more problems.

The result is a shift from covering the poorest Americans to helping out more members of the middle class. Indeed, Appelbaum and Gebeloff report that "the share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007." These people, unlike the poor, vote and may very well vote to keep the benefits or even expend them.

Finally, a growing number of Americans do not pay the taxes that are supposed to fund these programs. According to the Tax Policy Center, 14 percent of Americans don't pay either income or payroll taxes. That number has grown at the same time that the number of recipients has grown, a situation that is plainly unsustainable.

If the government wants to achieve any sort of financial balance, it needs to either cut the number of recipients or increase the number of people paying for social-welfare programs. Politically, that won't be easy, but it's the only possible way to get spending -- and debt -- under control.

Read more: "A Nation of Government Dependents?"