July 19, 2022

The Failure to Establish Effective Rules for Financing U.S. Federal Entitlement Programs

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Charles Blahous, in “The Failure to Establish Effective Rules for Financing US Federal Entitlement Programs,” argues that understanding the fiscal practices of the US government requires an understanding of how its federal mandatory spending programs, otherwise known as entitlements, have largely eluded effective financial controls.

Budget Deficit Growth

The US federal government’s structural budget deficit has grown persistently over the past several decades, driven principally by spending growth in the entitlement programs. While other aspects of federal budgeting, ranging from tax policy to discretionary appropriated spending, are frequently the focus of political debates, nonpartisan examinations of the federal fiscal imbalance consistently conclude that its primary cause is the growth of entitlement program spending, with the largest amounts occurring in Social Security, Medicare, and Medicaid.

  • This study was conducted in 2020 before the budgetary effects of COVID-19 were fully known, including both direct budgetary effects of the economic downturn as well as the effects of multiple economic relief bills, which continue to move through Congress at the time this article is going to press.
  • These various economic relief bills have both worsened and complicated the near-term budget outlook. However, irrespective of this ongoing legislation, the long-term story remains one of spiraling federal deficits and debt, with the situation deteriorating dramatically over the last decade and projected to grow out of control in the years to come.
  • With the exceptions of a brief period of fiscal consolidation in the late 1990s and surges in annual deficits during two recent recessions, the picture looks remarkably consistent across time. Deficits rise and fall (individual years), but the midpoint of the fluctuations has persistently grown faster than the GDP since the 1970s.
  • As a consequence, federal debt has been accumulating faster than growth in US economic output; again, excepting a brief period in the late 1990s and mid-2000s.

A Collective Unwillingness of Lawmakers

The federal policies that have led to these results have not evolved according to any particular fiscal rule, whether automatically implemented or otherwise. The accumulation of red ink has transpired in good economic times and bad, in periods of market declines and recoveries, and during both Democratic and Republican control of the presidency and of Congress. This imbalance directly reflects the collective unwillingness of lawmakers to limit federal spending to amounts more closely approximating federal revenue collections.