A Nation of Takers

America's Entitlement Epidemic

Templeton Press

Contents

Epigraph

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The issue of welfare is the issue of dependency. It is different from poverty. To be poor is an objective condition; to be dependent, a subjective one as well. That the two circumstances interact is evident enough, and it is no secret that they are frequently combined. Yet a distinction must be made. Being poor is often combined with considerable personal qualities; being dependent rarely so. That is not to say that dependent people are not brave, resourceful, admirable but simply that their situation is never enviable, and rarely admired. It is an incomplete state of life: normal in a child, abnormal in an adult. In a world where completed men and women stand on their own feet, persons who are dependent—as the buried imagery of the word denotes—hang.

—Daniel Patrick Moynihan, 1973

The Rise of Entitlements in Modern America, 1960–2010

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Introduction

The American republic has endured for more than two and a quarter centuries; the United States is the world's oldest constitutional democracy. But over the past fifty years, the apparatus of American governance has undergone a fundamental and radical transformation. In some basic respects—its scale, its preoccupations, even many of its purposes—the United States government today would be scarcely recognizable to a Franklin D. Roosevelt, much less an Abraham Lincoln or a Thomas Jefferson.

What is monumentally new about the American state today is the vast and colossal empire of entitlement payments that it protects, manages, and finances. Within living memory, the government of the United States of America has become an entitlements machine. As a day-to-day operation, the U.S. government devotes more attention and resources to the public transfers of money, goods, and services to individual citizens than to any other objective; and for the federal government, more to these ends than to all other purposes combined.

Government entitlement payments are benefits to which a person holds an established right under law (i.e., to which a person is entitled). A defining feature of these payments (also sometimes officially referred to as "current transfer receipts of individuals from government," or simply "transfers") is that they "are benefits received for which no current service is performed." Entitlements are a relatively new concept in U.S. politics and policy; according to Merriam-Webster, the first known use of the term was not until 1942. But entitlements have become very familiar, very fast. By the reckoning of the Bureau of Economic Analysis (BEA), the research group within the Commerce Department that prepares the U.S. government's GNP estimates and related national accounts, income from entitlement programs in the year 2010 was transferred to Americans under a panoply of over fifty separate types of programs, and accounted for almost one-fifth (18 percent) of personal income in that year.

The breathtaking growth of entitlement payments over the past half-century is shown in Figure 1. In 1960, U.S government transfers to individuals from all programs totaled about $24 billion. By 2010, the outlay for entitlements was almost 100 times more. Over that interim, the nominal growth in entitlement payments to Americans by their government was rising by an explosive average of 9.5 percent per annum for fifty straight years. The tempo of growth, of course, is exaggerated by concurrent inflation—but after adjusting for inflation, entitlement payments soared more than twelve-fold (1248 percent), with an implied average real annual growth rate of about 5.2 percent per annum (see Figure 2). Even after adjusting for inflation and population growth, entitlement transfers to individuals have more than septupled (727 percent) over the past half-century, rising at an overall average of about 4 percent per annum (see Figure 3).

These long-term spending trends mask shorter-run tendencies, to be sure. Over the past two decades, for example, the nominal growth in these entitlement outlays has slowed to an average of "only" 7.1 percent a year (or a doubling every decade). Adjusted for inflation by the Consumer Price Index, real entitlement outlays rose by an average of "just" 4.4 percent over those years—and by a "mere" 3.2 percent a year on a per capita basis. But if the pace of entitlement growth has slowed in recent decades, so has the growth in per capita income. From 1960 to 2010 real per capita income in America grew by a measured 2.2 percent on average—but over the past twenty years, it has increased by 1.6 percent per annum. In other words, total entitlement payouts on a real per capita basis have been growing twice as fast as per capita income over the past twenty years; the disparity between entitlement growth on the one hand and overall income growth on the other is greater in recent times than it was in earlier decades.

The magnitude of entitlement outlays today is staggering. In 2010 alone, government at all levels oversaw a transfer of over $2.2 trillion in money, goods, and services to recipient men, women, and children in the United States. At prevailing official exchange rates, that would have been greater than the entire GDP of Italy, roughly the equivalent of Britain's and close to the total for France—advanced economies all with populations of roughly 60 million each. (The U.S. transfer numbers, incidentally, do not include the cost of administering the entitlement programs.) In 2010 the burden of entitlement transfers came to slightly more than $7,200 for every man, woman, and child in America. Scaled against a notional family of four, the average entitlements burden for that year alone would have approached $29,000. And that payout required payment from others, through taxes, borrowing, or some combination of the two.

A half-century of unfettered expansion of entitlement outlays has completely inverted the priorities, structure, and functions of federal administration, as these had been understood by all previous generations of American citizens. Until 1960 the accepted purpose of the federal government, in keeping with its constitutional charge, was governing. The federal government's spending patterns reflected that mandate. The overwhelming share of federal expenditures was allocated to defending the republic against enemies foreign and domestic (defense, justice, interest payments on the national debt) and some limited public services and infrastructural investments (the postal authority, agricultural extension, transport infrastructure, and the like). Historically, transfer payments did not figure prominently (or, sometimes, at all) in our federal ledgers. The Bureau of Economic Analysis (BEA), which prepares America's GNP estimates and related national accounts, identifies only two calendar years before 1960 in which federal transfer payments exceeded other federal expenditures: in 1931, with President Herbert Hoover's heretofore unprecedented public relief programs, and in 1935, under President Roosevelt. (Even then, given the limited size of the U.S. government in those years, these entitlement transfers were negligible from a contemporary perspective—totaling just over 3 percent of GDP in 1931, and under 3 percent in 1935.) For most of FDR's tenure, and for much of the Great Depression, the share of federal spending devoted to income transfers was a third or less of total spending.

In 1960, entitlement program transfer payments accounted for well under one-third of the federal government's total outlays (see Figure 4)—about the same fraction as in 1940, when the Great Depression was still shaping American life, with unemployment running in the range of 15 percent. But then—in just a decade and a half—the share of entitlements in total federal spending suddenly spurted up from 28 percent to 51 percent. It did not surpass the 50 percent mark again until the early 1990s. But over the past two decades it rose almost relentlessly, until by 2010 it accounted for just about two-thirds of all federal spending, with all other responsibilities of the federal government—defense, justice, and all the other charges specified in the Constitution or undertaken in the intervening decades—making up barely one-third (see Figures 5 and 6). Thus, in a very real sense, American governance has literally turned upside-down by entitlements—and within living memory.

The story of the (im)balance between entitlement transfers and overall government activities—at the federal, state, and local levels—is none too different (see Figures 7 and 8). In 1940, federal government transfers to individuals amounted to under one-sixth of total U.S. government outlays; in 1960, twenty years later, these entitlements still comprised barely 19 percent of all U.S. government expenditures. Between 1960 and 2010, the share of entitlements in government spending at all levels jumped from 19 percent to 43 percent—and the ratio of non-entitlement to entitlement spending fell from 4.2:1 down to 1.3:1. On that trajectory, the day in which entitlement spending comes to exceed all other activities of all levels and branches of the U.S. government is already within sight.

Although the U.S. entitlements archipelago is by now extraordinarily far-flung and complex, with dozens upon dozens of separate programmatic accounts extant today, the overall structure of government entitlement spending can be classified into just a few categories. U.S. public transfer data are easily divided into six overall baskets: income maintenance, Medicaid, Medicare, Social Security, unemployment insurance, and all the others (see Figures 9 and 10). Broadly speaking, the first two baskets attend to entitlements based upon poverty or income status; the second two, entitlements attendant upon aging or old-age status; and the next, entitlements based upon employment status. The first five of these entitlement categories account for about 90 percent of total government transfers to individuals, and the first four categories comprise about five-sixths of all such spending. These four bear closest consideration.

Poverty- or income-related entitlements—transfers of money, goods, or services, including health-care services—accounted for over $650 billion in government outlays in 2010 (see Figure 11). Between 1960 and 2010, inflation-adjusted transfers for these objectives increased by over—thirty-fold, or by over 7 percent a year; significantly, however, income and benefit transfers associated with traditional safety-net programs now comprise only about a third of entitlements granted on income status, while two-thirds of those allocations are absorbed by the health-care guarantees offered through the Medicaid program.

For their part, entitlements for older Americans worked out to even more: by 2010, about $1.2 trillion (see Figure 12).

In real terms, these age-related transfers multiplied by a factor of about 12 over that period—or an average of more than 5 percent a year. But in purely arithmetic terms, the most astonishing growth of entitlements has been for health-care guarantees based on claims of age (Medicare) or income (Medicaid) (see Figure 13). Until the mid-1960s, no such entitlements existed; by 2010, these two programs were absorbing more than $900 billion annually.

In current political discourse, it is common to think of the Democrats as the party of entitlements—but long-term trends seem to tell a somewhat different tale. From a purely statistical standpoint, the growth of entitlement spending over the past half-century has in truth been distinctly greater under Republican administrations than Democratic ones. Between 1960 and 2010, to be sure, the growth of entitlement spending was exponential—but in any given calendar year, it was on the whole over 8 percent higher if the president happened to be a Republican rather than a Democrat. This is in keeping with the basic facts of the time: notwithstanding the criticisms of "big government" that emanated from their Oval Offices from time to time. The Richard Nixon, Gerald Ford, and George W. Bush administrations presided over especially lavish expansions of the American entitlement state. Irrespective of the reputations and the rhetoric of the Democratic and Republican parties today, the empirical correspondence between Republican presidencies and turbocharged entitlement expenditures should underscore the unsettling truth that both political parties have, on the whole, been working together in an often unspoken consensus to fuel the explosion of entitlement spending in modern America.

The New American Way of Life: Our National Declaration of Dependence

From the founding of our state up to the present—or rather, until quite recently—the United States and the citizens who peopled it were regarded, at home and abroad, as "exceptional" in a number of deep and important respects. One of these was their fierce and principled independence, which informed not only the design of the political experiment that is the U.S. Constitution but also the approach to everyday affairs. The proud self-reliance that struck Alexis de Tocqueville in his visit to the United States in the early 1830s extended to personal finances. The American "individualism" about which he wrote included social cooperation, and on a grand scale—the young nation was a hotbed of civic associations and voluntary organizations. Rather, it was that American men and women viewed themselves as accountable for their own situation through their own achievements in an environment bursting with opportunity—a novel outlook at that time, markedly different from the prevailing Old World (or at least Continental) attitudes.

The corollaries of this American ethos (which might be described as a sort of optimistic Puritanism) were, on the one hand, an affinity for personal enterprise and industry; and, on the other hand, a horror of dependency and contempt for anything that smacked of a mendicant mentality. Although many Americans in earlier times were poor—before the twentieth century, practically everyone was living on income that would be considered penurious nowadays—even people in fairly desperate circumstances were known to refuse help or handouts as an affront to their dignity and independence. People who subsisted on public resources were known as "paupers," and provision for these paupers was a local undertaking. Neither beneficiaries nor recipients held the condition of pauperism in high regard.

Overcoming America's historic cultural resistance to government entitlements has been a long and formidable endeavor. But as we know today, this resistance did not ultimately prove an insurmountable obstacle to the establishment of a mass public entitlements regime or to the normalization of the entitlement lifestyle in modern America. The United States is at the verge of a symbolic threshold: the point at which more than half of all American households receive, and accept, transfer benefits from the government. From cradle (strictly speaking, from before the cradle) to grave, a treasure chest of government-supplied benefits is open for the taking for every American citizen—and exercising one's legal rights to these many blandishments is now part and parcel of the American way of life.

Just how the great American postwar migration to general entitlement dependency was accomplished will be a matter for future historians to explain. For now we can note that there was a certain supply-and-demand dynamic was in play—and in this saga, supply helped to create its own demand. Government purveyed, and to sell these particular wares effectively, it was necessary for government to get into the business of norm-changing. A succession of presidential administrations did just that, with continuing dedication and some ingenuity. Two of the many milestones in this effort deserve brief mention here.

The first is the promulgation of the electronic benefit transfer (EBT) card, which began its march through the federal entitlement apparatus in the 1990s. EBTs were issued in the place of food stamps—coupons that could be used at grocery stores but which were made to look different from cash, and which carried restrictions on what the possessor could purchase. EBTs, in contrast, were plastic swipe cards basically indistinguishable from ordinary debit or credit cards. In 2008—under President George W. Bush—the Supplemental Farm Bill, which had always previously spoken of food "stamps" and "coupons," struck those words from the law and replaced all mention of these possibly stigmatizing instruments with "EBT" and "card."