A Nation of Takers? Behind the Entitlement Explosion
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The Fiscal Times
October 3, 2012

At some point in tonight’s debate, Republican candidate Mitt Romney will be asked about his views on the 47 percent – the beneficiaries of government programs he dismissed as potential supporters during a private talk to wealthy campaign donors during the spring primary season.

As he has done many times since those surreptitiously recorded comments became public, he will express empathy for those who need a helping hand. But he will probably also defend the basic belief behind the comments: that America cannot thrive if it continues down the path toward becoming an “entitlement society,” where a growing share of the population depends on government largesse.

That viewpoint springs from the deepest wells of contemporary Republican thought. The intellectual spadework was conducted by scholars at the American Enterprise Institute, where demographer Nicholas Eberstadt’s new book “A Nation of Takers: America’s Entitlement Epidemic” will soon be released.

In a preview for reporters Tuesday, Eberstadt laid out what appeared to be a damning set of statistics. Since 1960, transfer payments to individuals have grown from one-third to two-thirds of all federal government spending. It is crowding out investments in defense, infrastructure and research. On a per person basis, entitlement spending has leaped 700 percent with the average annual burden for every man, woman and child in America now at $7,200, he said.

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Eberstadt dismissed analysts who argue the trend has been driven by the aging of society, which naturally increases Social Security and Medicare spending.  He pointed out that 35 percent of U.S. households now get some form of direct assistance compared to half that number in the 1980s. “Americans are not twice as poor as they were in the Reagan era,” he said. “There has been a change in mentality, the American declaration of dependence.”

He blamed the declining share of men in the workforce on an overly generous disability system. And, in lamenting the fact that nearly half of the nation’s children receive some form of assistance, he wondered, “Is this a gateway or a habituation for the future?”

There was at least one obvious shortcoming in Eberstadt’s analysis. By choosing 1960 as his starting point, he sets his baseline before the creation of Medicare and Medicaid in 1965. Today those two programs are the most expensive entitlements financed by federal taxes.

In fact, those two programs this year will consume nearly 36 percent of the $2.6 trillion in federal transfer payments to individuals. That’s 5.4 percent of gross domestic product (GDP), up from 1.6 percent of GDP in the mid-1970s, when government-provided health insurance coverage for the aged and very poor became fully operational. It was near zero in 1960.

Over those same 36 years, all payments to individuals, which includes not just health care, but Social Security, veterans benefits, unemployment insurance, welfare, food stamps and other low-income subsidies, went from 10.4 percent to 15.2 of GDP.  In other words, since the mid-1970s, spending on health care programs accounted for nearly 80 percent of the entire increase in entitlement spending when measured as a share of GDP.

“Health care is an enormous problem; it’s the budget buster,” said James Kessler of Third Way, a Democratic-leaning centrist group that backs reining in entitlement spending. “It’s holding down wages and it is on a trajectory where it will only get worse.”

“If you look at the growth in spending programs, it’s primarily concentrated on the health care front,” said Greg Anrig, vice president of the liberal Century Foundation. “In part that is due to expansions in coverage, such as for children. But if you look at other countries, the reason we spend more is that we have a much less efficient, much more privatized approach to health care.”

The U.S. now spends over 17 percent of GDP on health care if one includes both the public and private sectors. Given that that is nearly 50 percent more than any other country when measured as a share of GDP, it automatically means government programs that cover vulnerable populations – the elderly and the poor – will be more expensive here than elsewhere.

Anrig also pointed out that the government’s assumption of most health care spending for seniors had a major impact on their well-being. In 1959 – the year before Eberstadt’s benchmark – elderly poverty in the U.S. was 35 percent. Today, it is 10 percent. “It’s largely declined because of the broadening of coverage of Social Security and the advent of Medicare and Medicaid,” he said.

On the other hand, there’s not much evidence in federal budget documents examined by The Fiscal Times to suggest the “welfare state” has grown more generous over the years. Total spending on public assistance and unemployment insurance will total 1.7 percent of GDP in 2012, no different than what it was in 1976, which was also a year when the economy was weak. In the mid-1960s, a time of rapid economic expansion, spending on welfare and the unemployed was 0.6 percent. Spending on food and nutrition assistance programs has also leaped since their creation in the mid-1960s, but it is still less than one percent of GDP.

Anrig suggested the gradual rise in income supplement programs for low- and moderate-income people over the past three decades was related to the decline of manufacturing, the rise of low-wage service work and growth of structural under- and unemployment. “It has been a long, prolonged period of economic difficulty experienced by a big section of the population,” he said. “But rather than focusing on the economy, which fits the facts better than any explanation that focuses on what the government spends, conservatives focus on the hyperbolic reaction that the government is to blame for whatever happens to us.”

spent 25 years as a foreign correspondent, economics writer and investigative business reporter for the Chicago Tribune and other publications. He is the author of the 2004 book, The $800 Million Pill: The Truth Behind the Cost of New Drugs.