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Knowledge Base

Entitlements and the Budget

What are entitlement programs?

The federal government officially defines an entitlement as a "statutory mandate or requirement of the United States to incur a financial obligation unless that obligation is explicitly conditioned on the appropriation in subsequent legislation of sufficient funds for that purpose."

In other words, entitlement programs are those that guarantee benefits to any individual as long as they meet the eligibility criteria, regardless of need.

Typical entitlement programs include Social Security retirement and disability insurance, veterans’ pensions and health care, Medicare, Medicaid, unemployment insurance, Temporary Assistance to Needy Families (TANF), food stamps, Supplemental Security Income (SSI), the earned income tax credit, and the Affordable Care Act’s health insurance subsidies.

How much do entitlement programs cost?

Mandatory programs like entitlements cost about $2.5 trillion dollars out of a total federal budget of a little over $4 trillion dollars. Social Security represents almost $1 trillion, Medicare is around $580 billion, Medicaid is $400 billion (with another large amount contributed by states), and other mandatory programs fill out the remaining $600 billion.

For more, you can browse the published budgets at the U.S. Government Printing Office’s website here.

What kind of entitlement reforms are needed?

In the Blueprint for America chapter, John Cogan suggests three changes for to Social Security in order to control the rising levels of federal spending and national debt. First, benefit increases paid to future cohorts of retirees should be limited to the rate of inflation. Second, Social Security’s normal retirement age should be gradually increased and combined with a policy to encourage older workers to remain employed. Third, younger workers should be allowed to invest a portion of their payroll taxes in safe, diversified, stock and bond funds.

Such policy would also create greater incentives for young personal to save and invest for retirement. However, major reductions in entitlement benefits or celebrity restrictions should come slowly and predictably.

Cogan also suggests gradually transforming Medicare from its current form of an acute-care program into a true insurance program that offers greater financial protection against the high cost of catastrophic illness. To learn more, click here.