The Painful Truth About Entitlements

by Richard H. Frank

Americans are beginning to understand the serious financial crises we face from excessive Government spending.  The media and those within our two political parties are quick to point out earmarks, pork and wasteful programs that once funded never go away.  That is well and good but diverts our attention away from the real issue that will eventually destroy the fabric of this nation.  “Entitlements,” promises made to our citizens that cannot be kept, are quickly eroding the stability of the Country.  There are two facts that all of us must understand before we and our elected representatives attempt to resolve the problem of entitlements.

First, Government creates no real value.  Government only exchanges services for the taxes (revenue) it collects from the private sector which does create value.

Second, revenue to the Government (taxes) can only come from two sources: 1) growth in the gross domestic product (the value of all goods and services produced) and/or 2) increasing the taxes on individuals and deficit borrowing.

In 1935, well-intentioned politicians created the Social Security Program, an entitlement designed to provide sustenance to the elderly through their retirement years.  This program was funded by the FICA tax on a percentage of individual income that was adjusted from time to time and credited to a Trust Fund for distribution to retirees in future years.  Over time Congress expanded the usage of these entitlement funds far beyond the original intent until by 2008 the “surplus” on the Government books was only $2.4 trillion dollars against unfunded liabilities of  $37 trillion.  The total Gross Domestic Product for the United States in 2009 was $51.9 trillion and is expected to decline in 2010.  Entitlements, Social Security, Medicare and Medicaid amount to 41% of President Obama’s 2010 Budget or $21.2 trillion.  The Big Lie politicians from both political parties continue to tell is that their new entitlement programs such as affordable health care will reduce the deficit over time.  It is a lie because interest alone on the national debt will consume over 30% of our Gross Domestic Product, exceeding the costs of the entitlements, by the middle of this century.  This also doesn’t mention that the Trust Fund lock box has no money but is only filled with Government IOUs.

The average American does not have to possess a degree in Economics to see where more spending on entitlements will lead the country.  No matter what politicians say, this Nation cannot afford any additional entitlement programs.  This includes the Affordable Health Care Bill and immigration reform which will further extend the existing benefits to millions of people who have not contributed and/or will be exempted under some provisions that further redistributes our Country’s wealth.

So you ask, “What is the Solution?”  President Obama’s solution is the appointment of his “Commission on Deficit Reduction” which will undoubtedly cost millions and recommend massive tax increases across the board for all Americans.  This solution, without spending restraints being placed on Congress, will only amount to a license for Congress to steal just as was done with the Social Security Trust.

The real solutions will be much more painful for Americans to accept.  Certainly politicians will view these solutions as the kiss of death for their political careers.  I believe Americans are much more mature, and although they may not like what they hear, the truth will be more palatable than the continuing political rhetoric.

  1. A calculated temporary income tax surcharge, designed to stop additions to our existing deficit and create a bridge to growth in GDP could be imposed.
  2. Government spending must be capped and across the board cuts in spending of 20% mandated for all agencies.
  3. Government restrictions and regulations that suppress free enterprise development of our national resources and lead to energy independence must be reviewed and lifted where necessary to encourage economic development.
  4. Government needs to remove impediments to expansion of our GDP at a sustained level of 5-7% just to keep up with the interest accrual on the forecast deficit.

Congress and our President can no longer ignore the facts of the real fiscal crisis we face from entitlement spending.  Three generations of Americans were mandated by Government to contribute to these entitlement programs.  Now we find they are unsustainable and although our children are now paying the burden for today’s retirees, they will not likely be able to receive the same benefits in the future.

The system of entitlements must be returned to a semblance of the original intent if we are to sustain future generations.