A Fiscal Checkup On Mandatory Spending

By Kassandra Kuehl and Peter Vessenes of American Citizens for Economic Freedom. ACEF (www.truecapitalism.org) is a PAC supporting the Tea Party and Women Organization, led by prominent business entrepreneur, Peter Vessenes.

There are essentially two ways the federal government spends our money — Mandatory spending and Discretionary spending.

Think in terms of a business. In every business there are fixed expenses (e.g. building lease) and variable expenses (e.g. cost of goods). Consider the government’s fixed expenses “mandatory” and the variable expenses “discretionary.”

Mandatory programs are payments the government is forced by law to pay annually. These include interest on the debt and entitlement programs such as Social Security, Medicare and Medicaid. Why do we call them entitlement programs? Because when you reach a certain age or drop below a certain income level, you’re entitled to them.

Show Me the Money!

 It’s all about the money and the problem always comes back to spending. In an article about entitlement reform, American Enterprise Institute (AEI) noted that “The long-term budget challenge can be summarized in one word: entitlements. Without Social Security, Medicare, and Medicaid, the budget would be roughly in balance over the coming decades. Left unreformed, however, entitlement costs will become so wildly out of step with revenues that a fiscal crisis will be inevitable.[1]

According to AEI, we currently spend 9.7 percent of GDP on entitlements, while by 2030 we will spend around 14.4 percent. In contrast, in 1990 the federal government spent only 6.7 percent of GDP on entitlements and 4.0 percent in 1970.[2]

The proposed mandatory expenses are $2.293 trillion for the Fiscal Year of 2013. The bulk of the expenses come from Social Security and Medicare. See the breakdown below: [3]

* Social Security – $820 billion

* Medicare – $523 billion

* Medicaid – $283 billion

* All other mandatory programs – $654 billion. These programs include Food Stamps, Unemployment Compensation, Child Nutrition and Tax Credits, Supplemental Security for the Disabled and Student Loans.

Social Security and Medicare do not make up the entire mandatory spending schedule, but they do represent the largest portion of it. To pour salt on the wound, consider that Medicare and the federal share of Medicaid are the fastest-growing components of mandatory spending, making more and more Americans dependent on them over time.[4]

What many people don’t know is that much of our mandatory entitlement spending is on “autopilot,“ meaning that with mandatory programs Congress doesn’t even need to be in session for government budgets to grow automatically.[5] This is incredibly dangerous when over half of the budget is dedicated to mandatory programs.[6]

Obamacare’s Mandatory Spending

The endless pages in the new Health Care Bill (better known as Obamacare) are top of mind for many Americans and for the Supreme Court as they decide if Obamacare is constitutional. Not only are the estimated costs of this healthcare legislation way over Obama’s originally stated cost, but Obamacare law includes an estimated $105 billion in mandatory (automatic) spending.[7] [8]

The problem with this funding procedure is that it removes congressional oversight as the funding automatically kicks in year after year.

Motives and Mindsets

Given all the facts, the question is this: Why are politicians and bureaucrats so defiant about eliminating entitlements and wasteful government spending? They claim, “Tax the rich!” but taxing the rich will not work as the rich alone don’t have enough money to cover the shortfall.[9] Margaret Thatcher said it best: “Eventually you will run out of other people’s money.”

Why can’t politicians agree to cut programs that even the Government Accountability Office identifies as wasteful and ineffective?[10]

The power and control of the longstanding automatic budget expenditures give continued support for the federal government’s spending habits. Additionally, the power to attract votes resides with whomever keeps these programs available to those who are dependent on them. At the forefront of many election campaigns, expanding entitlements are a gateway through which countless politicians – both Democrat and Republican – become elected and re-elected.

We Need a Reagan Restoration

History is repeating itself. Our nation today resembles the awful economic shape we were in when Ronald Reagan took office.[11] He was a supreme example of the “take no prisoners” mentality that our nation is thirsting for today.

Reagan’s action on entitlements was very impressive. When he took office, entitlement spending was on a drastic rise that peaked at 11.6 percent of GDP in 1983. By the time he left office, entitlement spending was reduced to 9.8 percent of economic output.[12] This same action can reduce the total burden of government spending today.

The 2012 Election is a Tipping Point and a Rally Cry for Americans!

If mandatory entitlement spending is not urgently addressed, Americans will be seeing through a very real rear-view mirror in which our crisis becomes closer than it appears.

It seems most Americans have no clue that our growing entitlement spending has created a crisis. Politicians have done their job of hiding our country’s debts and liabilities.

We need a Congress that will start the process of replacing Obamacare with common-sense solutions that protect jobs and bring down costs, and that will reform the government’s entitlement spending so we can stay above water and avoid a disastrous bankruptcy.

ACEF is on a mission to expose the truth so that Americans can understand the real costs of entitlements and mandatory spending. Share ACEF and http://truecapitalism.org/ with your friends, neighbors and family. Contribute financially and with your time – make the effort to take this message forward to America.

Resources

[1] What Every American Needs to Know about Government-Entitlement Reform – http://www.aei.org/article/health/entitlements/what-every-american-...

[2] Ibid

[3] FY 2013 Federal Mandatory Budget - http://useconomy.about.com/od/fiscalpolicy/p/Mandatory.htm

[4] Congressional Research Service – http://www.fas.org/sgp/crs/misc/RL33074.pdf

[5] What Every American Needs to Know about Government-Entitlement Reform – http://www.aei.org/article/health/entitlements/what-every-american-...

[6] FY 2013 Federal Mandatory Budget – http://useconomy.about.com/od/fiscalpolicy/p/Mandatory.htm

[7] Mandatory Funds in Health Care Law – http://www.foxnews.com/topics/calculator/mandatory-funds-in-health-...

[8] ObamaCare funding still in place in new budget – http://hotair.com/archives/2011/02/21/obamacare-funding-still-in-pl...

[9] Wall St. Journal – http://online.wsj.com/article/SB10001424052748704621304576267113524...

[10] GAO Quote – http://blog.heritage.org/2011/03/02/morning-bell-why-liberals-love-...

[11] Forbes – http://www.forbes.com/sites/peterferrara/2011/05/05/reaganomics-vs-...

[12] The Impact of Government Spending on Economic Growth – http://www.heritage.org/research/reports/2005/03/the-impact-of-gove...

9 members like this

Comment

You need to be a member of Tea Party Nation to add comments!

Join Tea Party Nation

Comment by Thomas on July 23, 2012 at 9:38am: Kassandra, the so-called balance in the so-called Social Security trust fund is a negative balance--It is the amount that we paid over and above that needed to provide benefits which was then spent on other things--and then with the use of the accounting and bookkeepint talents of the thaumaturgists in the criminally insane institution that we call a federal government the balance has been converted to an amount that We, the people owe to Us, the people. Meanwhile, the expenditure of the actual money--likely wastefully--has enabled the already rich to more easily become even richer. Do you remember the old song, "That's where our money goes."?

thau·ma·turge (thô m -tûrj ) also thau·ma·tur·gist (-tûr j st). n. A performer of miracles or magic feats.

Comment by Vern Shotwell on July 23, 2012 at 9:28am: Sorry, Kassandra

I've posted links to the funds transferred at that time, but can't seem to find them at the moment.

Social Security could not be passed into law in 1935 without complete separation of funds. It took LBJ and overwhelming control of Congress to gain access of these funds.

Must have been too enticing to see all that money growing, and no way to access it, to spend it!

Comment by Kassandra on July 23, 2012 at 8:27am: Right again Vern. No surprise this "ponzi scheme" was set at the time to to create a pro government "exit plan" for the funds - as the life expectancy was one year under the set retirement age. They expected men/women to peel over before collections! They hedged their bets- we now have a high life expectancy and the BIGGEST boomer age claiming their $$$$$. I OWE U? Paul Ryan has a great plan to reform this old entitlement fund. Insanity: When you keep doing the same thing over again.

Comment by Vern Shotwell on July 23, 2012 at 8:07am: Right, Thomas.

Social Security was not rolled into the general fund until the time of LBJ's War On Poverty, with Dem control of Congress. Had to fund it somehow, right?

More than sufficient excess funds were transferred at that time to pay off the National debt!

Comment by Thomas on July 23, 2012 at 5:21am: The problem with the Social Security Trust Fund IS NOT that the surplus amounts have been spent. The root cause of the problems are that the payroll tax was set at the "thievery" level and more was collected in taxes than was needed to provide benefits on a pay-as-you-go basis. A government cannot issue fiat currency then collect (steal) an amount of the currency in taxes and chug that amount in a vault somewhere and have the confiscated currency retain its financial worth. Money just doesn't work that way.

What should be done with the Social Security Trust Fund??? Simple, really. As a nation, let's indulge ourselves in a stroke of honesty and write it down to its actual worth.....zero dollars and zero cents and get it out of the way so that it is no longer a part of the fuzzy "thinking" that goes on in Washington.

Actually, strictly speaking, that is not true. The actual.....and truly sad.....fact is that the Social Security so-called "trust fund" contains about 2.6 trillion dollars or so of cost (IOU's) or, more accurately (WE owe US), not 2.6 trillion dollars of money.

Comment by Ram K Singh on July 22, 2012 at 9:24pm: Mandatory or not, when we do not have money we have to do without unless it is our federal government. They do not understand that if you could fix money problem permanently by borrowing more and more, there would not be any more money problem.

Comment by Kassandra on July 22, 2012 at 7:36pm: Great links Vern- appreciate the info! Mandatory spending is one issue - another is the growth of Agencies, Czars and Programs - There are 15 Agencies, 32 Czars, and over 1400 (state/federal) programs that are positioned and crafted to create more entitlement - handouts - and ....waste. This must be stopped, and both sides need to be held accountable.

Comment by Monica Babcock on July 22, 2012 at 5:52pm: thanks for the extra info Vern.

Comment by Vern Shotwell on July 22, 2012 at 5:34pm: Entitlements is such an overused and often misapplied term.

Entitlement: a : the state or condition of being entitled : right

In some cases, e.g.Social Security and Medicare, millions of Americans and their employers were forced to "contribute" for decades...and therefore are "entitled" to a return on their "investment"

Other "entitlements", such as Medicaid,Student Loans, Welfare, Food Stamps and others are systemic drains, having required no contributions and should not be so classified! A short list can be found here.

Want a bigger List of US Federal Government Funding Programs? Here's 1607 Funding Programs

Each of these programs is linked to agency, eligibility, application criteria and so on.

Take a few moments to sort 'em out, please!