The Entitlements Debate

Publication Date: January 1998

Publisher: Library of Congress. Congressional Research Service

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Research Area: Banking and finance

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Abstract:

Federal entitlement programs make payments directly to recipients who meet eligibility criteria set by law. There are about 400 of them with Social Security being the largest. Generally, entitlement spending is not subject to control through annual appropriations, and once an entitlement program is established, its scope can be altered only by amending the law that created it. Over the past 25 years, entitlement spending has risen much faster than the federal budget and the gross domestic product (GDP). Proponents of curbing entitlements believe it is the key to controlling federal spending in the long run. Left unchecked, they fear, entitlement spending will place a large strain on federal budgets far into the future, limiting policy options and forcing future generations to bear an enormous tax burden, especially when post-World War II baby boomers retire and draw on these programs. They put heavy emphasis on projections made by the Social Security and Medicare trustees that suggest the programs will not be actuarially sound in the long run unless major reforms are made.

Others argue that entitlements per se are not the problem. They contend that it is Medicare and Medicaid that have grown rapidly, driven largely by the rise in the cost of medical care nationally. They fear that the current “crisis” atmosphere about these programs will undermine public support for them, lead to changes that do not address the root causes of their growth, and result in major reductions in health care for vulnerable populations and a shifting of costs to patients and health insurers. They argue that some reformers are raising the specter of major problems for Social Security in order to justify replacing it with a privatized system. They contend that such a system would bring more risk to retirement planning and ignore the functions Social Security now plays in providing adequate incomes to low and moderate income retirees. They argue that only modest changes are needed to shore up the system’s long-range condition.

As a result of legislation enacted last summer, a special 17-member panel has been formed to examine Medicare’s financing problems. The Speaker of the House, Newt Gingrich, raised the possibility of creating a separate panel to address Social Security’s problems and the President has pledged action on the issue early in 1999.