Entitlements - a Complicated Campaign Issue

With the 2016 General Election looming, entitlements and their impact on the economy are proving to be a much-discussed campaign topic. What I find troubling is that the term seems to have taken on a negative connotation, i.e. - tax money going to the undeserving, with the economy suffering as a result. There are politicians that are fond of claiming that the U.S. is, or is becoming, a “welfare state”, pointing to entitlements as proof. I submit that the Preamble to our Constitution makes clear that the document recognizes its charge to “promote the general Welfare”. Our country owes its greatness to the application of that principle.

A comprehensive definition of entitlements from Wikipedia:

“An entitlement is a government program guaranteeing access to some benefit by members of a specific group and based on established rights or by legislation. The term may also reflect a pejorative connotation, as in a ‘sense of entitlement’. A ‘right’ is itself an entitlement associated with a moral or social principle, such that an ‘entitlement’ is a provision made in accordance with a legal framework of a society. Typically, entitlements are based on concepts of principle ("rights") which are themselves based in concepts of social equality or enfranchisement.”

Dr. Paul Johnson of Auburn University describes entitlements this way in his Glossary of Political Economy Terms: “The kind of government program that provides individuals with personal financial benefits (or sometimes special government-provided goods or services) to which an indefinite (but usually rather large) number of potential beneficiaries have a legal right (enforceable in court, if necessary) whenever they meet eligibility conditions that are specified by the standing law that authorizes the program. The beneficiaries of entitlement programs are normally individual citizens or residents, but sometimes organizations such as business corporations, local governments, or even political parties may have similar special "entitlements" under certain programs. The most important examples of entitlement programs at the federal level in the United States would include Social Security, Medicare, and Medicaid, most Veterans' Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price support programs.”

As described in the National Priorities Project website, “The U.S. Treasury divides all spending into three groups: mandatory spending, discretionary spending, and interest on debt.

“Mandatory spending is largely made up of earned-benefit or entitlement programs, and the spending for those programs is determined by eligibility rules rather than the appropriations process. For example, Congress decides to create a program like the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. It then sets criteria for determining who is eligible to receive benefits from the program. The amount of money spent on SNAP each year is then determined by how many people are eligible and apply for benefits.

“Congress therefore does not decide each year to increase or decrease the budget for SNAP. Instead, it periodically reviews the eligibility rules and may change them in order to exclude or include more people, and therefore change the amount spent on the program.

“Discretionary spending refers to the portion of the budget that goes through the annual appropriations process each year. In other words, Congress directly sets the level of spending on discretionary programs. Congress can choose to increase or decrease spending on any of those programs in a given year.”

Mandatory spending includes Medicare & Health, Social Security, Unemployment & Labor, VA benefits, Agriculture, and Transportation. Discretionary spending includes Military, Education, Housing, Energy & Environment, and Transportation.

Of the $2.56 Trillion mandatory spending budget for 2015, $1.12 Trillion comes from Trust Funds tax revenue. Social Security and Medicare Taxes account for $1.02 Trillion. The balance comes from Federal Funds tax revenue and borrowing. It should be noted that tax breaks are expected to cost the federal government $1.24 trillion in 2015. As explained in the NPP website: “…tax breaks are officially called tax expenditures within the federal government because, from the perspective of the government, they are no different from spending on any other government program.”

Food purchasing benefits have become a major lightning rod in the entitlements discussion. Originally started in the early ‘40s, then revived in the early ‘60s, the food stamp program has gone through numerous iterations and changes. Renamed the SNAP program in the 2008 Farm Bill, it has become a significant part of the U.S. economy. In 2014, approximately 46.5 million Americans received benefits. Walmart has acknowledged that approximately $18 billion in SNAP benefits are spent in their stores.

Ironically, SNAP recipients provide substantial revenues to a big-box retailer, some of whose employees are means-tested and eligible for SNAP benefits themselves. As a 2014 Forbes story recounts, “Walmart’s low-wage workers cost U.S. taxpayers an estimated $6.2 billion in public assistance including food stamps, Medicaid and subsidized housing…”.

The website Good Jobs First tracks the subsidies Walmart receives around the country: “A secret behind Wal-Mart’s rapid expansion in the United States has been its extensive use of public money. This includes more than $1.2 billion in tax breaks, free land, infrastructure assistance, low-cost financing and outright grants from state and local governments around the country.” It seems that entitlements indeed take many forms.

Corporations such as Kraft and Coca-Cola have lobbied against cuts in the SNAP program. Many local economies have come to depend heavily on it. In March 2013, the Washington Post reported that “one-third of Woonsocket, Rhode Island’s population used food stamps, putting local merchants on a ‘boom or bust’ cycle each month when EBT payments were deposited. A federal program that began as a last resort for a few million hungry people has grown into an economic lifeline for entire towns. And this growth has been especially swift in once-prosperous places hit by the housing bust.”

Dr. Johnson’s glossary includes farm support programs in the list of entitlements. From an article in the Economist in 2008 titled “A Harvest of Disgrace” about the 2008 Farm Bill: “The five-year $307 billion bill, through a complicated system of government programs, lavishes cash on upper-income farm households. The major beneficiaries of U.S. agricultural programs, commercial farmers, will have an average income of some $230,000 in 2008, according to the U.S. Department of Agriculture (USDA). The main restriction on these subsidies is a means test that applies to couples making more than $1.5 million per year.

”Farmers of all kinds get a slice of the action. American sugar producers, for example, are guaranteed 85% of the domestic sugar market, according to the bill. This measure will drain $1.3 billion over ten years from federal coffers, and will force consumers to pay an extra $2 billion a year in higher sugar prices.”

An August 2013 article in The Week wrote, in answer to the question: why is the farm bill so controversial?: ”Critics contend that the subsidies it hands out are wasteful, illogical, and counterproductive- a welfare program for millionaires and giant agribusinesses. Over the last decade, the farm bill has cost taxpayers more than $168 billion. In theory, the program uses loans, price supports, and payments to protect family farmers from the fickle fluctuations of weather, price, and economic conditions, so that their businesses remain stable and Americans are ensured a steady supply of affordable food. In practice, the program keeps food prices high, costing consumers billions, while funneling most of its aid to giant agribusinesses and wealthy farmers. About 75 percent of total subsidies go to the biggest 10 percent of farming companies, including Riceland Foods Inc., Pilgrims Pride Corp., and Archer Daniels Midland.

An important benefit of food assistance and nutrition programs is improved health and reduced Medicaid costs. Another program known as WIC, The Special Supplemental Nutrition Program for Women, Infants, and Children, has been funded through the appropriations process since 1997 on a bipartisan basis. It has a budget of $7 billion, and provides nutritious foods, counseling on healthy eating, breastfeeding support, and health care referrals to more than 8 million low-income women, infants, and children at nutritional risk. A study published in the Atlantic Economic Journal in 2012 found that rather than affecting average outcomes, WIC was more effective in reducing the probability of high-risk births, for example, very premature and low-birthweight babies. The potential benefits of the WIC Program can be realized by enhancing its focus on more disadvantaged mothers.

Preterm births cost the U.S. over $26 billion a year. Studies conducted by the USDA show that every $1 in WIC spending results in health care savings of between $1.77 and $3.13 within the first 60 days after birth.

Another important consideration that is often overlooked is the fiscal multiplier effect. From Wikipedia: “In 2011, Agriculture Secretary Tom Vilsack gave a statement regarding SNAP benefits: ‘Every dollar of SNAP benefits generates $1.84 in the economy in terms of economic activity.’  Vilsack's estimate was based on a 2002 George W. Bush-era USDA study which found that ‘ultimately, the additional $5 billion of FSP (Food Stamp Program) expenditures triggered an increase in total economic activity (production, sales, and value of shipments) of $9.2 billion and an increase in jobs of 82,100,’ or $1.84 stimulus for every dollar spent.

“A 2013 report by the USDA gave another estimate …finding that ‘an increase of $1 billion in SNAP expenditures is estimated to increase economic activity (GDP) by $1.79 billion.’”  In contrast to SNAP’s economic multiplier of approximately 1.8, defense spending results in a multiplier of between .6 and 1.2, according to Dr. Valerie Ramey, UC San Diego professor of economics.

The budgets of Social Security and Medicare are nine to ten times larger than Food Assistance. The health of these earned-benefit programs deserves a separate discussion. Claims have been made regarding the long-term solvency of Social Security that seem to be aimed at furthering the confusion about the issue. And recent reductions in overall health care costs has begun to cast Medicare and Medicaid solvency, though grim, in a more positive light.

In summary, campaign bombast deriding entitlements is partisan and not constructive. As I have tried to show, the subject is too complex with no simple solutions. Entitlements take many forms. The recipients of entitlements (or welfare) are varied- from the food-challenged to the largest retailer in the world. The antidote for political rhetoric and hyperbole is complete and factual information.

D. Norman