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November 1, 2012

Unsustainable Entitlement Spending Pushing U.S. Toward Cliff

New Publication Says Three Critical Reforms Needed to Prevent Plunge
 

DALLAS, TX:  Entitlement spending is outpacing the economy and hurling the US toward an entitlements precipice, unless policymakers implement three critical changes to cut spending, grow the economy, and reform several programs, says a new publication from the Institute for Policy Innovation (IPI). 

While Congress is rightly focused on the "fiscal cliff," the "entitlements cliff" is even more daunting, write IPI resident scholar Dr. Merrill Matthews and actuary Mark E. Litow in the publication, entitled "The Coming Entitlements Cliff."

"The federal government currently spends about $2.2 trillion on entitlement programs, almost as much as total federal revenue, and faces a serious economic challenge in trying to address this shortfall," Matthews and Litow write.

"Attempting to collect enough money to sustain this level of entitlement spending will only result in a reduction in work effort, reduced employment opportunities, and more people moving onto entitlements."

While most people think of entitlement programs as Social Security, Medicare and Medicaid, there are many more, including veterans benefits, unemployment, the children's health insurance program, disability income, the GI bill and Head Start. Matthews and Litow point out that a shocking 108 million Americans live in households where at least one person participates in a means-tested program, and even that number is increasing.

The authors report that since President Barack Obama took office:

  • Medicaid has surged from 46.9 million to 56 million people;
  • Disability beneficiaries have increased from 7.5 million to 8.8 million; and
  • The food stamp program has grown from 32 million to 47 million Americans.

Entitlement spending is also growing faster than the economy, and only 76.6 million tax filers are bearing the full weight of this entitlement culture, while another 40 million are merely paying the payroll tax.

Matthews and Litow encourage policymakers to consider three solutions to meet the fiscal challenge:

  • Cut entitlement spending from its current unsustainable levels;
  • Implement policies to boost economic growth, e.g. cutting personal and corporate income tax rates and eliminating most tax breaks; and
  • Transition several programs to prefunded personal accounts.

 The Institute for Policy Innovation (IPI) is an independent, nonprofit public policy organization based in Dallas, Texas. Copies of "The Coming Entitlements Cliff" are available at www.IPI.org. For media requests with IPI experts, please contact Erin Humiston at (972) 874-5139, or erin@ipi.org.

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