The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [91]
The mandatory programs represent additional potential targets for cutting waste, and at first glance much larger and meatier ones. Much of the public believes that the mandatory programs are one giant transfer machine, in which the deserving middle class is taxed in order to transfer income to the undeserving poor, especially to minorities who live on the public dole. In the 1980s, Reagan riffed repeatedly about “welfare queens” who allegedly stole from the public purse by collecting illegally on multiple welfare accounts. That image has stuck in the public mind. Let’s therefore take a closer look at the mandatory programs to see what might plausibly be cut.
As shown in Figure 11.2, the mandatory programs consist of universal programs such as Social Security and Medicare (for all elderly), social insurance programs such as unemployment compensation, and means-tested transfers for the poor such as food stamps.12 The universal programs make up two-thirds of the mandatory spending, roughly 10 percent of GDP. There is relatively little political controversy over the outlays on those programs. The public strongly supports Social Security, Medicare, federal employee retirement and disability, and veterans’ benefits.13 Any cuts in those programs would inevitably be very gradual and stretched out over decades. There are few if any short-term savings in this category, and with the aging of the population, we can expect an increase in such outlays by around 1 percent of GDP by 2020. Even Tea Party activists strongly support Medicare and Social Security by a wide margin.
Figure 11.2: Mandatory Spending as a Percentage of GDP for 2015
Source: Data from Office of Management and Budget Historical Tables.
The main category of social insurance is unemployment compensation. This program reached around 1.3 percent of GDP in 2010 because of the high unemployment rate in that year, but this will tend to revert to around 0.4 percent by 2015, assuming a gradual reduction of those qualifying for unemployment compensation. That cost saving is already taken into account in the baseline deficit in 2015 of 6 percent of GDP.
The means-tested category of spending is certainly the most contentious politically, the area where the public believes there is huge waste to trim.14 The public believes that means-tested spending is mainly in the form of welfare payments for the (undeserving) poor. That is simply not true. Medicaid (health care for the poor) constitutes the largest of means-tested programs, 60 percent of the total and equal to around 2 percent of GDP. There is no broad public support for ending health care for the poor. Food stamps constitute the next largest program, roughly 0.5 percent of GDP. Here again, there is no public outcry to take food off the table of the poor. The third program is the Earned Income Tax Credit, which rebates taxes to poor working families. It is widely regarded as an important incentive to work for the poor. It constitutes around 0.3 percent of GDP.
Finally comes the welfare program that has been most contentious for decades: aid to poor families with dependent children. Welfare, formerly known as Aid to Families with Dependent Children, is now known as Temporary Assistance for Needy Families, or TANF. This program makes up only 3.5 percent of the means-tested programs and just 0.1 percent of GDP.15 America cut back on “welfare” from the 1970s onward. Family income support fell from 0.4 percent of GDP in 1970 to under 0.2 percent in 2010.16 Welfare still looms large in the public’s imagination, but it plays little role in the budget and the deficit. It’s been a long time since America was generous to its poor families with children!
The upshot is that we could eliminate foreign aid, earmarks, and welfare payments in the TANF program entirely, and the combined effect would be to save just 0.5 percent of GDP out of a structural deficit of 5 to 6 percent of GDP. The hot-button items of the budget are a distraction from real budget balancing. Unless we are willing to slash Social Security,