Dependency On Government Growing

Insurance, Investing & Retiring, Medicaid, Medicare, Social Security

Whether you believe it is a good trend or a bad one, the number of households that receive benefits from the Federal Government has almost reached the halfway mark.

Welfare Dependence Keeps Growing

According to the most recent data from the U.S. Census Bureau, 152.9 million out of 308.9 million total Americans received some form of government entitlement benefit in the third quarter of 2012. That is 49.5% of the population, and given underestimation and existing growth rates, we may be at the 50% mark already. For comparison, in the third quarter of 1983, only 29.6% of Americans received government entitlement benefits such as Social Security, Medicare/Medicaid, Supplemental Nutrition Assistance Program (SNAP), Federal Supplemental Security Income (SSI), and various means-tested entitlements.

At first glance, one could credit the rise to the “graying” of America thanks to the retirement of the Baby Boomer generation, but that fails to explain the overall increase of individuals receiving entitlements. Of the nearly twenty percentage-point increase in Americans receiving entitlements from 1983 to 2012, Social Security and Medicare only accounted for 1.9 and 3.7 percentage points of the increase, respectively. When the overlap between these two programs is taken into account, less than four percentage points of the twenty-point increase are related to age-based programs.

Where is causing the increase in government dependency?

The increase is mostly from an explosion in means-tested entitlements designed to help those in poverty. There is no doubt that these programs help, but have they reached a point where they perpetuate poverty rather than assist it?

Means-tested programs are generally intended to be temporary to participants, but as the old saying goes, “there’s nothing more permanent than a temporary solution.” Consider that while the U.S. population rose by approximately 83 million people between 1983 and 2012, the number of Americans on means-tested benefits rose by 67 million, or around 80% of that number. This is a period of time with a few serious recessions but with significant economic booms and overall sound economic growth.

Large increases in Federal SSI (1.4% to 6.6%) and SNAP (8.3% to 16.5%) are dwarfed by the increase in Medicaid coverage (7.8% to 26.9%). Keep in mind that this is during a time when the Federal government is putting pressure on states to expand Medicaid coverage even further.

How is this trend reversed?

It has to be reversed through meaningful means-tested reform that removes disincentives to find work. It can be done, as shown by the one data point that bucks the trend.

Aid to Families with Dependent Children (AFDC) was originally intended to support the children of deceased workers in the 1930’s, but it eventually evolved into a support mechanism for split families and unwed mothers. Eventually, AFDC became a magnet for so-called “welfare mothers” with greater incentive to have children and receive benefits than even to attempt to work.

The Clinton administration managed to rein in these benefits by revising AFDC into the Temporary Aid to Needy Families (TANF) program and restoring the temporary aspect of restricted benefits. As a result, the percentage of Americans on AFDC/TANF dropped from 4.2% to 1.8% between 1983 and 2012.

While aid programs must incentivize job-hunting, it is also important to have jobs for the poor to seek, and the wages must at least be livable to provide greater incentive than the anti-poverty support programs. The jobs component appears to be missing, with unemployment near the “full-employment” mark of 5% and a decrease in overall workforce participants.

Do not hold your breath for any reversal of government entitlement dependence in an election year. While the election results will go a long way toward determining the future trajectory of this trend, the contrasted 1983 to 2012 period covered both Republican and Democratic administrations and various Congressional configurations. Entitlement reform is not just a Republican or Democratic problem — it’s an American problem.

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