On New Year's eve, we were set to buckle our seat belts and fly over the fiscal cliff.
So color us surprised when we were alerted (in between taking dignified sips of champagne) that our political leaders had come to a compromise--no one is really satisfied with it, of course--in the wee hours of 2013.
While the deal, which passed on Tuesday, includes higher taxes, it pushed off any spending cuts until the end of February.
This is not ideal.
Medicare, Medicaid and Social Security combined make up 41% of said spending. Any permanent solution to the national debt has to address government spending--not just taxes. Medicare, Medicaid and Social Security combined make up 41% of said spending. And the number of people receiving benefits is rising: 49.1% of the population now lives in a household that receives government benefits. In 2008, that figure was 44.4%. But in the early 1980s, it was just 30%.
And it will only get worse. The Congressional Budget Office estimates that spending on benefits will continue to climb at an even higher rate as the population ages and medical costs increase.
Obviously, something needs to be done. But why is it so hard for politicians to buck up and make a decision on what spending to trim?
The Conservative Conundrum
The Republican party is a devout believer in small government--and it has come out strongly in favor of cutting spending on entitlements from the Federal budget by raising the eligibility age for Medicare and impeding the cost-of-living increases for Social Security.
Get started with a free financial assessment.
Get started with a free financial assessment.
So the results of a December Pew poll are particularly surprising. It found that a majority of Americans have taken advantage of entitlements: 55%. Even more surprising: 57% of self-identifying conservatives say that they have benefitted from specific entitlement programs, compared to 53% of liberals.
But, wait ... there's more. When self-identifying Republicans (instead of conservatives) and Democrats (instead of liberals) were asked if they had used any of these government programs, Democrats were more likely to report that they'd benefitted from them than Republicans (60% versus 52%.) It isn't clear whether this is because a "Republican" isn't necessarily the same as a "conservative" or whether Republicans are more likely to misremember their use--but we'll dive into this some more later.
What's Really Going on Here? It's a Question of Definition
One clue to this paradox can be found in the methodology of the Pew poll. Respondents were presented with the following wording:
“... whether you or anyone in your household has ever received any of the following government services and benefits: Social Security, Medicare, Medicaid, welfare, unemployment benefits, food stamps, college grants and loans, and veteran benefits."
That tricky word, "entitlements," was never used in the poll.
Strictly defined, entitlements are benefits that you have a right to by law, including everything from Social Security to Stafford educational loans. But many people see "entitlements" very differently--as a petulant demand for services and benefits by unmotivated people who don't want to work.
RELATED: I Was a 'Lazy Welfare Mother'
How would the numbers change if college grants and loans (which go to students who are expected to become contributing members of the professional class), veteran's benefits (which are seen as a reward for putting your life on the line for your country) and Social Security (which you pay into as you work) were removed from the question?
This distinction was displayed during a December episode of conservative Rush Limbaugh's radio show, when a caller said, "I don't have a problem with people that have paid into government programs like Social Security or Medicare, like my mother-in-law who lives with my wife and I because she's 76 years old. She has earned her Social Security and her Medicare benefits. But I have a problem with people who receive other benefits, such as Plus cards or food stamps."
Another survey conducted by Cornell University's Suzanne Mettler points not just to a distinction, but what appears to be a form of denial. When asked if they had ever used a government program, the majority of respondents said no. But when they were questioned further about specific programs, they admitted to using services that ranged from student loans to welfare.
(Full disclosure: If you had asked me before writing this story if my family had ever benefited from entitlements, I would have said no, too. Then I remembered that my family received Social Security checks until I was 18 following my father's death.)
The researchers posit that some services and benefits are administered in a way that doesn't make them seem like "government services," but simply tax discounts or private loans. They call these types of benefits--loan subsidies, retirement benefits and deductions--"submerged benefits."
For example, a home mortgage interest deduction is a government benefit because it costs the government money, and puts money back into your pocket. But, to you, it's just a line item on your tax forms that an accountant fills out for you. Unlike receiving food stamps or welfare, you hardly know it's there--even though it's worth thousands.
Not Just for the Needy, Anymore
Another reason for the confusion and denial surrounding government social programs has to do with a steep shift that has taken place over the past few decades regarding who actually receives them.
It used to be that social programs were designed to benefit those living on the edge of abject poverty. Today, they're also helping to keep the middle class, well, in the middle class. In 1979, the bottom fifth of earners received 54% of government benefits. In 2007, they received just 36% because as the middle class has needed more help, a greater proportion of government payments have gone to the top 80% of earners.
Middle-class recipients, conditioned to view government programs as "handouts" for non-working people who can't support themselves, are naturally confused and upset when confronted with the fact that, yes, they do benefit from government services. When a New York Times reporter visited a typical middle-class county near Minneapolis last year, and asked residents about government spending, interviewees pointed to "other people" as the cause of out-of-control government spending. But after a long dialogue, they came to the realization that, while they wanted the government to cut services, they also needed social programs--like the earned income tax credit and Medicaid--to someday take care of their families.
"It’s hard to beat up on the government when they’ve been so good to you,” one interviewee said. “I’ve never really thought about it, I guess.”
Given this, it's no wonder that it seems hard for the government to get its act together and stop spending so much. Imagine you're the politician who's hearing, "Cut government spending!" But whenever you make a move to do so by, say, cutting off unemployment after a certain time, the same people rise up--and vote you out of office.
This issue is far too complex for us to offer a comprehensive solution. But one step in the right direction could be to simplify the tax code--and how benefits are doled out. The study out of Cornell also showed that the more obvious benefits were to people, the more aware they were of actually using them. Of the eight most "submerged" benefits mentioned earlier, seven were tax subsidies.
So imagine if, instead of getting subsidized student loans in which the government pays the interest, students were handed a cash allowance while in school. We're not saying that this is necessarily the best way to subsidize education, but it would make crystal clear that students receive government benefits ... and how much, exactly, it costs the government to encourage higher education. Perhaps, with these kinds of changes adopted, lawmakers could then have a discussion about government spending and taxes that's grounded in reality.