The Sky Just Refuses to Fall

The red ink in entitlements is not the fiscal sky falling. It’s the continued battering of the recession.

The late Great Recession did untold damage to every level of the economy and the nation’s finances. And although this point might seem like yesterday’s news, looking at the data and the persistent aftermath is a bit like taking a helicopter ride over areas affected by Sandy or Katrina. You forget how bad it really was.

Instead of New Orleans or New Jersey, today’s overflight is a 20,000-foot view of federal entitlements. The number of issue-mongerers raising dire alarms that entitlement spending is so out of control that immediate action is demanded, seems to grow day by day. So let’s take a look at what’s out there.

Our first chart is a summary of federal spending and receipts for the broad range of programs called “social insurance”:

Federal Social Insurance

Federal Social Insurance – $ Billions
Data from Bureau of Economic Analysis, U.S. Department of Commerce

The red line includes expenditures on everything from food stamps to social security; the green line represents primarily receipts from the payroll and self-employment taxes, and unemployment tax; and the blue line is the balance.

So what do we see? Starting with the most recent events, from 2009 on we see a significant deficit that coincides with the recession and slow recovery. Before that, beginning in 2006, we see deficits that coincide with the introduction of Medicare Part D prescription drug benefits. And before that, beginning in 1997, there is a surge into the black due to changes in Medicare reimbursements with the Balanced Budget Act of 1997.

The next chart reveals the details of Medicare and Social Security:


SSI-Medicare – $ Billions
Data from Bureau of Economic Analysis, U.S. Department of Commerce

We can see the smallish changes to Medicare, but there is something missing. The big jump in expenditures beginning in 2009 is missing.

Aha, here it is, at least part of it:

Unemployment Insurance

Unemployment Insurance – $ Billions
Data from Bureau of Economic Analysis, U.S. Department of Commerce

No surprise, unemployment expenditures leaped in 2009. (So did food stamps and other temporary assistance programs.) In other words, millions of jobs were lost, and millions of previously employed people stopped paying payroll taxes and started drawing unemployment. And the sheer impact dwarfs previous recessions.

The numbers speak for themselves. As we noted last week, the single biggest factor in addressing the fiscal problem over the next few years is the recovery, as fragile as it is. And this is true on many levels.

Longer term, it’s fairly evident that relatively minor adjustments can put the situation back on track for decades to come. Take just one example. Under the legislation that created Medicare Part D, Congress prohibited Medicare from negotiating drug prices. This was unprecedented. According to one study, the VA pays around $800 for a year’s supply of Lipitor, while Medicare pays around $1200. There is simply no excuse for funneling taxpayer dollars into corporate subsidies of that nature.

Related: Armageddon May Have to Wait

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