A Winning Plan for Entitlement Reform

January 8, 2013

The growth of government spending will have serious economic implications unless something is done about it. According to the Congressional Budget Office (CBO), spending is likely to soar under the current course, says Peter Ferrara, a senior fellow with the National Center for Policy Analysis and the Heartland Institute.

  • In President Obama's first year, spending increased to 25 percent of the gross domestic product (GDP), after being stabilized at 20 percent since World War II.
  • By 2027, federal spending will comprise 30 percent of the GDP.
  • That number will increase to 40 percent by 2040 and then to 80 percent by 2080.

The expansion of federal spending is due to the long-term expansion in our nation's entitlement programs. The way entitlement programs are currently set up create perverse incentives that encourage behavior such as not working and making a living off collecting government paychecks. For example:

  • The welfare system discourages getting married because having a working husband disqualifies a woman for welfare assistance.
  • Furthermore, the current welfare system provides assistance for bearing children out of wedlock.
  • As a result, these programs discourage people from being productive and instead become dependent on government resources.

Social Security, Medicare and the current health care system discourage many from saving for retirement or health care and the ensuing gains from any investments because the government provides free income and free health care without saving. Furthermore, because of the government's intrusion in the health care market, there is little room for competition to drive down the high costs for medical services.

Ferrara outlines reforms to entitlement programs in a series of papers that focus on providing smart government services without intrusion. Instead, the reforms are based on the concept of individual choice and rooted in free market ideas that have been proven in cases around the world. These reforms could save close to $2 trillion every year in terms of today's budget.

Source: Peter Ferrara, "A Winning Plan for Entitlement Reform," Heartland Institute, December 2012.

 

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