NCPA - National Center for Policy Analysis

Hidden Costs of Entitlement Programs

December 1, 2003

Cost problems are inevitable in all entitlement programs. That is why experts warn against enacting them. Thus, Republicans have not only made a serious policy error in enacting a new drug benefit, but a political one as well, says Bruce Bartlett.

Whatever short-run gain they have made will melt away once the costs explode--which they will. Any future Republican effort to restrain those costs will completely reverse this temporary gain. In the end, only Democrats gain politically from entitlement programs, explains Bartlett.

A good example is Richard Nixon's decision to permanently index Social Security benefits in 1972.

  • Up until that time, Congress had boosted benefits on an ad hoc basis from time to time, usually in election years.
  • Indeed, benefits were raised 20 percent in 1972 on top of indexing.
  • Contrary to popular belief, the original Social Security legislation never promised beneficiaries automatic protection against inflation.

Thus, in order to buy himself reelection in 1972, Nixon initiated a permanent, annual increase in Social Security benefits. Now, every year, Social Security beneficiaries get an automatic cost-of-living adjustment that increases their benefits. Do any of them give thanks to Richard Nixon for this? They simply take it for granted as something they are entitled to. The vast majority of elderly undoubtedly believe that indexing has been part of Social Security since the beginning. If they thank anyone, it is probably Franklin Roosevelt.

Following Nixon's ill-conceived vote-buying action, inflation shot through the roof. Social Security benefits went up far faster than Congress would have raised them under the old ad hoc system. And whenever Republicans suggested slowing indexing to help get control of the budget, they were denounced as heartless monsters, even though their party had delivered the benefit in the first place, says Bartlett.

Source: Bruce Bartlett, "Hidden Costs of Entitlement Programs," National Center for Policy Analysis, December 1, 2003.


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