Entitlement Cliff’ Threatens America

My advice - buy a gun and buy gold before our country is engulfed in civil unrest.  That's where we are heading.  Once the "takers" realize their gravy train has a short tenure, they'll be plenty upset. And, with higher unemployment than even now, there will be no opportunity to provide for our families.

Much has been said about the “fiscal cliff” coming at the end of the year, when tax cuts are set to expire and automatic spending cuts begin, but that “pales in comparison” to the “entitlement cliff” looming for the country in coming years, a new report warns.

Entitlement spending is already so high that the cost of all entitlement programs plus interest on the debt is nearly equal to total federal revenue. That means virtually everything else the government does is being paid for with borrowed money, the report from the Institute for Policy Innovation discloses.

Entitlements include Social Security, Medicare, Medicaid, and means-tested welfare programs, plus veteran benefits, unemployment pay, disability pay, and more.

A number of these programs have grown substantially since President Obama took office. Medicaid has grown from 46.9 recipients to 56 million, disability beneficiaries have increased from 7.5 million to 8.8 million, and the food stamp program has grown from 32 million beneficiaries to 47 million.

All told, more than 120 million Americans receive entitlements of some kind, according to the Institute, a Texas-based think tank. Add to that an estimated 16 million new Medicaid beneficiaries resulting from Obamacare, and some 18 million people who enter the health insurance exchanges beginning in 2014.

The bottom line: For fiscal 2012, the federal government spent about $2.2 trillion of its $3.7 trillion budget on entitlement programs, while gross annual revenues stood at $2.6 trillion. Add interest on the federal debt of $220 billion to the entitlement payout, and that leaves less than $200 billion to pay for everything else, including defense, transportation, education, and homeland security. So the government makes up the shortfall by borrowing, or printing, money.

The problem will only get worse in coming years. Since 1980, Medicare and Medicaid have grown at more than 9 percent annually, and an estimated 77 million baby boomers are beginning to retire and collect Social Security.

At the same time, the pool of workers who pay for these programs is not growing. The Tax Policy Center reports that only 53 percent of households now pay both income and payroll taxes.

The Institute observes: “Attempting to collect enough money to sustain this level of entitlement spending will only result in a reduction in work effort, reduced employment opportunities, and more people moving onto entitlements.”

The Institute offers several steps necessary to deal with the growing entitlement problem. One way is to reform entitlements into real safety-net programs that help those most in need and don’t encourage continued reliance on welfare.

Another is to encourage economic growth by lowering personal and corporate income tax rates while eliminating loopholes, and lowering taxes on investment income.

Also, several programs could be transitioned into prefunded personal accounts.

The Institute’s conclusion: “Any solution that maintains the current defined-benefit structure — unless it is for a small number of the poorest Americans — is only postponing the inevitable financial day of reckoning.”