We’ve all seen posts like this on social media – claims that identifying Social Security and Medicare as “entitlements” somehow demeans them – and us, as recipients of these benefits. But it is good for these programs to be considered entitlements, and I’m going to talk about why. This is in the news again because Senator Ron Johnson (R-WI) apparently wants to eliminate entitlements altogether (specifically mentioning Social Security and Medicare), although, as I’ll talk about later, he knows this will not happen and doesn’t really want it to happen:
Understanding why this is important requires knowledge of some federal budgeting vocabulary. Federal spending falls into two categories: discretionary and mandatory.
Discretionary Spending: Spending that is subject to the yearly appropriations process, whereby Congress sets a new funding level each fiscal year. About 1/3 of the federal government’s activities are funded through appropriations legislation, or discretionary spending.
Mandatory Spending: The other 2/3 of the government’s yearly budget goes to mandatory spending – spending that does not go through the years budget process. Most mandatory spending is ongoing; it occurs each year absent a change in an underlying law that provides the funding.
Simply explained, people automatically receive entitlement benefits that they qualify for based on the appropriate legislation. Social Security is an entitlement because everyone who meets the eligibility criteria (age and 40 quarters of eligible earnings) is entitled to a benefit. No one is dependent on Congressional appropriations every year to receive their Social Security checks.
Anyone who has watched the Congressional budgeting process over the past couple of decades should be glad that Social Security, Medicare, and other entitlements are not dependent on this process (I wrote about this on March 16 if you want to review). If these programs were converted to discretionary spending, benefits for the next year would be impossible to predict and financial planning for people who receive these benefits would be equally impossible. Benefits would be altered or withheld depending on which party controlled the budget process.
The only way to change the benefits for an entitlement program is to change elements of the underlying eligibility embodied in the legislation. The Social Security program has done that, for example, by gradually raising the age of eligibility. If you were born between 1943 and 1954, your full retirement age is 66 (you can receive benefits as early as age 62 but the benefits will be reduced). If you were born after 1960, your full retirement age is 67.
Tim and I retired when we were 65 years and five months old; as a result, we are receiving 96.1% of the benefits we would have been entitled to if we had waited until we turned 66.
Another reminder about Social Security — it is a generational transfer program, not a savings account. When I was working, the FICA contributions (Social Security) taken from my paycheck each month went into the pockets of people who were receiving social security benefits at that time. I liked to think of them as going directly to my retired parents. When I retired, my social security payments each month come from the FICA contributions from people still in the workforce. If you don’t like the amount you see taken out of your paycheck, pretend that you are giving it directly to an older retired relative or neighbor. It will make you feel better. And if you decide that your benefit is going to an older relative, you also have to realize that, without Social Security, you could find yourself actually responsible for supporting that older person. It would cost a lot more than your FICA contributions.
If you want to understand more about the current status of these programs, check the AARP website. And then fact-check their statements, because they are an association that advocates for the rights of retired people and are telling you what they want you to know. https://www.aarp.org/retirement/social-security/info-2018/12-fact-about-ss.html#:~:text=Most%20people%20get%20back%20more,they%20paid%20into%20the%20program.
Ron Johnson knows that Social Security and Medicare will never be converted to discretionary spending. He doesn’t really even want that to happen. He is surfing on the popular perception of “entitlement” as some sort of negative behavior, as when we say people think they are “entitled” to a good grade whether they have earned it or not, or “entitled” to a nice car or big house just because they are – well, whoever they think they are. He thinks we don’t understand congressional budgeting and the real meaning of entitlement programs – and he’s right.
The fact that Social Security and Medicare are entitlement programs is a good thing. Tell your friends.
Right! Good reminder.