Entitlements, A Universe Away From Being Entitled
Senator Joe Manchin says that he does not want to see the US become an entitlement nation. It would seem that the Senator from West Virginia is confusing the economic concept of entitlement, with the colloquial use of the word entitlement.
Entitlement Programs include Medicaid, Medicare, Social Security, Unemployment and various other programs. Entitlement programs are rights granted to citizens and certain non-citizens by federal law. Eligibility for entitlements hinges on specific socioeconomic criteria, such as age, disability, poverty, housing status, or income level.
There is a mistaken belief that if one has contributed to federal programs via taxation that these programs are not entitlements. This is incorrect. Entitlement programs are classified as either contributory and non-contributory. Examples of contributory programs include Social Security and Medicare. Examples of programs that fall into the non-contributory category include, Supplemental Social Income, Medicaid, Unemployment Compensation, SNAP (food stamps), Pell Grants, and the Children’s Health Insurance Program.
Senator Manchin used the term “entitlement” as an adjective, “believing oneself to be inherently deserving of privileges or special treatment.” But this is not what policy maker’s mean when they use the term. In the economic sense, entitlements are programs designed to compensate for the negative effects of age, health, or income inequality, they are not in and of themselves solutions to our economic problems. For a solution, we need to focus on methods of redistributing earned income on a yearly basis.
If the US had an equal distribution of income, a family of four would have an annual income of $234 thousand. In reality the median income in the US is $67,521 with 20 percent of families having an annual average income of only $13,775. In a society with equal incomes, these families would have received 20 percent of all income earned. Unfortunately since 1978, the share of income going to the bottom 20 percent of income earners has declined continuously from 4.2 percent to its current low of 3 percent in 2020.
Senator Manchin’s comments about not wanting us to be an entitlement nation would lead one to believe that our entitlement system is expansive and generous. In fact it is not. There is no entitlement for the purchase of vehicles, no entitlement for the purchase of clothing, for those without a job there is no assistance for housing. We have entitlements that cover some but not all health care costs, and conservative preferences for means testing means that families who have not secured employment at times receive no assistance at all.
Critics of expanded entitlements often cite the negative impact that tax funding would have on the economy. These concerns are misplaced. Entitlements generate spending that is close to one to one, meaning that, expect in rare cases, every dollar received is spent. On the tax side it’s possible to structure tax increases that have almost no effect on spending. Examples would include a tax on financial transactions, a tax on carried interest, or a surtax on incomes above a certain level. Financing entitlements with these kinds of tax sources would generate significant increases in demand, employment, and economic growth.
Far from wanting to curtail Biden’s human infrastructure plan, Manchin should be supporting an expansion of entitlements. Is an expansion of entitlements a second-best solution when compared to revamping how income is distributed? Yes. But since we not likely to see a meaningful change in how income is distributed, entitlements should be our focus.
Expanding entitlements will not expand earned income, but their presence will expand a family’s buying power giving them an increase welfare similar to what they could have achieved with an increase in earned income. In addition it would be easy to identify areas where entitlements should be provided or expanded by simply looking at where our economy has failed to adequately provide for families.
We lack affordable prescription drugs. Congress can start by allowing Medicare to negotiate drug prices. Medicare eligibility should be lowered to and should include dental, vision and hearing assistance. Child poverty is still too high, we should increase the refundable child care credit and make it permanent. Getting the two million women back into the labor force will require affordable child care. We did it during WWII. An estimated 550,000 to 600,000 children received care through these facilities, which cost parents 50 to 75 cents per child, per day, in 2021, that’s less than $12.
It’s a truism that our common life, our common welfare, depends upon each other’s toil. If we can’t provide an adequate income for them, then the least we can do, as the largest economy in the world, is to provide the assistance they deserve given their collective efforts in making our economy what it is today.