My recent post presented a plan by Brian Riedl at the Manhattan Institute to fix our national debt problem.  Mr. Riedl outlines how it can be done primarily by reining in spending on Social Security and Medicare.  He has an excellent plan to do just this.

But now comes another approach from the American Enterprise Institute describing the enormous drain on the federal budget from huge increases in means-tested social welfare spending – Medicaid, food stamps, refundable tax credits, Supplemental Security Income, Temporary Assistance for Needy Families, federal housing subsidies, and many other programs whose eligibility is limited to those below an income threshold.

Consider:

• Social Security and Medicare are a drain on general revenue and will become a big fiscal problem if not reformed. In 2023 SS payroll taxes funded 88.9% of benefits, at a net federal cost of $88.1 billion.  Medicare payroll taxes and premiums funded 49.7% of Medicare expenditures, at a net federal cost of $509 billion.
• On the contrary, means-tested social welfare spending totaled $1.6 trillion in 2023.
• Since funding for the war on poverty ramped up in 1967, welfare payments received by the average work-age household in the bottom quintile of income recipients has risen from $7,352 (in inflation-adjusted 2022 dollars) to $64,700 in 2022. This 780% increase was 9.2 times the rise in income earned by the average American household.
• The U.S. today redistributes a larger share of its GDP, 29.4%, through transfers and taxes, than any developed country in the world except France with 30.1%.
• After counting all transfer payments as income to the recipients and taxes as income lost by taxpayers, and adjusting for household size, the average households in the bottom, second, and middle quintiles, all have roughly the same incomes despite dramatic differences in work effort. The portion of prime work-age persons in the bottom quintile who work has fallen to 36% from 68%.  In the second quintile, households with a work-age adult who works, have declined to 85% from 90%.  The percentage of middle-income households with a prime work-age person who works, has risen to 92% from 86%.
• Americans overwhelmingly support an effective mandatory work requirement for able-bodied adults receiving welfare benefits. The bipartisan effort to reform Aid to Families with Dependent Children during the Clinton Administration was a success.  When all transfer payments are counted as income, 80% of those who are today counted as being poor are no longer poor, and almost half have incomes equivalent to American middle-income earners.
• A mandatory welfare work requirement for able-bodied adults receiving welfare benefits, a requirement that the Census Bureau count all transfer payments as income, and a mandate that all federal agencies use the same income measure when determining eligibility for welfare, would be major steps towards righting the nation’s finances.
• But it would also do much more than this. It would bring people back into the economy, the source of prosperity and economic independence.  A job is the best nutrition, housing, healthcare, education, childcare, and general welfare program there is.

Conclusion.  Yes, the entitlement programs Social Security and Medicare need to be reformed to become fiscally sustainable.  But much more than this can be done to drastically reduce our now $2 trillion, and rapidly growing, annual deficits.  Adding a work requirement to means-tested welfare spending would save hundreds of billions of dollars every year.

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