As the deadline for the budget approaches, discussions around entitlement spending and potential cuts have begun in Congress. The term “entitlement” is being debated by taxpayers, some viewing it as a hand-out while others argue it is earned and guaranteed by law. The distinction between entitlement spending and discretionary spending is crucial, as entitlement benefits are guaranteed and not subject to annual appropriations. Social Security and Medicare are two of the most popular entitlement programs in the U.S., funded by taxes on wages and self-employment income.
Social Security taxes are paid until a certain income cap, while Medicare taxes apply to all wages. The amount of Social Security benefits received is based on your earnings history, with higher earners receiving higher benefits. However, the trust funds for Social Security and Medicare are facing financial challenges, with total costs exceeding income. Changes will be necessary to keep these programs solvent, which could include raising payroll taxes, lowering cost-of-living adjustments, or raising the ages for eligibility.
A new bipartisan bill, H.R. 82, has passed in the House of Representatives, aiming to change Social Security benefit rules. The bill would repeal provisions that reduce Social Security benefits for individuals who receive other benefits such as state or local government pensions. This could add an estimated $196 billion to deficits over the next decade, primarily due to eliminating provisions that prevent overpayment to beneficiaries collecting from state and local pensions. The bill is expected to pass in the Senate as well.
The trustees for Social Security and Medicare anticipate a financial shortfall in the future, given the aging population and rising health care costs. With entitlement programs making up a significant portion of the federal budget, costing $2.7 trillion, changes will be necessary to ensure the sustainability of these programs. Failure to address these issues could lead to funding sources like federal income tax revenues being used for benefit payments.
The debate around entitlement spending will continue to be a contentious issue as Congress navigates the budget deadline. The implications of potential cuts or changes to entitlement programs, such as Social Security and Medicare, could have far-reaching effects on taxpayers and beneficiaries. As discussions progress, the challenges of funding these programs and ensuring they remain solvent will be at the forefront of budget negotiations.
