Dec 092012
 

So with all this cliff talk and the “growing”/theoretical insolvency at some point in the future, I got to thinking and doing a little math as it relates to entitlements and alike since the statistics aren’t hard to find, with much of my baseline math coming from general welfare statistics and budget allocations.  My assumption is that we don’t fundamentally change any benefit – just the qualification of said benefit.  Modest changes and only for those that are able bodied.  The goal is a better educated population, a more productive economy and a better sense of community through participation.

  • Why Should we provide entitlements for anyone regardless of their contribution?
  • Shouldn’t some amount of return be provided from the citizenry receiving entitlements?
  • Shouldn’t there be some minimal baseline requirements around education or directional intent from participants?
  • Is there a minimum contribution required for all?

Premise

We need a basic floor by which no citizen falls, but that citizen needs to provide some contribution back and into the system and we need a fiscal policy which rewards active participants in the community/economy, while balancing the load across the wage base.  To that end, I’ve done some analysis which might make entitlements more appropriate, bring in more revenues and support equal opportunity for those producing for the country.

Entitlements: BIG DOLLARS, no constraints!

Source: http://upload.wikimedia.org/wikipedia/en/2/2b/U.S._Federal_Spending_-_FY_2011.png

It’s About Contribution and Participation to Gain Benefits

1.56T is a big number, but there are also the tax credits we provide for producers and consumers alike.  Mortgage deductions, earned income credit and charitable contributions.   The challenge I have with entitlements, isn’t that they exist.  We owe a minimum to our citizens – SNAP, Housing assistance, education, security and opportunity, but it’s a trade – they have to produce and contribute to our society.

Perhaps we should consider the following minimal qualification for any government program or credit:

  1. Minimum Education levels
  2. Minimum Production: Monthly Hourly Contribution
  3. Citizenship
  4. Limits on eligible dependents
  5. Minimum hours/investment into your social security account

Minimum Education levels

Perhaps it should be a requirement that all household members have a GED or equivalent for ANY entitlement, including social security.  Let’s say that all people over 45 are exempt.  Roughly 42% of ALL recipients of welfare have no GED.  So let’s say that 70% of these folks obtain their GED during some grace period, say 18 months.  That could be a savings of $100B annualized going forward which would probably decrease over time where worst case EVERYONE gets a GED and we are in theory better off with some increase in overall education levels and skills.

Minimum Production: Monthly Hourly Contribution

The average welfare recipients hourly contribution to production is on average 800 hours per year.  That pretty low.    To that end, anyone under Social Security qualification age must have say 1400 hours in wage generation or community service.  Hours spent in education would qualify for participants under a given age – say 35.  Let’s say that 3% of the people fall off the dole due to this – that’s a cool $25B savings forever and at $8 an hour in value let’s call it $100B in increased contribution to the community and production annually.

Citizenship

Even with the somewhat paltry number at $10B annually, it’s still a reasonable thing to stop.  This would include people claiming dependents on their tax returns, even if not receiving traditional entitlements.

Limits on eligible dependents 

The concept here is that, we all make choices for good or ill.  Whether they are faith based, desire to have kids or just out of unpreparedness, there is a limit the government should support with tax credits and entitlements.  Do whatever you want, but credits are applicable to the number of children associated with say – 3 birth events.  You have three deliveries for 3 kids, it’s 3 kid limit.  If you have 6 with 3, you get 6.  Fourth birth event equals ZERO.  I know this is a rounding error, but it’s a good constraint.  Choices have consequences.  Let’s call this – $50M.

You Have to Pay Something to Get Social Security

I’m not including disabled folks, they are out of the equation.  It is however reasonable to think you can’t get social security unless you’ve paid in at least $80,000 over your lifetime, as an exception you can just right a check for the gap to be included.  Let’s say 3% don’t hit that, that’s ~$20B in ongoing savings.

Qualifications for entitlements shouldn’t be just that you live here, it should center on your participation while your living here – socially and economically.

The Credit Problem

While we look at entitlements, there are credits which represent a challenge from a cost perspective.  Two of the biggest which should be closed/modified are non-trival – the earned income tax which costs $269B a year and the mortgage tax credit @ $83B according to NPR.

Earned Income Tax Credit

I agree this is important, but should only be applicable to tax owed and allow no refunds based on the credit.  Which to the best of my ability looks to be $59B.

Mortgage Interest Deduction

Can we just eliminate this? “About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles,” so if you want to own a home, you should be able to afford the taxes.  Stretching home ownership creates a bubble and risk of collapse, I think we learned that.  So let’s take the current $83B back.

Conclusion

By requiring a certain set of criteria and limits on entitlement consumption all productive community members will have a minimum amount of subsistence and the subset who don’t reach the bar, that’s a sad thing, but that should be the domain of charity, not community.

My math indicates that these measure, at conservative math saves about $295B or reduces entitlements by over 18% which providing value back to the community.  Worst case, it stays flat and we have more production.  Couple that with law and taxation changes I’ve talked about before, we can get to a budget which pays down the deficit by as much as $.5T more than what we are paying now in as quickly as 7 or 8 years, while running a no deficit budget from year 1.