Entitlements and the federal budget: facts, folklore, and future

Several common perceptions about the putative linkage between deficits and entitlement spending have approached the status of folklore in deficit debates. In an effort to distinguish facts from folklore, four such perceptions are examined: that entitlement growth has caused increased deficits; that federal health care programs have driven the rapid growth in health care costs; that non-means-tested programs have been the fastest-growing entitlements; and that too large a share of entitlement benefits goes to affluent households. Although much of the conventional wisdom of entitlement growth cannot withstand scrutiny, entitlement reform will be needed, if for no other reason than the fact that the two largest entitlements--Social Security and Medicare--face long-term actuarial deficits. A set of principles is identified to guide deficit reduction, and some options are discussed to resolve the imbalances in the two largest entitlements: Social Security and Medicare.