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Entitlement Programs: A Plan to End Them

Untangling ourselves from entitlements will restore our solvency and our spirit.

by
Amit Ghate

Bio

October 30, 2011 - 12:00 am
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Redistributing wealth in any form is bad enough, but there’s a certain audacity to forcing the young and not-yet-born to become the primary victims. (This type of conflict is far from an anomaly; collectivist schemes to redistribute wealth always pit one group against another, here the strife they cause is intergenerational.)

Having now established the moral and economic bankruptcy of our entitlement programs, the question becomes: what do we do with them? Given how long the programs have run and how many people have been forced to participate, there can be no easy answer. But to get us started, why not look at an analogous situation? There are obvious differences between Madoff’s and FDR’s Ponzi schemes, but reviewing how Madoff’s is being handled does provide two valuable insights.

First, as soon as Madoff’s scam was discovered, it was shut down. Second, a trustee was appointed to return what funds remained, and then to reclaim money from anyone who’d knowingly or unknowingly profited from the scheme. In justifying this, the trustee appropriately decided that no one had a right to “fictitious profits” or “other people’s money.” Since there was no investment to generate returns, the most anyone could get back was the dollar amount they’d contributed.

With this in mind, here are some initial ideas on how to tackle our entitlement mess:

1)    Stop the programs immediately. No one would accrue another cent towards Social Security, Medicare, or Medicaid.

2)    Continue to make Social Security payments on the existing schedule, but cap the lifetime payouts to the nominal value of past contributions. For younger people this would be an easy transition as they could plan their retirements accordingly. For some older people this would be more difficult, and in those cases of real hardship, they could be added to the welfare rolls. (Indeed, it’s been argued that entitlement programs are already a form of welfare.)

3)    Convert Medicare and Medicaid to a monthly payment similar to Social Security and cap these to lifetime contributions as well.

4)    Fund the remaining liabilities through the general revenues. This is already how SMI and Part D of Medicare are funded, but the difference here is that over time expenditures would taper to zero rather than growing exponentially as they do now.

Ending a fantasy is never welcome for those who want the impossible and who think that all they have to do is cast a vote to make it happen. Nor can there be any easy or completely just solutions to a colossal, multi-decade Ponzi scheme. But the solution outlined above has several merits:

  • It ends the program.
  • No one is cut-off “cold turkey.”
  • Anyone who lives long enough gets back what they put in (less inflation).
  • Unemployment is reduced by the elimination of the FICA payroll tax.
  • People are once again able to prioritize their values and plan for their own retirements and medical care.

Finally, and most importantly, future generations can once again enjoy the freedoms and opportunities that were — and should be — this nation’s hallmark.

 


[1] President Obama recently admitted as much when he declared that Social Security checks might not go out absent a debt ceiling increase. In other words: we must incur new debt to pay for the programs since the “trusts” are empty.

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Amit Ghate began his career as a mechanical engineer but now trades stocks for a living. In his free time, when he’s not rock climbing or at the gym, he writes and maintains his blog Thrutch. He currently resides in Southern California.
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