In our opinion: Reclaiming America's social compact through entitlement reform

Clandestinely recorded comments about entitlements and taxation made by presidential nominee Mitt Romney have excited presidential odds makers this past week.

Romney's leaps of logic in that unguarded exchange — an exchange primarily about the campaign's strategic focus on undecided voters — have raised questions about the candidate's understanding of the American electorate.

But as inelegant (Romney's own characterization) as the sound bite may have been, this flap has brought to public consciousness a long-overdue discussion of the role of entitlements in contemporary America.

Who pays taxes?

Romney was factually correct that nearly half of American households pay no income tax. He was also factually correct that nearly half of Americans live in households where at least one person receives a direct federal benefit. What these two stark facts mean for American society and federal policy, however, is open to debate.

Critics note that by focusing only on the federal income tax, Romney failed to acknowledge that most of those paying no income tax paid payroll taxes. They point out that these might be working households where tax credits for children offset the income tax. Indeed, they might be households that qualify for the earned income tax credit — a pro-work, pro-family, anti-poverty policy created by Gerald Ford, championed by Ronald Reagan and expanded by Bill Clinton.

Critics further note that Romney's language about dependency failed to take into account that many of these benefits come from programs into which the current beneficiaries have already contributed in some fashion, such as Social Security, Medicare and veteran's benefits. To many they are understood as part of an intergenerational social compact into which most contribute so that most can benefit.

It is hard to explain Romney's choice of words. Nevertheless, it was not improper for a presidential candidate to identify our current entitlement programs as posing significant economic and moral challenges for America's future.

Unsustainable entitlements

During the boom that America experienced following World War II, policymakers crafted a patchwork of safety nets for the poor and needy as well as systems that provide income and medical security for veterans, the disabled and the elderly. But those well-intentioned programs were built on expectations that the demographics, the economic growth and the culture of the mid 20th century would persist. They didn't.

With an aging population living longer, and with less marriage, less childbearing and less immigration, the country's demographics no longer match the growth-dependant design of its elderly assistance programs.

With stagnant economic growth, high unemployment, uneven family formation and institutional dysfunctions, the country's safety net programs are bursting beyond capacity. For example, the number of individuals participating in the Supplemental Nutrition Assistance Program (aka food stamps) grew from 26 million to 46 million in the last five years.

Fifty years ago, federal transfers to individuals equaled about $24 billion in current dollars. By 2010, "government at all levels oversaw a transfer of over $2.2 trillion in money, goods and services," according to Nicholas Eberstadt of the American Enterprise Institute. That is nearly a hundred-fold increase after inflation.

Given such astronomical sums, it is entirely proper to worry about inefficiency, waste and fraud. It is appropriate to examine how these massive transfers influence behavior and choice. And even if there was no culture of dependency among transfer beneficiaries, could anyone deny that such huge institutionalized transfers create entrenched, politically active interests among those who provide entitlement services?