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What is (an) Entitlement?

Let's manage financial liabilities and long-term commitments

en•ti•tle•ment noun from Merriam-Webster.com

  1. a) the state or condition of being entitled b) a right to benefits
  2. a government program providing benefits to members of a specified group; funds supporting or distributed by such a program
  3. a belief that one is deserving of or entitled to certain privileges

 

The other week a voter said to me, "They call Medicaid an entitlement but they call tax breaks ..." She hesitated so I offered, "Incentives?"

Fast forward 24 hours. Another voter asked about my proposal to eliminate the deduction for mortgage interest. I posed the question: "Let's say you and I have the same income – you rent, I have a mortgage – should I pay less tax?" He didn't respond. I answered my own question: "No, we must be taxed equally."

Government programs that convey a benefit or favoritism engender a sense of entitlement. And beneficiaries don't want it to end. That's why Congress is at a standstill. Medicaid, Medicare, and Social Security. Farm subsidies. Tax breaks for mortgage interest, employer provided health insurance, capital gains and dividends. Veterans programs for education, housing, and life insurance. Each program has its constituency and proponents.

Most of these programs have long-term and indefinite budget consequences. Social Security eligibility is age 62.  Total Social Security benefits paid aren't determined by the taxes you paid but how long you live. The government doesn't know its liability for veteran education benefits until a veteran starts going to and completes school.

At some point in our nation's history, these programs didn't exist. Does that mean we roll them all back immediately? No – that would have significant consequences for people's long-term plans. So how do we transition from a system of entrenched favoritism and long-term expectations?

  • For Medicare and Social Security:  Maintain current commitments to current beneficiaries, but begin to narrow the range of eligibility for future beneficiaries by increasing age and income requirements.
  • For veteran programs:  Maintain current commitments to current beneficiaries, but immediately transition new service members to higher pay and defined-contribution programs.
  • For income security programs:  Mandate work, education, or training requirements that lead to graduating from the need for income assistance.
  • For income tax breaks:  Lower rates to offset the loss of credits and deductions with one notable exception for mortgage interest.  In my tax proposal I suggest phasing out tax breaks for existing retirement plans and allow an annual tax deferral of $25,000 on new savings and investment; existing homeowners may apply their mortgage interest toward that deferral but new homeowners may not.
  • For programs that distort markets such as agriculture or energy subsidies:  End them immediately.  (The mortgage interest deduction also distorts markets, but needs special handling.)

 

Good businesses know their current finances and future liabilities with certainty. It's time for good government to do the same.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Skip Endale September 24, 2012 at 02:51 AM
"Let's say you and I have the same income – you rent, I have a mortgage – should I pay less tax?" In principle yes, in reality no. Here's why: my bank got bailed out and I did not, my house is still under water. Further, the renter never chose to participate in the economy like I did, never made a contribution to free enterprise, never paid a dime of property taxes. In turn, the renter brings down my property value, does not care about community property, does not pay on time, adds to the administrative burden of maintaining the property etc etc. There is a big difference between a renter and a home owner and this difference goes beyond the obvious; it also transcends into areas like credit worthiness, job candidacy and general outlook on life. So why anyone would take away the deduction of the home interest? Because after years of announcing unsustainable growth and homeowner society and global supremacy now its cool to spawn doom and gloom. So back to you as a candidate, in principle yes in reality no.
Mark Gibson September 24, 2012 at 06:20 PM
Mr. Endale: You're right – you're underwater and the bankers got bailed out. Home prices were inflated in part by tax policy that drove up demand. We have to put in place rules that eliminate policy-driven demand, hold bankers accountable for bad loans, and help homeowners get whole. I disagree with you that renters make no contributions – rental units have to be built and property taxes are imbedded in rent. Foreclosed and empty homes drive down property values; landlord owned and renter occupied units do the opposite. And responsible landlords maintain their properties so they can rent them in the future. As for growth and the intangibles, the Germans are doing well and homeownership is less than 50%. Spawning doom and gloom? Not me – I'm very optimistic. But I believe we need to get away from government choosing which form of housing is best and leave that decision to us. Mark
Don Joy November 12, 2012 at 02:26 PM
What about holding the policy makers (not merely banks) accountable for bad loans? That's how it all got started, Bill Clinton and Barack Obama putting the Community Reinvestment Act on steroids back in the 1990s and forcing banks to make affirmative action loans that they otherwise had the good sense not to make. Obama was ACORN's attorney and played a key role in suing CITIBank in 1994, helping shake down major banks and pushing the do-good "social justice" racial agenda that led to the destruction of all prudent lending standards throughout the industry, and to the corruption of the entire financial sector. The do-gooder policy makers made moral hazard the only game in town across the land, by subsidizing and underwriting all of the risky behavior through FNMA/FDMC, the Federal Reserve, FHA, and countless agencies & programs. Once standards were eliminated for low-income minority borrowers, how could banks justify holding more qualified borrowers to higher standards--especially when banks didn't even have to hold any of the paper anyway? The do-gooders were all to happy to buy it all up and put the taxpayer on the hook for it all, in the name of "equal opportunity" and "fairness." And people wonder why the banks resorted to byzantine hedging strategies, CDOs, etc, to mitigate all the risk they were forced to take on by the do-gooders. I recommend Peter Shweizer's "Architects of Ruin" for starters.
Don Joy November 12, 2012 at 02:37 PM
As far as the main topic of your article, it's going to be almost impossible to get most of the public to understand that they are not entitled to anything much beyond the basic rights of life, liberty, and the pursuit of happiness; that the world does not owe them a living nor a free lunch. They have been mis-educated for decades by public schools which were taken over by socialists long ago, and they keep voting for more and more GIBS ME DAT public policy. No one can get elected to office by telling them the truth, that the world does not owe them a living. Politicians can only get elected by participating in the charade that the gravy train will never stop, and promising them more and more goodies and benefits in exchange for votes. Socialists eventually run out of other people's money, and we are headed for a grave reckoning.

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