The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs by John F. Cogan

Author:John F. Cogan [Cogan, John F.]
Language: eng
Format: epub
Publisher: Stanford University Press
Published: 2017-09-26T04:00:00+00:00

Figure 2. Federal Spending on Entitlements and Other Programs: 1947–1975. Source: U.S. Budget, Fiscal Year 2017, Historical Tables, Tables 1.2, 3.1 and 13.1, U.S. Budget, Fiscal Years 1942–2017.

16

First Inklings of Fiscal Limits, 1975–1980

The beneficial effect of State intervention, especially in the form of legislation, is direct, immediate, and, so to speak, visible, whilst its evil effects are gradual and indirect, and lie out of sight. . . . Hence the majority of mankind must almost of necessity look with undue favor upon government intervention.

A. V. Dicey (1914)

PREVIOUS CHAPTERS DISCUSSED HOW BUDGET surpluses throughout U.S. history created irresistible pressures for entitlement liberalizations. This chapter explores Congress’s initial response to persistent federal budget deficits. From 1975 to 1980, deficits reached peacetime record highs that remain among the largest in history. The deficits were direct consequences of the prior decade’s entitlement expansions that unleashed a torrent of federal spending. Congress had not only spent the overall federal budget into structural deficit, it had also, quite literally, spent the Social Security retirement and disability trust funds into a state of financial exhaustion.

Faced with large structural deficits, Congress dramatically slowed the pace of entitlement expansions. No new major entitlements were written onto the federal statute books during President Carter’s term in office. To the contrary, the efforts of President Carter and the Democratic Party’s liberal wing to establish legal rights to a guaranteed income and establish a national health insurance plan failed. Expansions in existing entitlements were few, and, with the exception of the food stamp program, confined to relatively small entitlement programs. Most notable, to prevent Social Security’s imminent bankruptcy and reduce its large unfunded long-term liability, Congress reduced benefits that future recipients were promised by the ill-advised 1972 Social Security law and raised payroll taxes dramatically. Following long-standing precedents that date back to Revolutionary War pensions, Congress did not change benefits to current recipients. Congress’s unwillingness to reduce Social Security benefit levels for current recipients, even though these were the result of an admittedly flawed formula, is illustrative of the permanence Congress attaches to an existing entitlement benefit.

The Ford Presidency

When Gerald Ford assumed the presidency in August 1974, the combination of rapidly rising entitlement spending and a deep economic recession were producing record increases in federal spending and budget deficits. The fiscal year 1975 budget deficit set a new post–World War II record high, and the deficit for the next year, the nation’s bicentennial year, broke that record. Budget projections by the new Congressional Budget Office made clear that budget deficits loomed as a permanent fixture. According to the office, budget deficits would persist for at least another five years even if the economy magically grew at an annual inflation-adjusted rate of 5 percent.1

President Gerald Ford took a tough-minded stance against higher spending, the first post–World War II president to do so. He began mildly as the nation was reeling from Richard Nixon’s resignation. In September 1974, the new president called on Congress to hold spending to $300 billion, a generous 10 percent increase over the prior year’s level.

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