Personal Finance

Advocates: Cost of GOP tax bill puts entitlement programs at risk of cuts

Key Points
  • Programs such as Social Security, Medicare, Medicaid and the Children's Health Insurance Program comprise the bulk of the government's expenditures every year.
  • The Joint Committee on Taxation estimates that after economic growth is taken into consideration, the GOP tax bill will add $1 trillion to the deficit over 10 years.
House names members for tax reform conference committee
House names members for tax reform conference committee

As Republican lawmakers work toward finalizing , consumer advocates are bracing for an ensuing showdown over entitlement programs.

At issue is the $1 trillion or so that the tax-cut package would add to the federal deficit over a decade even after economic growth is taken into account, according to estimates from the Joint Committee on Taxation. Advocates' concern is that the GOP will pursue ways to pare the federal government's most expensive budget line items — which also happen to be social safety nets — to offset the price tag of their tax-cut package.

"That [$1 trillion additional deficit] will be a rallying cry for why they have to deal with entitlement programs, even though they created the problem," said Dee Mahan, director of Medicaid initiatives for Families USA, a consumer health-care advocacy group.

Based on recent and past statements from various GOP lawmakers, the concern is warranted. Just this week, House Majority Leader Kevin McCarthy signaled that changes to entitlement programs could help tackle the deficit.

"I worry about deficits, but you're not going to get out of this problem until you grow the economy," McCarthy said Monday, on CNBC's "Squawk Box."

"Then, you've got to look at the entitlements," he added.

Programs such as Social Security, Medicare, Medicaid and the Children's Health Insurance Program (also known as CHIP), comprise the bulk of the government's expenditures every year.

Some of the programs are mandatory, meaning Congress must fund them. Lawmakers could, however, propose changes to separate laws governing things such as eligibility and benefit-amount formulas. This, in turn, could reduce overall federal spending on those programs.

People who care about or benefit from programs that are targeted at, or help, low- or middle-income people should be very concerned.
Dee Mahan
Families USA

It's uncertain how Republicans plan to pay for the proposed tax-cut measure while avoiding automatic spending-cut triggers brought on by a 2010 pay-as-you-go law, which requires lawmakers to offset the cost of new legislation with other revenue. To prevent automatic budget cuts, separate legislation would have to be passed.

Consumer advocates worry that the most vulnerable programs could be those that assist households whose budgets already are strained.

"People who care about or benefit from programs that are targeted at, or help, low- or middle-income people should be very concerned," Mahan said. "They should let Congress know that these programs are important to them."

Here's a roundup of the largest social safety-net programs: What they do, who their beneficiaries are, how they are funded and how much they cost the federal government.

Social Security

This federal insurance program provides retirement, disability and survivor benefits to qualifying recipients, the bulk of whom are age 65 or older. It includes two parts: the Old-Age and Survivors Insurance and the Disability Insurance programs.

Social Security also tops the list of the most costly federal expenditures. In fiscal year 2016, 24 percent ($912 billion) of the $3.9 trillion federal outlay went toward Social Security.

Currently, the program gets about 85 percent of its funding through a dedicated payroll tax. In 2017, employers and employees each pay 6.2 percent of wages up to the taxable maximum of $127,200. In 2018, that ceiling rises to $128,400.

The remainder of the program's funding typically comes from a combination of interest earnings and revenue from taxing Social Security income. (The chart below shows where the federal government gets its revenue.)

The program also is facing its own future budget woes: If Congress doesn't act before 2035, Social Security will only be able to fund about 75 percent of benefits beginning that year, according to the most recent annual report from the Social Security Board of Trustees, released in July.

In 2016, the retirement benefits cost the government $769 billion and the disability benefits rang up a $143 billion tab, that report found.

In October, 51.3 million people received an average monthly payment of $1,306 under the retirement benefits program, according to the most recent federal data. About 10.4 million beneficiaries received a monthly benefit averaging about $1,039 through the disability program.

Supplemental Security Income Program

Commonly called SSI, this program was created in 1972. It provides monthly financial support to people with limited income and resources who are disabled, blind, or age 65 or older. Children who are disabled or blind also can qualify.

While overseen by the Social Security Administration, the program is different from Social Security in two key ways.

First, eligibility has nothing to do with your employment record — only your financial situation. Generally speaking, the program is only available to people with very limited income and assets.

Another key difference is that SSI is not financed through a dedicated payroll tax. Rather, it is funded through general revenues.

Federal expenditures for SSI payments were $54.6 billion in 2016, according to the program's most recent annual report, released in September. About 8.3 million people received an average monthly payment of $543 in October through this program, according to the most recent statistics available.


This is the primary source of health-care insurance for the vast majority of retirees and for people under age 65 with permanent disabilities.

Republican congressional leaders recently released a statement outlining their intent to protect Medicare through the tax-overhaul process. Unless Congress passes separate legislation to prevent it, a 2010 pay-as-you-go law would trigger automatic budget cuts to Medicare soon after lawmakers enact the tax bill.

Damien Meyer | AFP | Getty Images

Nevertheless, the program already is dealing with funding problems. Comprising 15 percent ($588 billion) of total federal spending in 2016, Medicare is expected to face "a substantial financial shortfall that will need to be addressed with further legislation," according to its most recent annual report, released in July.

Like Social Security, Medicare is partly funded through a dedicated payroll tax, with the employee and employer each paying 1.45 percent of a worker's income. However, there are no income maximums on that withholding — and workers earning more than $200,000 annually ($250,000 for married couples) pay an additional 0.9 percent of earnings toward the program.

While the majority of Medicare recipients are retirees, it also is available to people under age 65 who are receiving Social Security disability benefits. In 2015, about 46 million retirees were on Medicare, while 9 million people were receiving coverage due to disabilities.


This is the program that helps meet health-care and long-term-care needs of low-income people — and, advocates say, could top the list of targets for budget cuts.

It is the third-largest domestic program in the federal budget after Social Security and Medicare, costing the government $364 billion in 2016.

Medicaid is funded jointly by the states and the federal government. States get at least $1 in federal funds for every qualifying $1 a state spends on the program, although in some cases they get even more. Federal funds come from general revenue.

Many older Americans rely on the program. In 2014, 7.4 million seniors used it, accounting for 21 percent of program spending, according to the Henry J. Kaiser Family Foundation, a research firm.

Basically, when retirees run out of money and need nursing-home care or other long-term care, Medicaid steps in. (Medicare does not cover long-term care.) It also supplemented coverage for nearly 11 million Medicare beneficiaries.

The largest group of beneficiaries are 34 million children, accounting for 19 percent of the program's spending in 2014, Kaiser research shows.

Thanasis Zovoilis | Getty Images

Children's Health Insurance Program

Signed into law in 1997, CHIP is funded jointly by states and the federal government to provide coverage to uninsured children who are ineligible for Medicaid but cannot afford private coverage.

The program is administered by each state, which sets its own guidelines for eligibility and services based on federal guidance. Unlike Social Security, Medicare and Medicaid, CHIP is not a mandatory-spending program.

This year, Congress failed to reauthorize CHIP by its expiration on Sept. 30. Although lawmakers have been working toward passing legislation to renew the program — — there is disagreement over how to fund it. In the meantime, some states have received emergency federal funding to keep their programs afloat. Others are unsure whether they'll be able to offer coverage beginning in January.

In 2016, CHIP cost the federal government about $14.4 billion. Roughly 8.9 million children received health insurance through the program.

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