In this week’s Heritage in Focus, economic policy director Alison Fraser takes us through Heritage’s budget plan to save the American Dream. Make sure to listen to the full interview, here.

To give an indication of the dire fiscal situation our three major entitlement programs present us, consider the state of Social Security, Medicare and Medicaid – combined they consume 43 percent of all federal spending.

Social Security is currently paying out about $700 billion per year. Starting last year, it began running a cash-flow deficit, meaning it was paying out more than it took in through payroll taxes. Annual deficits are projected to continue with no end in sight.

There is a $2.5 trillion Social Security trust fund that has accumulated as a result of surpluses from 1983 to 2009. The only problem is the money isn’t there. Government spent it on other things – roads, welfare programs, etc. In place of the money are IOUs, which are government promises to raise taxes or borrow money in the future to pay back the spent surplus funds.

As of last year, government tapped into other tax revenue sources to cover Social Security’s deficits. However, tapping into other sources of revenue will only work until around 2037, as that’s when the IOUs must be paid.

To think of this another way, over the years the right hand of government has been shoveling Social Security surpluses into a lock box while the left hand of government has been reaching into that lock box and spending the money.

Medicare is even worse. It faces unfunded liabilities of $30 trillion over the next 75 years. People are currently receiving benefits from Medicare in excess of three times what they contribute in to the program.

No level of tax hike can possibly cover these promises. The program needs desperate reform.

And lastly there’s Medicaid. Medicaid is becoming a bigger burden on states as well as the federal government, as the program has grown over the years. According to, the program grew to account for eight percent of state’s budgets by 1985. Just 20 years later, Medicaid consumed 22 percent of state’s budgets, and that, combined with federal spending, amounted to $330 billion.

This program is also growing too large. It can’t continue.

Reform of these three programs is essential in any budget plan, but of course other areas of spending need to be brought under control, our tax system needs to be simplified, and regulation needs to be more reasonable in order to return prosperity to the American people.

Read more about Heritage’s new budget plan, here.

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