A Dependent Nation Makes the Fiscal Cliff Even Steeper

Americans deplore many federal programs they rely upon.

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The Capitol dome is seen on Capitol Hill in Washington, Tuesday, Dec. 11, 2012, as Congress works on avoiding the fiscal cliff.

For anybody wondering why the fiscal cliff negotiations are so tedious and combative, the Pew Research Center has just published a report that provides many clues.

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Pew conducted a poll to determine how many Americans have received benefits from six federal entitlement programs: Social Security, Medicare, Medicaid, food stamps, welfare and unemployment insurance. It's even worse than Mitt Romney thought. Pew found that 55 percent of Americans have dipped into those programs at some point, while 32 percent have drawn benefits from two or more. So a majority of the U.S. population has relied on government aid.

This affects the fiscal cliff negotiations, and the long-term instability of the federal budget, because the majority of government spending goes toward people, not toward subsidies for Solyndra or bridges to nowhere or the silly stuff that politicians feign outrage about. Americans castigate Washington for reckless spending, but they also reach in for their share whenever there are taxpayer funds to be had. In some respects, the nation is dependent on practices it derides, like some sort of self-loathing addict.

In the cliff negotiations, President Barack Obama has strongly resisted cuts to entitlement programs, while Republicans have pushed for bigger changes such as a gradual reduction in benefits and an increase in the eligibility age for Social Security and Medicare. But even the higher Republican targets may not be enough.

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Republicans are now calling for nearly $1 trillion in spending cuts, which is less than half what the Bowles-Simpson presidential commission proposed in 2010, in a report considered a blueprint for deficit reduction. Obama has countered by proposing a different set of cuts that would total about $900 billion. But some budget analysts say both sides are using accounting tricks to make cuts sound bigger than they'd actually be.

What nobody in Washington is saying is that the whole social safety net needs to be recalibrated to deal with demographic and economic changes that have made it unsustainable. The Pew report didn't chart changes over time, but other measures show that the portion of Americans dependent on government programs has gone nowhere but up. Expanding the measure to include people who receive veterans' benefits, federally guaranteed student loans, housing aid and other types of assistance pushes the percentage of Americans taking government aid closer to 80 percent.

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That could come down a bit as the recession recedes, the recovery gains strength and more Americans go back to work. But there remain well-understood time bombs in the federal budget because the tax structures put into place long ago to support the costliest programs, Social Security and Medicare, no longer suffice. That mismatch will get even more acute as the baby boomers retire en masse and start to enroll in those programs.

There are two things that will keep entitlement programs more or less intact: Cutbacks in benefits, or widespread tax hikes--which would have to include the middle class--to pay for current benefit levels. Neither is preferable, but it's hard to envision middle-class tax hikes to finance benefits for comfortable seniors when a lot of young people can't find a decent job and are drowning in student debt. Conservatives often moan about government taking money from those who work to support those who don't, but the more problematic transfer of wealth in the future may be from young to old. Too much of that would drain the economic growth that's the one sure way to bring more prosperity for all.

More likely than widespread tax hikes are fairly deep cuts in entitlement programs that leave more Americans to fend for themselves. But that's not likely to happen until there's no other choice, because voters want their benefits. That will leave politicians dancing along the cliff's edge for quite some time.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.