Who benefits from contributory programs?

There are a wide range of entitlement programs on offer from the federal government, designed to provide financial support to citizens.

Combined, the programs comprise the social safety net, a vast blanket of initiatives designed to insulate Americans from financial hardships and resultant consequences. Financial expert Forbes reports that the ‘big three’ programs, Social Security, Medicare and Medicaid, account for around 48% of the entire annual federal budget.

Entitlement programs can be split into two groups based on their funding models: contributory and non-contributory. The former requires individuals to pay into the program to be eligible to receive the benefits at a later date; while the latter is available to all eligible Americans, without requiring prior payment.

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What are contributory entitlement programs?

Contributory entitlement programs include Social Security, Medicare and unemployment insurance; benefits programs that require the recipient to have contributed to in the form of payroll taxes. All Americans in work will participate in the programs, and so will be eligible to receive the benefits latter down the line.

Social Security, Medicare and unemployment insurance typically provide support for Americans who are no longer in work, either due to their age, a disability or a loss of employment, but who had previously been.

In contrast non-contributory programs, sometimes referred to as ‘welfare’, do not require recipients to have previously paid in. Regardless of their work history, Americans and certain legal aliens are able to claim support from the government.

These programs include refundable tax credits (Earned Income Tax Credit), Supplemental Nutritional Assistance Program (SNAP), Housing Assistance, Supplemental Security Income and Pell Grant for students.

How much do contributory programs cost every year?

Although they require recipients to have contributed financially, this does not mean that contributory programs do not come with a financial burden for the government. In fact, some of them rank amongst the most expensive forms of federal expenditure.

In 2020 Social Security cost the government $1.1 trillion, making it the largest form of federal spending and responsible for 16.7% of the entire budget. Defence spending was a close second costing $1 trillion.

Medicare cost around $776 billion in 2020, while unemployment insurance was $475 billion. In short, although contributory programs do require recipients to have paid into them to be eligible for the support, they still receive a huge amount of funding from the federal government.