The “go broke” dates for Medicare and Social Security have been moved up once again. The trust funds for these entitlement programs will be depleted within the next decade. The Trump administration has vowed to make no cuts to Medicare or Social Security. The “Big Beautiful Bill” moving through Congress would reform Medicaid but leave Medicare and Social Security untouched. The failure to reform these entitlement programs means that the federal debt will continue to grow at an unsustainable rate. If we are to restore fiscal sanity, we must consider fundamental reforms in these entitlement programs.
One ray of hope in the budget bill is the modest reform in the college savings (529) plan. This reform will cover a wider range of expenses, including vocational and other post-secondary education and training. The proposed reform will also include enhanced savings for individuals with disabilities. These proposed reforms are a recognition that the primary responsibility for meeting education and health care needs lies with families.
What America needs is a “Singapore Sling.” I refer not to that nation’s national drink, but rather to, arguably, the most efficient entitlement program in the world. We can think of the Singapore entitlement program as a supersized 529 plan. With that reform, families would have the resources to meet the health care and retirement needs as well as education expenses of family members.
The key to Singapore’s success is its Central Provident Fund (CPF). CFP is a mandatory social security savings plan funded by contributions from employers and employees. The Fund is divided into separate retirement and medical accounts. The plan provides monthly payouts to retirees to cover basic living expenses.
The Singapore government helps support the savings of low-wage workers and senior citizens in CFP. CFP is designed to cover housing and health care as well as retirement expenses of these families. The government relies on private charitable organizations to help administer these funds. These are organized along ethnic lines to meet the needs of minorities, who are often the lowest-income members of society. The Singapore government has found that families and local communities are best able to assess and meet the unique needs of minorities.
The fatal flaw in America’s entitlement programs is that they are defined benefit plans that cost 17% of GDP versus Singapore’s defined contribution plans which cost 40% less at 10% of GDP. The federal government promises retirement and health benefits that are funded in part from the general fund. The unfunded liabilities in the trust funds means that debt is passed on from one generation to the next.
Could America enact a defined contribution plan to replace our failed defined benefit plans? Given the roadblocks in Congress, critics will argue that this is wishful thinking. But before we dismiss this idea, we should ask citizens, and especially young people, what they think.
For those of us born during the Great Depression, a “Singapore Sling” is not that radical an idea. That was an era when families and local communities were the first line of defense in meeting the needs of indigent families. My grandfather was a Methodist minister, and churches and private charitable organizations in the community were the only safety net for many indigent families. Government transfer programs targeting the poor often worked hand in hand with these private organizations.
Individuals applying for welfare were often directed to employment opportunities when possible.
No one wants to bring back the poverty of the Great Depession. But poverty is unique to each individual’s background and circumstances, and families and local communities are best able to assess and meet these needs. They are also best able to guard against opportunistic individuals who take advantage of transfer payments. It is time to restore families and local communities as the first line of defense in our entitlement programs. A Singapore Sling would accomplish that.
Dr. Barry Poulson is on the board of directors of the Prosperity for US Foundation.
Image via Picryl.