What Can Be Done To Check the Growth of Federal Entitlement and Indexed Spending?

PAD-81-21: Published: Mar 3, 1981. Publicly Released: Mar 3, 1981.

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To assist Congress in its effort to find ways to reduce the budget, GAO offers seven basic approaches to controlling that portion of the budget consisting of entitlements and indexed spending. These approaches include: (1) eliminate a program altogether; (2) limit the indexing of program benefits; (3) tighten eligibility criteria to target available funds to the most needy; (4) reduce the level of benefits; (5) place a cap on the program's total spending; (6) limit spending to amounts annually appropriated; and (7) improve the efficiency with which a program is administered. There are three approaches for altering the present practice of automatic, full indexing utilizing the Consumer Price Index (CPI) that GAO believes merit early consideration as part of the congressional action on spending reductions. The first approach would give the President and Congress the discretion to modify the amount of the index through the budget process. Authorizing the President to use differential rates of indexation at different benefit levels would overcome the problem of adversely affecting the lives of the truly needy. The second approach would limit the adjustment to the level of the average increase in worker pay or the CPI, whichever is less. This alternative moves away from the exclusive use of a price index and would have wage earners and entitlement recipients share equally in the burdens imposed by falling real incomes. The third approach would substitute for the present CPI an index judged more efficient in measuring changes in the cost of living of those receiving entitlements or make adjustments in the index to compensate for its alleged statistical deficiencies. Despite specific drawbacks, any of these three indexing options would enable Congress to gain increasing control over the growth of this segment of the budget. GAO believes the first option is preferable because it permits the President to recommend and Congress to consider the cost of living increases as part of the budget process. These three approaches would not apply to any of the entitlement programs that are not indexed.

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