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Present Welfare Spending 200% Higher Than "Poor Level!"

Doctor Toms Rant - Blogged


My name is Robert Rector. I am a Senior Research Fellow at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation.

The governmental safety net has three basic components: 1) Social Security and Medicare for the elderly; 2) unemployment insurance and worker’s compensation; and 3) anti-poverty or means-tested welfare programs. 

My testimony will deal with the means- tested welfare system which could also be called comprehensive assistance to the poor.

The means-tested welfare system consists of 79 federal programs providing cash, food, housing, medical care, social services, training, and targeted education aid to poor and low income Americans. Means-tested welfare programs differ from general government programs in two ways. First, they provide aid exclusively to persons (or communities) with low incomes; second, individuals do not need to earn eligibility for benefits through prior fiscal contributions. Means-tested welfare therefore does not include Social Security, Medicare, Unemployment Insurance, or worker’s compensation.

Although the public is aware that Social Security and Medicare are large expensive programs, few are aware that for every $1.00 spent on these two program, government spends 76 cents on assistance to the poor or means-tested welfare.

In FY2011, federal spending on means-tested welfare came to $717 billion. State contributions into federal programs added another $201 billion, and independent state programs contributed around $9 billion. Total spending from all sources reached $927 billion.

About half of means-tested spending is for medical care. Roughly 40 percent goes to cash, food, and housing aid. The remaining 10 to 12 percent goes what might be called “enabling” programs, programs that are intended to help poor individuals become more self-sufficient. These programs include child development, job training, targeted federal education aid and a few other minor functions.

The total of $927 billion per year in means-tested aid is an enormous sum of money. One way to think about this figure is that $927 billion amounts to $19,082 for each American defined as “poor” by the Census. However, since some means-tested assistance goes to individuals who are low income but not poor, a more meaningful figure is that total means-tested aid equals $9,040 for each lower income American (i.e., persons in the lowest income third of the population).

If converted to cash, means-tested welfare spending is more than sufficient to bring the income of every lower income American to 200 percent of the federal poverty level, roughly $44,000 per year for a family of four. (This calculation combines potential welfare aid with non-welfare income currently received by the poor.)

In the two decades before the current recession, means-tested welfare was the fastest growing component of government spending. It grew more rapidly that Social Security and Medicare and its rate of increase dwarfed that of public education and national defense. While means-tested medical benefits have been the fastest growing part of the welfare system, most other forms of welfare aid have grown rapidly as well.

For example, spending on means-tested cash, food and housing has grown more rapidly than Social Security over the last two decades. Adjusting for inflation and population growth, the U.S. now spends 50% more on means-tested cash, food and housing than it did when Bill Clinton entered office on a promise to “end welfare as we know it”. It comes as a surprise to most to learn that the core welfare state has expanded dramatically since reform allegedly “ended welfare” in the mid 1990’s.

Total means-tested spending on cash, food and housing programs is now twice what would be needed to lift all Americans out of poverty. Why then does the government report that over 40 million persons live in poverty each year? The answer is that, in counting the number of poor Americans, Census ignores almost the entire welfare state: Census counts only a minute fraction of means-tested cash, food and housing aid as income for purposes of determining whether a family is poor.

Despite the fact that welfare spending was already at record levels when he took office, President Obama has increased federal means-tested welfare spending by more than a third. Some might this is a reasonable, temporary response to the recession, but Obama seeks a permanent, not a temporary, increase in the size of the welfare state.
According to the President’s FY2013 budget plans, means-tested welfare will not decline as the recession ends but will continue to grow rapidly for the next decade. According to Obama’s budget, total annual means-tested spending will be permanently increased from five percent of GDP to six percent of GDP. Combined annual federal and state spending will reach $1.56 trillion in 2022. Overall, President Obama plans to spend $12.7 trillion on means-tested welfare over the next decade.

Obama’s budget plans call for ruinous and unsustainable budget deficits. These deficits are, in part, the result of dramatic, permanent increases in means-tested welfare. An important step in reducing future unsustainable federal deficits would be to return welfare spending to pre-recession levels.

To accomplish this, Congress should establish a cap on future welfare spending. When the current recession ends, or by 2013 at the latest, total federal means-tested welfare spending should be returned to pre-recession levels, adjusted for inflation. In subsequent years, aggregate federal welfare spending should grow no faster than inflation. This type of spending cap would save the taxpayers $2.7 trillion dollars during its first decade. 

An aggregate welfare spending cap of this sort is contained in HR 1167, The Welfare Reform Act of 2011 introduced by Congressman Jim Jordan (R-OH).

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