    [Budget of the U.S. Government]
    [VI. Investing in the Common Good: The Major Functions of the Federal Government]
    [24. Income Security]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                              24.  INCOME SECURITY

      ----------------------------------------------------------------------

                              Table 24-1.  FEDERAL RESOURCES IN SUPPORT OF INCOME SECURITY
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                Estimate
                Function 600                1996   -----------------------------------------------------------------
                                           Actual      1997       1998       1999       2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority...     27,752     26,015     32,592     36,113     38,892     40,402     41,811
      Mandatory Outlays:
        Existing law...................    187,994    197,391    203,649    212,394    222,232    225,644    235,394
        Proposed legislation...........  .........        586      2,282      2,246      2,258      1,869      2,569
    Credit Activity:
      Direct loan disbursements........         93         95         73          8  .........  .........  .........
      Guaranteed loans.................          5          5         17         34         40         40         37
    Tax Expenditures:
      Existing law.....................     83,027     84,768     86,279     87,922     89,509     91,266     93,019
      Proposed legislation.............  .........        718     11,343      7,283      9,305     11,544     12,043
    ----------------------------------------------------------------------------------------------------------------

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       The Federal Government provides about $220 billion a year in cash or
    in-kind benefits to individuals through ``income security'' programs,
    including about $120 billion for programs that are part of the ``social
    safety net.'' Since the 1930s, these ``safety net'' programs, plus
    Social Security, Medicare, and Medicaid, have grown enough in size and
    coverage so that even in the worst economic times, most Americans can
    count on some form of minimum support to prevent complete destitution.
    The combined effects of these programs represent one of the most
    significant changes in national social policy in this century, improving
    the lives of millions of lower-income families.
       The remaining $100 billion for income security supports general
    retirement and disability insurance programs (excluding Social
    Security), Federal employee retirement and disability programs, and
    housing assistance.

    Major Programs

       The largest means-tested income security programs are Food Stamps,
    Supplemental Security Income (SSI), Temporary Assistance for Needy
    Families (TANF), and various kinds of low-income housing assistance
    (discussed in other chapters)--and the Earned Income Tax Credit (EITC).
    These programs, along with unemployment compensation (which is not
    means-tested), form the backbone of cash and in-kind ``safety net''
    assistance in the Income Security function.

       Food Stamps: Food Stamps helps most low-income people get a more
    nutritious diet. The program reaches more people than any other means-
    tested income security program--in an average month in 1996, 25.5
    million people, or 10.6 million households, received benefits and that
    year, the program provided total benefits of $23 billion. Food Stamps is
    the only Nation-wide, low-income assistance program available to
    essentially all financially-needy households that does not impose non-
    financial criteria, such as whether households include children or
    elderly persons. (The new welfare law limits the number of months that
    childless, able-bodied individuals can receive benefits while
    unemployed.) The average monthly, per-person Food Stamp benefit was
    about $73 in 1996.

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       Supplemental Security Income: SSI provides benefits to the needy
    aged, blind, and disabled adults and children. In 1996, 6.5 million
    individuals received $24 billion in benefits. Eligibility rules and
    payment standards are uniform across the Nation. Average monthly benefit
    payments range from $256 for aged adults to $448 for blind and disabled
    children. Most States supplement the SSI benefit.
       Temporary Assistance for Needy Families: In last year's welfare
    reform law, the President and Congress enacted TANF as the successor to
    the 60-year-old Aid to Families with Dependent Children (AFDC) program.
    TANF, on which the Federal Government will spend about $16 billion in
    1998, is designed to meet the President's goal of dramatically changing
    the focus of welfare--from a system focused on benefits to one that
    moves recipients from welfare to work. TANF grants give States broad
    flexibility to determine eligibility for assistance and the kind of
    cash, in-kind, and work-related assistance they provide.
       Earned Income Tax Credit: The EITC, a refundable tax credit for low-
    income working families, has two broad goals: (1) to encourage families
    to move from welfare to work by making work pay; and (2) to reward work
    so parents who work full-time do not have to raise their children in
    poverty. In 1996, the EITC provided $24.3 billion of credits, including
    spending on tax refunds and lower tax receipts for non-refunded portions
    of the credit. For every dollar that low-income workers earn--up to
    certain limits--they receive between seven and 40 cents as a tax credit.
    In 1996, the EITC provided an average credit of nearly $1,400 to over 20
    million workers and their families. A two-parent family of four with one
    full-time worker who works at minimum wage levels and receives Food
    Stamps would rise above the poverty level in 1998 because of the EITC.
       Unemployment Compensation: Unemployment compensation provides
    benefits, which are taxable, to individuals who are temporarily out of
    work and whose employer has previously paid payroll taxes to the
    program. The State payroll taxes finance the basic benefits out of a
    dedicated trust fund. States set benefit levels and eligibility
    criteria, which are not means-tested. Regular benefits are typically
    available for up to 26 weeks of unemployment. In 1996, about 8.5 million
    persons claimed unemployment benefits that totaled $23 billion.
       By design, benefits are available to experienced workers who lose
    their jobs through no fault of their own. Thus, unemployment
    compensation does not cover all of the unemployed in any given month. In
    1996, on average, the ``insured unemployed'' represented about 35
    percent of the estimated total number of unemployed. Those who are not
    covered include new labor force entrants, re-entrants with no recent job
    experience, and those who quit their jobs voluntarily and, thus, are not
    eligible for benefits.
       Other important income security programs include the Special
    Supplemental Nutrition Program for Women, Infants, and Children (known
    as WIC); school lunch, school breakfast, and other child nutrition
    programs; child care assistance; refugee assistance; and low-income home
    energy assistance.

    Effects of Income Security Programs

       Last year's welfare reform debate focused on means-tested income
    security programs. The resulting law not only replaced the program at
    the heart of the debate, AFDC, but also made big cuts and changes in
    other programs, including Food Stamps and SSI. But the basic question
    remains--what effect do these safety net programs have on poverty, and
    to what extent do they target assistance to the poor? Chapter 25, Social
    Security, explores the impact of Social Security alone on the income and
    poverty of the elderly. This chapter looks at the cumulative impact
    across the major programs.
       For purposes below, ``means-tested benefits'' include AFDC, SSI,
    certain veterans pensions, Food Stamps, child nutrition meals subsidies,
    rental assistance, and State-funded general assistance. Medicare and
    Medicaid greatly help eligible families who need medical services during
    the year, but experts do not agree about how much additional income
    Medicare or Medicaid coverage represents to those covered. Consequently,
    we did not include these benefits in the analysis that follows. ``Social
    insurance programs'' include Social Security, railroad retirement,
    veterans compensation, unemployment compensation,

    [[Page 191]]

    Pell grants, and workers' compensation. The definition of income for this discussion (cash and in-kind benefits), and the notion of pre- and post-Government transfers, do not match the Census Bureau's definitions for developing official poverty statistics. Census counts income from cash alone, including Government transfers.

       Effectiveness in Reducing Poverty: Based on special tabulations from
    the March 1996 Current Population Survey, 57.6 million people were poor
    in 1995 before accounting for the effect of Government programs. Of the
    57.6 million, 27 percent were elderly (age 65 and above), 30 percent
    were children below age 18, and 43 percent were non-elderly adults (age
    18-64). Census data show that after accounting for the effects of
    Government programs:
      The number of people in poverty fell to 30.3 million, a drop
              of 47 percent.
      The programs lifted 82 percent of the elderly poor out of
              poverty.
      The programs lifted about a third of poor children and poor
              non-elderly adults out of poverty.
      Social insurance programs accounted for two-thirds of
              individuals who were removed from poverty, including 93
              percent of the elderly, 55 percent of the non-elderly adults,
              and 25 percent of the children.
      Means-tested benefits were responsible for 28 percent of the
              individuals who were removed from poverty, including close to
              60 percent of poor children and over 40 percent of non-elderly
              adults.
      Federal tax policies, including the EITC, accounted for five
              percent of those removed from poverty, including close to 20
              percent of the children.
      The number of people removed from poverty in 1995 reached an
              all-time high.

       Efficiency in Reducing Poverty: The poverty gap is the amount by
    which the incomes of all poor people fall below the poverty line.
    ``Efficiency'' in reducing poverty is defined as the percentage of
    Government benefits of a particular type (e.g., social insurance
    programs) that help cut the poverty gap. So, for example, if $1 out of
    every $2 in Category A helps cut the poverty gap, the ``efficiency'' of
    Category A would be 50 percent.
       Before counting government benefits, the poverty gap was $194.5
    billion in 1995. Benefits from government programs cut it by $135
    billion, or 69 percent. Of the $135 billion cut, social insurance
    programs accounted for $90 billion, means-tested benefits for $43
    billion, and Federal tax provisions for $2 billion.
       All told, according to Census Bureau data, social insurance benefits
    totaled $338 billion in 1995. Thus, 26 percent of their funding (the $90
    billion, above) helped cut the poverty gap. Means-tested benefits
    totaled $78 billion, according to Census data. Thus, 56 percent of their
    funding (the $43 billion, above) helped cut the poverty gap. \1\
    ---------------------------------------------------------------------------
      \1\ Budget data may differ from Census data.
    ---------------------------------------------------------------------------
       The evidence is clear--whether measured by their impact on poverty
    gaps, or on moving families out of poverty, income security programs
    largely succeed. Social insurance programs play the largest role in
    cutting poverty, but means-tested programs--targeted more narrowly on
    the poor--are more efficient.

    Employee Retirement Benefits

       Federal Employee Retirement Benefits: The Civil Service Retirement
    and Disability Program covers 1.9 million Federal employees and 750,000
    United States Postal Service employees, and provides retirement benefits
    to 1.7 million retirees and 600,000 survivors. The Civil Service
    Retirement System (CSRS) covers employees hired before 1984. The Federal
    Employees Retirement System (FERS) covers employees hired since January
    1, 1984. Along with the FERS defined benefit, FERS employees also
    participate in Social Security and the Thrift Savings Plan--a defined
    contribution plan to which the Government makes contributions on their
    behalf. The average Federal retiree receives an annual benefit of about
    $20,000. (Military retirement programs are discussed in Chapter 26,
    Veterans Benefits and Services.)
       The budget proposes several changes to CSRS and FERS. First, it would
    delay the cost-of-living adjustment (COLA) for three months each year
    for 1998-2002. Second,

    [[Page 192]]

    it would increase employee contributions by 0.25 percent of base pay on January 1, 1999, another 0.15 percent in 2000, and a final 0.10 percent in 2001, with the higher rates remaining in effect through December 31, 2002. Third, it would increase agency contributions on behalf of CSRS employees by 1.51 percent of base pay beginning on October 1, 1997, and continuing through September 30, 2002.

       Private Pensions: The Pension and Welfare Benefits Administration
    (PWBA) establishes and enforces safeguards to protect the roughly $3
    trillion in pension assets. The Pension Benefit Guaranty Corporation
    (PBGC) protects the pension benefits of nearly 42 million workers and
    retirees who earn traditional (i.e., ``defined benefit'') pensions.
    Through its early warning program, PBGC also works with solvent
    companies to more fully fund their pension promises, protecting the
    benefits of 1.2 million people in 1996 alone. To encourage retirement
    savings, the President signed legislation in 1996 that establishes a
    new, simplified pension plan for small businesses.
       Tax Treatment of Retirement Savings: The Federal Government
    encourages retirement savings by providing income tax benefits.
    Generally, earnings devoted to workplace pension plans and to many
    individual retirement accounts (IRAs) are exempt from taxes when earned
    and ordinarily are taxed only in retirement, when lower tax rates
    usually prevail. Moreover, taxpayers can defer taxes on the interest and
    other gains that add value of these retirement accounts, including all
    forms of IRAs. These tax incentives amount to $69 billion a year--one of
    the three largest sets of preferences in the income-tax system.