[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

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                          Table 24-1.  FEDERAL RESOURCES IN SUPPORT OF INCOME SECURITY                          
                                            (In millions of dollars)                                            
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                                                                            Estimate                            
            Function 600                1996   -----------------------------------------------------------------
                                       Actual      1997       1998       1999       2000       2001       2002  
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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, 

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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, 

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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.