[Budget of the United States Government]
[VI. Investing in the Common Good: Program Performance in Federal Functions]
[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                   1997   -----------------------------------------------------------
                                             Actual     1998      1999      2000      2001      2002      2003  
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Spending:                                                                                                       
  Discretionary Budget Authority..........    22,687    31,933    32,984    36,721    37,750    39,012    40,318
  Mandatory Outlays:                                                                                            
    Existing law..........................   191,445   198,446   210,002   219,733   227,561   233,748   243,064
    Proposed legislation..................  ........       100     1,516     1,843     2,269     2,554     2,706
Credit Activity:                                                                                                
  Direct loan disbursements...............        71        62        33        11  ........  ........  ........
  Guaranteed loans........................        11        31        72       144       145        71        40
Tax Expenditures:                                                                                               
  Existing law............................   101,350   103,950   103,690   105,570   106,475   107,645   109,095
  Proposed legislation....................  ........        42       130       250       267       256       273
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  The Federal Government provides about $245 billion a year in cash or 
in-kind benefits to individuals through income security programs, 
including about $130 billion for programs 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 $115 billion for income security programs include 
general retirement and disability insurance (excluding Social Security, 
which is described in Chapter 25), Federal employee retirement and 
disability programs, and housing assistance.

Major Programs

   The largest means-tested income security programs discussed in this 
chapter are Food Stamps, Supplemental Security Income (SSI), Temporary 
Assistance for Needy Families (TANF), and the Earned Income Tax Credit 
(EITC). The various kinds of low-income housing assistance are discussed 
in Chapter 18, ``Commerce and Housing Credit.'' 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 help 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 1997, 22.9 
million people, or 9.5 million households, received benefits and that 
year, the program provided total benefits of $20 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 $71 in 1997.

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   In 1999, the program will provide an average projected 
          benefit of $76 to 21.6 million persons a month.

   Child Nutrition Programs: The National School Lunch and Breakfast 
Programs provide free or low-cost nutritious meals to children in 
participating schools.
   In 1999, the programs will serve an estimated 27 million 
          lunches daily.

   Supplemental Security Income: SSI provides benefits to the needy 
aged, blind, and disabled adults and children. In 1997, 6.3 million 
individuals received $26.2 billion in benefits. Eligibility rules and 
payment standards are uniform across the Nation. Average monthly benefit 
payments range from $234 for aged adults to $450 for blind and disabled 
children. Most States supplement the SSI benefit.
   In 1999, SSI will serve an estimated 6.3 million respondents, 
          costing $28 billion in benefits.

   Temporary Assistance for Needy Families: In the 1996 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 $16.5 billion in 1999, 
is designed to meet the President's goal of dramatically changing the 
focus of welfare--from a system focused on determining eligibility to 
one that helps recipients move 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.
   States cannot yet project the number of persons who will 
          receive TANF assistance in 1999.

   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 1997, the EITC provided $27.9 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 1997, the EITC provided an average credit of nearly $1,470 to nearly 
19 million workers and their families.
   In 1999, an estimated 19 million households will receive an 
          average credit of $1,500.

   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 1997, about 7.6 million 
persons claimed unemployment benefits that averaged $185 weekly.
   In 1999, an estimated 8.3 million persons will receive an 
          average benefit of $199 a week.
   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 
1997, 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 without good cause 
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); child care assistance; refugee assistance; and low-income home 
energy assistance.

Recent Changes in Income Security Caseloads

   Due largely to a strong economy and significant changes to Federal 
welfare and Food Stamp programs, the caseload in each has continued to 
fall in the past year. Most detailed analyses have attributed these 
caseload reductions to the strong economy and

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new efforts to move people from welfare to work. Indeed, welfare 
caseloads, which fell by a record 1.9 million in the President's first 
three-and-a-half years in office, dropped by more than two million in 
the year after he signed the new welfare reform law. The law created 
TANF, repealed AFDC, increased child care payments, and created a new 
time-limited work-oriented public assistance program. States must now 
require and reward work, impose time limits, and demand personal 
responsibility.
   In addition, the welfare reform law also limited Food Stamp benefits 
for able-bodied childless adults to three months of assistance in a 36-
month period. The 1997 Balanced Budget Agreement provided funds to 
provide qualifying work slots to individuals facing the time limits, but 
only enough to serve a portion of affected individuals. The welfare 
reform law banned most legal immigrants from receiving Food Stamps. The 
budget would restore these benefits for families with children, and for 
disabled and elderly legal immigrants who entered the country before the 
law was signed.
   Like TANF, Food Stamp caseloads have continued to fall. In September 
1997, the Food Stamp program recorded its 41st straight month of 
declining enrollment, reflecting a longstanding trend: Food Stamp 
enrollments rise and fall with the poverty rate. At its peak in March 
1993, Food Stamps served 27.4 million participants a month, or one in 
every 10 Americans. By September 1997, participation had fallen to 20.9 
million, or one in every 13 Americans.
   Due also to the economy and low unemployment, the unemployment 
insurance (UI) caseload has fallen significantly. Between 1993 and 1997, 
the average weekly number of individuals claiming UI benefits declined 
from 4.4 million to 2.4 million.
   While caseloads have fallen in various safety net programs, the 
Administration has continued to target resources at infants and 
children. WIC, for example, reaches nearly 7.5 million persons a year, 
providing nutrition assistance, nutrition education and counseling, and 
health and immunization referrals. WIC funding increases since 1993 have 
enabled participation to grow by nearly 30 percent. The budget proposes 
$4.1 billion to serve 7.5 million through 1999, fulfilling the 
President's goal of full participation in WIC.

Effects of Income Security Programs

   What effect do 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 of this discussion, ``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 the 
covered. Consequently, these benefits are not included in the analysis 
that follows. ``Social insurance programs'' include Social Security, 
railroad retirement, veterans compensation, unemployment compensation, 
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 1997 Current Population Survey (CPS), 57.5 million people were 
poor in 1996 before accounting for the effect of Government programs. 
After accounting for Government transfer programs, the number of poor 
fell to 30.3 million, a drop of 47 percent.
   After large declines in poverty in 1994 and 1995, 1997 CPS data 
suggests that the poverty rate did not fall significantly in 1996. Some 
experts were surprised, given large declines in the unemployment rate, 
increases in real weekly wages of production and nonsupervisory 
employees, and a higher minimum wage that took effect in October. But, 
while the overall poverty rate did not fall, the strong economy lowered 
the pre-

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transfer poverty rate and has enabled more people to leave welfare for 
work. Thus, fewer individuals have had to rely on safety net programs to 
pull themselves out of poverty.

   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. For example, if $1 out of every 
$2 in Category A helps cut the poverty gap, the ``efficiency'' of 
Category A is 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 the 
funding (the $43 billion, above) helped cut the poverty gap.
   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 provides a defined benefit pension for 1.8 
million Federal civilian employees and 800,000 U.S. Postal Service 
employees. In 1997, the program paid $42 billion in benefits to 1.7 
million retirees and 600,000 survivors. Along with the defined benefit, 
employees can participate in a defined contribution plan--the Thrift 
Savings Plan (TSP). Employees hired since 1983 are also covered by 
Social Security. (For a discussion of military retirement programs, see 
Chapter 26, ``Veterans Benefits and Services.'')
   Private Pensions: The Pension and Welfare Benefits Administration 
(PWBA) establishes and enforces safeguards to protect the roughly $3.5 
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.
   In 1999, the PWBA will:
   reduce, to 12 percent, the percentage of employee benefit 
          plan audits that do not comply with professional accounting 
          and auditing standards, compared to 1996; and
   increase, by 2.5 percent, the number of fiduciary 
          investigations closed in which plan assets are restored, 
          compared to 1996.

   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 $84 billion a year--one of 
the three largest sets of preferences in the income-tax system.
   Child Support Enforcement Financing: The Federal Government has a 
strong interest in ensuring that the national child support system is 
effective. Funding of the Child Support Enforcement (CSE) program, 
however, remains complicated. States get Federal payments to cover 
administrative costs at several different matching rates. States also 
get Federal incentive payments, levy user fees, keep a portion of TANF-
related collections, and return a portion to the Federal Government.

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   Federal retention of TANF-related payments is a legacy of the old 
AFDC program in which States and the Federal Government shared in 
funding AFDC and, thus, in collecting child support for AFDC recipients. 
With welfare reform, States have great freedom to design assistance for 
families with dependent children. States, however, must continue to 
share a portion of child support collections with the Federal 
Government. The need to share collections may serve as a disincentive 
for States to pass through the full amount of child support to families, 
and it creates an unintended incentive for States to serve needy 
families through programs funded only with State dollars. Spending on 
these ``State-only'' programs continues to count under the TANF 
maintenance-of-effort requirement, but child support collections on 
behalf of these families do not need to be shared with the Federal 
Government.
   The Administration will hold a dialogue with the stakeholders of the 
child support program to look at ways to address these problems and, 
working with Congress, will prepare legislation. The budget takes a 
first step towards simplifying the child support funding structure by 1) 
conforming the match rate for paternity testing with the basic 
administrative match rate; and 2) repealing the hold harmless provision 
established under the welfare reform law.
   Under current law, States have resources equal to about 110 percent 
of the amount that they spend on their State Child Support programs. The 
proposed changes would reduce the State windfall by less than two 
percent of program costs and save the Federal Government about $300 
million over five years.
   Finally, the Administration supports cost-neutral changes to the 
pending Child Support Incentives legislation, as the Department of 
Health and Human Services proposed in its 1997 report to Congress, 
mandated by the welfare reform law.

   Allocation of Administrative Costs Among Welfare Programs: The budget 
proposes to address projected Federal cost increases in Food Stamps and 
Medicaid that arise from changes in the way States charge costs to the 
Federal Government to administer these programs as well as TANF.
   Before welfare reform, States charged most common costs of the three 
programs to AFDC. With TANF--which consolidated cash welfare assistance 
and related programs and limited the amount of funds that could go for 
administrative purposes--many States have sought to charge fewer of 
their expenses to TANF and more to Food Stamps and Medicaid, which still 
provide open-ended matching funds for State administrative costs.
   To date, HHS has not approved State requests to change their cost 
allocation plans in order to increase administrative reimbursements 
under Food Stamp and Medicaid. Neither the Administration nor Congress 
envisioned such cost increases--which would exceed a projected $500 
million a year--in crafting welfare reform.
   In 1999, the Administration plans to let States change their cost 
allocation plans to charge more of their common administrative costs to 
Food Stamps and Medicaid. But to prevent Federal costs from rising, the 
budget proposes Food Stamp and Medicaid changes that would cover the 
costs. Specifically, it would cut the matching rates for administrative 
costs in Food Stamps and Medicaid from 50 percent to 47 percent.