[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.