    [Budget of the United States Government]
    [III. Creating a Better Government]
    [14. Income Security]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                              14.  INCOME SECURITY

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                              Table 14-1.  Federal Resources in Support of Income Security
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Estimate
                   Function 600                   2000   -----------------------------------------------------------
                                                 Actual     2001      2002      2003      2004      2005      2006
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority..........    31,553    39,483    42,805    45,057    46,683    48,313    49,571
      Mandatory Outlays:
        Existing law..........................   206,481   217,157   228,526   237,028   246,267   258,199   265,456
        Proposed legislation..................  ........  ........       273       895     1,047     1,166     1,280
    Credit Activity:
      Direct loan disbursements...............        17        20        12  ........  ........  ........  ........
      Guaranteed loans........................        19        33        59        74        73        73        73
    Tax Expenditures:
      Existing law............................   147,604   153,372   159,053   165,675   172,346   179,058   187,685
    ----------------------------------------------------------------------------------------------------------------

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      The Federal Government provides over $271 billion a year in cash or
    in-kind benefits to individuals through income security programs,
    including those generally defined as part of the ``social safety net.''
    Since the 1930s, these safety net programs, plus Social Security,
    Medicare, Medicaid, and housing assistance (each discussed in other
    chapters), have grown enough in size and coverage so that even in
    difficult economic times, most Americans can count on some form of
    minimum support to prevent destitution.
      The income security programs also include retirement and disability
    insurance (excluding Social Security, which is described in Chapter 15),
    Federal activity related to private pensions, and Federal employee
    retirement and disability programs.

    Major Public Benefit Programs

      The largest means-tested income security programs 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 8,
    ``Commerce and Housing Credit.'' These programs, along with unemployment
    compensation (which is not means-tested), are the primary ``safety net''
    assistance programs in the Income Security function.
      The major income security programs are managed by four agencies that
    broadly interact with the American people and businesses. These agencies
    are the Food and Nutrition Service (FNS), the Administration on Children
    and Families (ACF), the Social Security Administration (SSA), and the
    Internal Revenue Service (IRS).
      Nutrition Assistance: Federal nutrition assistance programs are
    managed by the Department of Agriculture's FNS. The largest of these
    programs is the Food Stamp Program. In addition, FNS administers the
    Special Supplemental Nutrition Program for Women, Infants, and Children,
    and the National School Lunch and School Breakfast Programs.
      Food Stamps: In an average month in 2000, 17.2 million people, or 7.3
    million households, received benefits--and in that year, the program
    provided total benefits of $15.0 billion. Food Stamp enrollment has
    steadily declined since peaking at 28 million people in 1994, due in
    part to the strength of the economy and declining welfare caseloads
    associated with welfare reform. However, studies also show that
    enrollment has dropped

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    among eligible individuals, including working families. Total Federal
    program spending was $18.3 billion in 2000.
       In 2002, the program will provide an average projected
              benefit of $78 to 18.4 million persons each month.
       In 2002, FNS plans to expand the number of States using
              Electronic Benefits Transfer to issue 89 percent of Food Stamp
              benefits, compared to 75 percent in 2000, improving the
              delivery of benefits, and increasing the ability to track
              benefits redemption as a fraud prevention tool.
      In 2000, FNS estimates that benefit overpayments will
              represent 6.78 percent of all benefits issued. FNS will work
              with States to reduce this rate to 6.58 percent of all
              payments in 2002. A challenge for States is reducing error
              among the higher number of working families whose fluctuating
              income increases the likelihood of errors in the level of
              benefits.
      Special Supplemental Nutrition Program for Women, Infants, and
    Children (WIC): WIC provides vouchers for nutritious supplemental food
    packages, nutrition education and counseling, and health and
    immunization referrals to low-income women, infants, and children. The
    program reached an average of nearly 7.2 million people each month in
    2000. Participation in 2001 is projected to exceed 7.2 million women,
    infants, and children monthly, and the budget proposes $4.1 billion, an
    increase of $94 million, to serve 7.25 million people monthly in 2002.
       Only 34 percent of women participating in WIC were
              breastfeeding in 1996. In 2002, together with State public
              health agencies, FNS will strive to increase the incidence of
              breast-feeding among WIC mothers to 46 percent.
      Child Nutrition Programs: The National School Lunch and School
    Breakfast Programs provide free or low-cost nutritious meals to children
    in participating schools.
       In 2002, the programs will serve an estimated 28.0 million
              children on a daily basis. In school year 1998-1999, the
              average percent of calories from saturated fat in school
              lunches was 12 percent, above the recommended level of 10
              percent, and only one in seven schools met the 10 percent
              level. By 2005, FNS aims to reduce the average percent of
              calories from saturated fat to 10 percent.
      Income Assistance to Aged, Blind, and Individuals with Disabilities:
    The SSI program, administered by SSA, provides benefits to needy aged,
    blind, and disabled adults and children. In 2000, 6.3 million
    individuals received $30.8 billion in Federal SSI benefit payments. In
    2002, an estimated 6.4 million individuals will receive a total of $31.5
    billion in Federal SSI benefits. Federal eligibility rules and payment
    standards are uniform across the Nation. In 2000, average monthly
    benefit payments ranged from $254 for aged adults to $445 for blind and
    disabled children. Most States supplement the SSI benefit.
       The SSI program has been vulnerable to payment inaccuracy and abuse.
    For example, studies by SSA indicate that overpayments, as a percent of
    total SSI outlays, were 5.5 percent in 2000. A major aspect of the
    President's vision for Government reform is to reduce erroneous
    payments.
       SSA expects to increase payment accuracy so that 94.7 percent
              of SSA outlays will be free of overpayments (based on non-
              medical factors of eligibility), an improvement from 94.5
              percent in 2000.
      Income Assistance to Families:  Major income assistance for low-income
    families is provided through the TANF program, administered by the
    Department of Health and Human Services' ACF and the EITC, administered
    by the IRS. In addition, ACF administers the Child Support Enforcement
    Program and the Child Care and Development Fund. Other income security
    programs run by ACF include refugee assistance and low-income home
    energy assistance.
      Temporary Assistance for Needy Families (TANF): The 1996 welfare
    reform law established TANF as the successor to the 60-year-old Aid to
    Families with Dependent Children program. TANF, for which the Federal
    Government allocates about $16.7 billion each year, is designed to meet
    the goal of dramatically changing the Nation's welfare system into one
    that requires and

    [[Page 111]]

    rewards work in exchange for time-limited assistance. The TANF program
    gives States broad flexibility to set eligibility criteria and to
    determine the types of assistance they provide. With fewer families
    receiving cash assistance, States can use the flexibility in TANF to
    help low-income working families retain and advance in their jobs. The
    budget proposes legislation to allow States to use Federal TANF funds to
    partially offset revenue losses from State tax credits for contributions
    to State-designated charities.
       States reported that more than 1.2 million parents on welfare
              went to work in the period between October 1, 1998, and
              September 30, 1999. Overall 43 percent of welfare recipients
              entered the work force in 1999 in comparison to 39 percent in
              1998. In 1999, States reported an average earnings increase of
              22 percent for former welfare recipients over a period of two
              quarters.
       Although in 1999 all States met overall work participation
              requirements, eight of 36 States that have two-parent family
              programs failed to meet the required two-parent work
              participation rate. ACF will work with States to meet two-
              parent work participation requirements in 2002.
      Individual Development Accounts (IDAs): The budget includes $25
    million in grants for IDAs, to empower low-income individuals to save
    for a first home, postsecondary education, or to start a new business.
    The budget also includes a proposal to provide a tax credit to financial
    institutions that match private IDAs.
      Child Support Enforcement: The Child Support Enforcement Program
    establishes and enforces the support obligations owed by noncustodial
    parents to their children. In 1999, the program established
    approximately 1.6 million paternities among children born to unwed
    mothers, and collected an estimated $17.9 billion in child support in
    2000. In 2000, the Federal Government provided $3.2 billion to State and
    local governments to help them run the program. The Federal Government
    retained $1.3 billion in TANF-related collections from the States,
    making the net cost of this program to the Federal Government $1.9
    billion. In 2002, estimated Federal costs net of TANF collections will
    be $2.5 billion.
       In 2002, ACF plans to increase the child support collection
              rate to 55 percent, compared to 52 percent in 1999.
       Strong child support enforcement is critical to getting fathers who
    have the ability to pay to support their children. However, research
    shows that a large portion of fathers who do not pay child support are
    themselves poor. And while fathers must fulfill their financial
    commitments, they must also fulfill their emotional commitments. The
    budget includes a responsible fatherhood initiative to reverse the rise
    in father absence, improve the job skills of low-income fathers, promote
    marriage among parents, and help low-income fathers establish positive
    relationships with their children and their children's mothers. (See
    Chapter 11, ``Education, Training, Employment, and Social Services.'')
      Child Care: The Child Care and Development Fund provides grants to
    States for the purposes of providing low-income families with financial
    assistance for child care, improving the quality and availability of
    child care, and establishing, expanding, or conducting early childhood
    development programs and before- and after-school programs.
       The budget creates a new $400 million After-School Certificate
    program within the Child Care and Development Block Grant, raising total
    funding to $2.2 billion. The new program would provide grants to States
    to assist up to 500,000 parents in obtaining after-school childcare with
    a high-quality education focus.
       ACF has worked with States to develop a new set of performance
    measures and ACF will continue to collect baseline data for the
    program's goals of increasing access to affordable care and improving
    the quality of care to promote children's development. For example, in
    order to support access to affordable care, ACF aims to maintain the
    average percentage of family income spent on child care co-payments by
    families receiving Federal subsidies. In order to improve the quality of
    care, ACF will increase the number of facilities that are accredited by
    a nationally

    [[Page 112]]

    recognized early childhood development professional organization.
       In 2002, the Child Care and Development Fund, including the
              new After-School Certificate program, will provide child care
              assistance to an estimated 2.6 million low-income children,
              including up to 500,000 children receiving after-school
              certificates through the proposed initiative.
      The Administration proposes to increase the child credit from
              $500 to $1,000 for each qualifying child under the age of 17,
              and to phase out the credit more slowly and at a higher levels
              of income.

    Tax Expenditures

       Tax expenditures related to income security total $159 billion in
    2002 and $864 billion from 2002 through 2006. Most of these tax
    expenditures are for retirement saving. The portion of the EITC that
    offsets tax liabilities is counted as a tax expenditure; the portion
    that is refundable is counted as an outlay. Tax expenditures related to
    retirement savings are discussed at the end of this chapter.

      Earned Income Tax Credit (EITC): EITC, a refundable tax credit for
    low-income workers, 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 2001, EITC provided $30.8 billion in credits for low-income
    tax filers, including spending on both tax refunds and reduced tax
    receipts. For every dollar that low-income workers earn--up to up to
    certain limits--they receive between seven and 40 cents as a tax credit.
    In 2001, EITC provided an average credit of nearly $1,680 to 19 million
    workers and their families. In 2002, an estimated 19 million families
    will receive an average credit of $1,729.
      The EITC program faces high error rates. According to a September 2000
    IRS study of 1997 returns, an estimated $7.8 billion (25.6 percent) of
    the $30.3 billion in EITC claims made by taxpayers were erroneously
    paid. The budget includes $146 million in 2002 for IRS to devote to
    reducing EITC error rates. The majority of ongoing compliance
    initiatives are aimed at improving the detection and prevention of
    erroneous EITC claims before tax refunds are paid.

    Unemployment Compensation

       Unemployment Compensation, overseen by the Department of Labor's
    (DOL's) Employment and Training Administration, provides benefits to
    individuals who are temporarily out of work through no fault of their
    own 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; benefits
    are not means-tested and are taxable. Regular benefits are typically
    available for up to 26 weeks of unemployment. In 2000, about 6.9 million
    persons claimed unemployment benefits that averaged $212 weekly. In
    2002, an estimated 8.5 million persons will receive an average benefit
    of $232 a week. The Administration plans to examine the unemployment
    compensation program carefully in the coming months.
      In 2002, DOL's goal for accurate eligibility determinations is
              that at least 30 States meet the established criterion for
              high quality nonmonetary determinations of eligibility (e.g.,
              determinations that take into account the reasons for the
              separation from the job). In 2000, only 23 States met the
              standard for determination quality.

    Employee Retirement Benefits

      Railroad Retirement Benefits: The Railroad Retirement Board
    administers retirement, survivor, unemployment, and sickness insurance
    benefits for qualified railroad workers and their families. In 2000,
    about $8.3 billion in retirement-survivor benefits were paid to some
    724,000 individuals, while about $101 million in unemployment and
    sickness benefits, net of current-year recoveries, were paid to some
    35,200 individuals.
       The railroad retirement system includes a benefit equivalent to
    Social Security benefits, rail industry pension benefits, and federally
    subsidized windfall benefits. The benefits are financed through railroad
    employer contributions, railroad employee payroll deductions, payments
    from the Social Security trust funds, and taxpayer subsidies. Unlike
    other private

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    industry pension plans, the rail industry pension program is the only
    private industry pension subsidized by Federal taxpayers and
    administered by a Federal agency. In addition, the program confronts an
    unfunded liability of $39.7 billion, as measured by the Employee
    Retirement Income Security Act standards. Any examination of the program
    should set as first priorities ending taxpayer subsidies to the program
    and ensuring the industry funds its workers' pensions.

      Federal Employee Retirement Benefits: The Civil Service Retirement
    System (CSRS) and the Federal Employees' Retirement System (FERS)
    provide pension coverage for approximately 2.7 million active employees.
    Both systems provide a defined benefit pension. FERS employees (those
    hired since January 1, 1984) are also covered by Social Security and a
    defined contribution plan--the Thrift Savings Plan (TSP). CSRS employees
    may contribute to TSP but do not receive the automatic and matching
    agency contributions provided to FERS employees.
       In 2000, the retirement program paid $45 billion in benefits to 2.4
    million annuitants (retirees and survivors). Retirement claims
    processing accuracy and timeliness have deteriorated over the past two
    years, and improving performance in these areas is a high priority in
    2001 and 2002.
       In 2002, the processing time for a FERS annuity claim will be
              reduced to 90 days, substantially lower than the estimated 185
              days in 2000.
       In conjunction with the effort to improve claims processing, and to
    produce future efficiencies and enhanced services, the budget provides a
    substantial increase in funding for retirement systems modernization, a
    multi-year information technology investment program aimed at automating
    much of the retirement processing function. The budget also proposes to
    extend the higher agency contributions to the retirement fund mandated
    by the Balanced Budget Act of 1997 and set to expire in 2003. The higher
    employee contributions required by that Act were repealed in 2001 and
    are unaffected by this proposal.

      Private Pensions: The DOL Pension and Welfare Benefits Administration
    (PWBA) works to protect the roughly $4.9 trillion in pension assets.
    More than 95 million participants and beneficiaries are now in private
    pension plans. DOL's Pension Benefit Guaranty Corporation (PBGC) insures
    against company bankruptcy the pensions of about 43 million workers and
    retirees who earn defined benefit pensions.
       PWBA issues exemptions allowing certain financial
              transactions that pension plans need to make but would
              otherwise be prohibited. In 2000, processing the requests for
              these exemptions took an average of 294 days, which is too
              long, even though the figure includes many older requests.
              PWBA now is undertaking to process the exemptions more
              speedily, including working off the inventory of complex,
              older cases. An additional PWBA goal is to recover more lost
              benefits through customer assistance--increasing the dollar
              level of recoveries by two percent per year. PWBA expects to
              recover $67 million in benefits for 2002, compared to $66
              million estimated for 2001.
       PBGC is working to reduce the time taken to calculate
              individuals' benefit levels. This process is technically
              difficult but often takes too long. The time taken for final
              benefit calculation is expected to drop to three years in
              2002, down from an average of four to five years in 2000. PBGC
              also is working to send first benefit checks more speedily. In
              1999, only 83 percent of pensioners got their first benefit
              checks within three months of completing their applications
              but PBGC's goal for 2002 is 95 percent.

      Tax Treatment of Retirement Savings: The Federal Government encourages
    retirement savings by providing income tax benefits to both individuals
    and companies. Generally, earnings devoted to workplace pension plans
    and to many traditional individual retirement accounts (IRAs) receive
    beneficial tax treatment in the year 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
    to these retirement accounts. For the

    [[Page 114]]

    newer Roth IRA accounts, contributions are made from after-tax earnings,
    with no tax deduction. However, account earnings are free from tax when
    the account is used in retirement. All the pension and retirement-saving
    tax incentives amount to an estimated $120 billion in 2002--one of the
    largest set of preferences in the income tax system.