[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

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

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

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

[[Page 110]]

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

[[Page 113]]

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.