Overview of Federal and State Welfare Programs April 24, 2008

What means-tested welfare programs are available for poor people in the U.S.? Federal and State governments funded 85 welfare programs in FY 2002 at a total cost of $522 billion. –Federal Share: 71% –State and Local Share: 29% The means-tested programs fall into 8 different categories. –Source for Slides 3-24: House Ways and Means Committee 2004 Green Book,

Eight Categories of Welfare Programs and Total Costs, 2002 –Medical Aid: $282 billion, 54% –Cash Aid: $102 billion, 20% –Food Aid: $39 billion, 7% –Housing Aid: $36 billion, 7% –Education Aid: $30 billion, 6% –Other Services: $22 billion, 5% –Jobs and Training Aid: $8 billion, 2% – Energy Aid: $2 billion, 0.3%

Medical Aid--$282 billion

Cash Aid--$102 billion

Food Aid--$39 billion

Housing Aid--$36 billion

Housing Aid, cont.

Education Aid--$30 billion

Other Services--$22 billion

Jobs and Training Aid--$8 billion

Energy Aid--$2 billion

Analysis of spending 54 cents of every welfare dollar went for medical assistance 80% of State and Local dollars went to medical aid Spending in each of 6 programs exceeds $10 billion and accounts for 77 percent of total spending.

7 largest programs by amount spent Medicaid ($258 billion) SSI ($39 billion) EITC ($28 billion) Food Stamps ($24 billion) TANF cash,,services, child care, and work activities ($24 billion) Section 8 low-income housing assistance ($18 billion) Pell Grants ($11)

Trends in Spending Real spending for cash and non-cash programs increased by 523 percent from FY1968 to FY2002. Real spending for cash and non-cash programs increase 36 percent between FY1992 and FY2002. Average annual rate of growth over this 32 year period was 5.5 percent. The U.S. population increased by 43 percent over this period. Real total per capita spending grew from $416 in FY1968 to $1,826 in FY 2002.

Spending Trends by Type of Aid FY1968-FY2002 (Constant FY 2002 Dollars) Medical+Cash+Food+Housing Aid=.88 x Total Spending

Trends in Spending by Level of Government, FY1968-FY2002 (Constant FY 2002 Dollars)

Trends in Federal Spending FY1968-FY2002 (Constant FY 2002 Dollars) Real Federal spending climbed from $60 billion in FY1968 to $373 billion in FY 2002, an increase of 529 percent. Cash aid was the leading form of Federal welfare until 1980 when medical aid overtook it.

Trends in State and Local Spending FY1968-FY2002 (Constant FY 2002 Dollars) State and Local real spending climbed from $24.5 billion in FY1968 to $149 billion in FY2002, an increase of 508 percent. Medical assistance overcame cash aid as the leading form of income-tested assistance in1976.

Share of Federal Budget used for Income-Tested Aid, FY

Participation in Means-tested Programs, 2002 We do not have an unduplicated count of welfare beneficiaries Average 2002 monthly numbers: –Medicaid: 50.9 million persons –Food stamps: 20.2 million recipients –SSI: 6.9 million recipients –TANF: 5.1million recipients EITC: 16.8 million tax filers

Source: CBO Economic and Budget Issue Brief, “Changes in Participation in Means-Tested Programs”

Predicting Future Participation Assuming no legislative changes, future levels of participation in means-tested welfare programs will depend on: –Demographic trends –Distribution of income –The state of the economy

Participation in Means-tested Programs by Poor Persons, 2002 Census Bureau found 23 million poor persons (two out of every three with pre-tax money income below the poverty threshold) lived in a household that received means-tested assistance. Percent of the poverty population living in a household that received: –Medicaid: 53 percent –Food Stamps: 33 percent –cash assistance: 22 percent –Subsidized or public housing: 18 percent

Participation by Total Population, 2002 Percent of the total population living in a household that received: –Medicaid: 19 percent –Food Stamps: 6 percent –cash assistance: 7 percent –Subsidized or public housing: 4 percent –Some form of major means-tested aid: 25 percent

Eligibility vs. Participation To be eligible, a person, family or household must satisfy conditions regarding –Citizenship –Demographic characteristics (children present?) –Countable income –Accumulated wealth (assets including cars, homes, insurance policies, bank accounts) –Employment status

Eligibility vs. Participation Participation refers to actual receipt of cash, non-cash benefits, or services. Not all eligible persons participate. –Participation rates = participating population/eligible population Participation levels/rates depend upon: –Demographic trends, labor market conditions, distribution of income, health care costs, and the level of benefits.

Eligibility vs. Participation, cont An individual’s decision depends on the net benefits of participation: Net benefits=Gross Benefits-Costs Gross Benefits include: –Primary benefits (cash, non-cash, services) –Secondary benefits (eligibility for subsequent programs depends on enrollment in the primary program) Costs include: –Hassle –Transportation –documentation –Stigma

How are benefits determined? Generic formula: B=G - t(E-D E ) - (U-D U ), where B=Benefit level G=Maximum benefit (other income=0) T=marginal tax rate E=gross earnings D E =earnings disregard U=non-earnings incomes (pensions, interest) D U =non-earnings disregard

Source: House Ways and Means Committee 2004 Green Book, pp

How are benefits determined?, cont. Note that in the preceding table grants vary with family size up to 6 persons. Example using Texas: Assume a mother of two works 30 hours a week for 4.2 weeks each month at the minimum wage $5.85 per hour. She has no other income. B=$ ($737-30)=$ =-$273 Source: Work Related Provisions of State TANF Plans

A footnote On May 25, 2007, President Bush signed a spending bill that, among other things, amended the FLSA to increase the federal minimum wage in three steps: to $5.85 per hour effective July 24, 2007; to $6.55 per hour effective July 24, 2008; and to $7.25 per hour effective July 24, 2009.

Footnote, cont. Federal Minimum Wage History Effective Date Hourly Wage 10/24/1938$ /24/1939$ /24/1945$ /25/1950$ /01/1956$ /03/1961$ /03/1963$ /01/1967$ /01/1968$ /01/1974$ /01/1975$2.10 Effective Date Hourly Wage 01/01/1976$ /01/1978$ /01/1979$ /01/1980$ /01/1981$ /01/1990$ /01/1991$ /01/1996$ /01/1997$ /24/2007$ /24/2008$ /24/2009$7.25

Benefit Calculation, cont. In the previous example, the mother would not receive a benefit. Negative benefits are raised to $0. At the level of work hours (30) required by Federal law for a TANF mother to qualify as a work recipient, our Texas mother is not eligible for benefits. At what level of earnings could she receive benefits?

Calculating Break-even Level of Earnings Recall that B=G - t(E-D E ) - (U-D U ). Set B=0, and solve for E: Generally, E B =G/t + D, when U=0. In our example, the Texas mother would be eligible for cash benefits if her earnings were less than $330. –E B =201/ –E B =$330 She loses eligibility if she works more than hours per week.

Source: House Ways and Means Committee 2004 Green Book, pp.36-37,

Source: CBO Economic and Budget Issue Brief, “Changes in Participation in Means-Tested Programs”

Source: House Ways and Means Committee 2004 Green Book, pp.45-47,

Source: House Ways and Means Committee 2004 Green Book, p