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Tuesday, May 24, 2011

Low-Income Assistance Programs: Trends in Federal Spending

Gene Falk
Specialist in Social Policy

This report examines the spending trends of 10 major need-tested benefit programs or groups of programs: (1) health care from Medicaid and the Children’s Health Insurance Program (CHIP); (2) the refundable portion of the health insurance tax credit enacted in the 2010 health care reform law; (3) the Supplemental Nutrition Assistance Program (SNAP); (4) assisted housing; (5) financial assistance for post-secondary students (Pell Grants); (6) compensatory education grants to school districts; (7) the Earned Income Tax Credit (EITC); (8) the Additional Child Tax Credit (ACTC); (9) Supplemental Security Income (SSI); and (10) Family Support Payments. The common feature of need-tested programs is that they provide benefits, services, or funding based on a measure of limited financial resources (income and sometimes assets). However, other than that common feature, the programs differ considerably in their target populations, services, and focus.

In total and in inflation-adjusted terms, federal outlays for major need-tested programs increased in each decade examined in this report, from the 1960s to the present. There have been particularly large increases in need-tested outlays during recent years, attributable to the effects of the recession (which increased the number of people eligible for aid) and policy responses to it that increased federal funding and benefits for certain programs. The Congressional Budget Office (CBO) forecasts that under current law, federal outlays for need-tested programs would continue to increase, even in inflation-adjusted terms, in the upcoming decade. However, that increase is attributable to health care programs. For programs other than health care, total inflation-adjusted spending is projected to decrease over the period FY2011 through FY2021. CBO forecasts that with the economic recovery, caseload increases in certain programs will abate. Additionally, most of the policy responses to the recession were temporary in nature.

Different programs also have different spending trends. Cash benefits—to needy families with dependent children and the aged, blind, and disabled—comprised most aid to low-income families in the early 1960s. However, over the period from the 1960s through the end of the 1980s, most of the growth in aid was for non-cash benefits in the form of education, food, housing, and medical assistance.

The 1990s was the decade of “welfare reform.” The policies affecting low-income families with children, in particular, were substantially altered, with less emphasis on providing a “safety net” for families without a worker and more emphasis on aiding low-income workers in a system geared to “make work pay.” Spending on need-tested aid, even excluding health care, increased in the decade of the 1990s. Federal funding for cash assistance for needy families with children fell, but this was far more than offset by increases in the EITC, which supplements the earnings of lower-income families, as well as federal funding for other programs that support lower-earning families (e.g., child care subsidies).

Relative to the size of the economy, aggregate need-tested aid has generally increased since the 1960s. The 4.1% of the Gross Domestic Product (GDP) accounted for by these programs in FY2010 compares with 2.9% of GDP in FY2007, 2.6% of GDP in FY2000, and 1.9% of GDP in FY1990. CBO projects that, under current law, total need-tested aid will first fall but then increase as a share of GDP, reaching about 4.0% of GDP in 2016. However, all projected growth in spending as a share of GDP is from the health programs. Under current policies, CBO projects spending for the major need-tested programs other than health will fall as a percent of GDP.

Date of Report: May 17, 2011
Number of Pages: 22
Order Number: R41823
Price: $29.95

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