IN BRIEF: Cutting the Safety Net Is Not an Effective Way to Reduce Government Spending
High-stakes negotiations over the debt limit center on ways to bring government spending more in line with government revenues. The political contours of the debate have excluded cuts to Social Security and Medicare from consideration, as well as the possibility of raising taxes. With these options off the table, much of what is left to consider for budget cuts is a series of programs that provide services and supports to low-income individuals and families. Some congressional policy makers are suggesting that federal spending cuts should come from tightened eligibility and reduced spending on programs whose primary function is to provide health insurance, food purchasing support, and conditional cash assistance to low-income individuals and families with children. Among the three programs at the center of the discussion — the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and Medicaid – spending on SNAP and TANF amounts to less than 3% of total federal outlays in 2022 and Medicaid spending on children and adults (as opposed to the aged, blind, or disabled) amounts to less than 5% of the $6.2 trillion in 2022 federal government outlays. Since all three programs have been documented to provide large public benefits to vulnerable populations of Americans, cutting them is neither an effective way to rein in the spending that is driving up US debt, nor is it in the nation’s long-term interests.
WHAT TO KNOW
- The federal government’s two main cash or near-cash assistance programs that provide support to non-elderly, able-bodied low-income individuals and families with children made up a combined 2.7% of federal outlays in 2022 (see chart). The largest of these, the Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps) provides low-income families and individuals with funds to purchase food. In 2022, the federal government spent $149 billion on SNAP across an average of 41 million individuals each month. The Temporary Assistance for Needy Families (TANF) program is much smaller and provides time-limited cash assistance to adults with child dependents. Federal TANF spending totaled $20 billion in 2022, reaching an average of 1.9 million beneficiaries each month. TANF is administered as a grant to states, and in FY21 only 22.6% of all TANF spending was paid out in terms of cash benefits, with the remainder spent on services.
- In addition to the fact that they make up a relatively small share of Federal spending, budget savings from restricted eligibility coming from enhanced work requirements for these programs are likely to be even smaller. The programs already include some degree of work requirements and time limits. Since the creation of the program in 1996, TANF cash assistance has been tied to work requirements. The SNAP program offers limited assistance to able-bodied adults without child dependents, thereby effectively imposing work requirements for sustained assistance. Specifically, able-bodied adults without dependents are only eligible for benefits for 3 months in any 26-month period, unless they fulfill certain work requirements.
- Medicaid spending on children and adults (as opposed to the aged, blind, or disabled) amounts to 4.4% of the $6.2 trillion in 2022 federal government outlays. Medicaid provides public health insurance to adults and children whose family income falls below specified income thresholds, as well as to adults with qualifying disabilities and those in long-term care facilities. The program had total outlays of $592 billion in 2022, comprising 9.4% all federal outlays that year. However, payments for children and non-disabled adults accounted for just under half of (46%) of Medicaid spending that year, or a total of 4.4% of all federal outlays. On average in each month of 2022, 37 million children, 39 million non-elderly adults, and 17 million disabled or elderly individuals received Medicaid benefits. On a spending per-enrollee basis, children made up an even lower share of costs: outlays on children averaged $1,720 per child in 2022, compared to $14,520 for each elderly Medicaid enrollee. Tightening eligibility requirements (through work requirements or otherwise) on nonelderly and nondisabled adults – or specifically on parents and children — would yield only limited cost savings.
- Funding cuts that reduce spending on children’s health insurance and nutrition come at a social cost. More than 10 million U.S. children — 14.4 percent — lived in poverty in 2019, according to government statistics. Income assistance programs like SNAP and TANF, as well as access to health insurance through Medicaid, are a crucial source of resources for this large share of children improving their current conditions while also bringing future returns. Evidence from academic research shows that Medicaid spending on children improves their long-term health and economic outcomes, ultimately saving the government money. In other words, this spending constitutes an investment in our nation’s youth and future workforce. Similarly, research has documented that access to SNAP benefits for low-income children leads to long-term improvements in health and economic self-sufficiency, and is a cost-effective investment in young children.
- The share of government spending on children stands in contrast with the share of resources devoted to older age Americans. Social Security and Medicare, which provide cash benefits and health insurance to the elderly, comprise a large share of federal government spending. Combined, the Social Security Old Age & Survivors Insurance and Medicare programs comprised 31.3% of federal outlays in 2022, providing benefits to 57 million and 65 million recipients, respectively. Spending on these programs is expected to rise further as a larger share of the country’s population enters retirement age. Absent significant reforms or benefit cuts, these two programs are projected to reach a combined 39.3% of outlays by 2028. On the other hand, the share of federal outlays for individuals excluding Social Security and Medicare is estimated to fall by more than half to 16.5% of all spending by 2028. If policymakers intend to address the budget deficit by reining in spending on individuals, these two programs are the place where there is the potential for meaningful reductions in budget outlays, and they could pursue spending cuts on these programs that maintain the distributional goals of progressivity and have negligible effects on human capital development and economic growth.
- Relatively modest increases in spending on children’s benefits, when compared to the level of spending on older Americans, have been shown to have a powerful effect on reducing child poverty. Spending on children increased temporarily in 2020 and 2021, through expanded SNAP benefits and an enhanced, fully refundable Child Tax Credit (CTC). Spending on SNAP increased modestly from 2.1% of outlays in 2015 to 2.4% in 2022, and the CTC increased from 0.56% of outlays in 2015 to 2.21% in 2022. This spending proved powerful in reducing material hardship among children, with measures of child poverty falling by 50% in 2021. The enhanced CTC itself is estimated to have cut food insufficiency by 25%. Both measures have since expired, however, and federal spending is set to return to shares seen before the pandemic.
THE BOTTOM LINE
The looming issue of the US federal government debt ceiling has focused attention on government spending and the need to bring outlays more in line with revenue. Reining in government deficit spending is ultimately in the nation’s long-term economic interest. However, how the federal government proceeds with spending cuts matters greatly for both the path of government spending and the growth and distributional consequences. Though federal outlays in the form of spending on individuals are concentrated largely on the elderly population through Social Security and Medicare, it is spending on children that yields large social returns in terms of improved health, human capital, economic self-sufficiency, and earnings. Rather than one-time expenditures, these programs are better viewed as initial investments in a healthier, better-skilled future generation. Cutting spending on those programs will have only a small budgetary impact, but potentially large negative long-term effects.
Editor’s Note: The analysis in this memo was jointly produced with EconoFact.