Source: Office of Management and Budget Budget of the United States Welfare spending is so large it is difficult to comprehend. On average, the annual cost of the welfare system amounts to around $5,600 in taxes from each household that paid Federal income tax in 2000. Adjusting for inflation, the amount taxpayers now spend on welfare each year is greater than the value of the entire U.S. Gross National Product at the beginning of the 20th century. The combined Federal and state welfare system now includes cash aid, food, medical aid, housing aid, energy aid, jobs and training, targeted and means-tested education, social services, and urban and community development programs. As Table One shows, in FY2000: • Medical assistance to low income persons cost $222 billion or 51 percent of total welfare spending. Cash, food and housing aid together cost $167 billion or 38 percent of the total. • Social Services, training, targeted education, and community development aid cost around $47 billion or 11 percent of the total. Table 1 The Heritage Foundation) Total Welfare Spending FY 2000 (In Billions of Dollars) Note: Some numbers may not acid due to rounding Source: Office of Management and Budget, Budget of the United States Roughly half of total welfare spending goes to families with children, most of which are single parent households. The other half goes largely to the elderly and to disabled adults. The Growth of Welfare Spending As Chart 2 shows, throughout most of U.S. history welfare spending remained low. In 1965 when Lyndon Johnson launched the war on poverty, aggregate welfare spending was only $8.9 billion. (This would amount to around $42 billion if adjusted for inflation into today's dollars.) Since the beginning of the war on poverty in 1965 welfare spending has exploded. The rapid growth in welfare costs has continued to the present. In constant dollars, welfare spending has risen every year but four since the beginning of the War on Poverty in 1965; As a nation, we now spend ten times as much on welfare, after adjusting for inflation, as was spent when Lyndon Johnson launched the war on poverty. We spend twice as much as when Ronald Reagan was first elected. Cash, food, housing, and energy aid alone are nearly seven times greater today than in 1965, after adjusting for inflation; As a percentage of Gross Domestic Product, welfare spending has grown from 1.2 percent in 1965 to 4.4 percent today. Chart 2 The Hentage Foundation Federal, State, and Local Welfare Spending: 1929-2000 Sources: Robert Rector and William F. Lauber. America's Faled $5.4 Treen War on Poverty, 1995; subuquent spending gum from the Office of Management and Budget, Burget of the United States Government, Appendix, various years Some might think that this spending growth merely reflects an increase in the U.S. population. But, adjusting for inflation, welfare spending per person is now at the highest level in U.S. history. In constant dollars, it is seven times higher than at the start of the war on poverty in the 1960's. Total Cost of the war on poverty The financial cost of the war on poverty has been enormous. Between 1965 and 2000 welfare spending cost taxpayers $8.29 trillion (in constant 2000 dollars). By contrast, the cost to the United States of fighting World War II was $3.3 trillion (expressed in 2000 dollars). Thus, the cost of the war on poverty has been more than twice the price tag for defeating Germany and Japan in World War II, after adjusting for inflation. Welfare Spending in the Nineties Welfare spending has continued its rapid growth during the last decade. In nominal dollars (unadjusted for inflation), combined Federal and state welfare spending doubled over the last 10 years. It rose from $215 billion in 1990 to $434 billion in 2000. The average rate of increase was 7.5% per year. Part of this spending increase was due to inflation. But, even after adjusting for inflation, total welfare spending grew by 61 percent over the decade. As Chart 2 shows medical spending (mainly in the Medicaid program) grew most rapidly during the 1990's, but welfare cash, food, and housing spending grew as well. Adjusting for inflation, cash, food and housing assistance is 37 percent higher today than in 1990. However, the growth in these programs has slowed since 1995, increasing no faster than the rate of inflation. This recent slowdown in spending is, in part, the effect of welfare reforms enacted in mid-nineties. Future Welfare Spending Growth President George W. Bush's recent budget blueprint does not contain sufficient detail to permit projections of welfare spending program by program.3 However, the budget blueprint does provide spending projections for two major budget functions which are integral to the welfare system. These budget codes are Income Security (Function Code 600) and Health (Function Code 500). Income Security contains cash welfare, food stamps and other food aid, and housing aid.4 Health (Code 500) contains Medicaid and a few smaller means tested health programs. Between them, these two budget categories contain about 90 percent of the Federal welfare system as it is described in this testimony. (Note: neither category includes Social Security or Medicare.) President Bush's budget plan allows for spending in Income Security and Health to grow as rapidly or more rapidly than did former President Clinton's FY 20001 budget request. Income Security (Code 600) is scheduled to grow by 24 percent over the next 5 years. Health (Code 500) is scheduled to grow by 62 percent over 5 years.5 Based on these figures it seems certain that means tested welfare spending will grow as rapidly under President Bush's first budget request as under Clinton's last. Projected welfare spending figures from Clinton's last budget (FY2001) are provided in Appendix A.6 These figures show a rapid of growth in welfare spending. (See Chart 3.)7 • Total Federal welfare spending is projected to grow from $315 billion in 2000 to $412 billion in 2005: an increase of 31 percent. The annual rate of spending increase is projected at 5.5 percent. • Federal spending on cash, food, and housing aid is projected to grow from $141 billion to $174 billion: an increase of 23 percent. The annual rate of spending increase would be 4.3 percent, nearly twice the anticipated rate of inflation. • Together, Federal and state welfare spending would rise from around $434 billion in 2000 to $573 billion in 2005. 3 The White House, A Blueprint for New Beginnings: A Responsible Budget for America's Priorities, (Washington, D.C.: U.S. Government Printing Office, 2001) 4 Income Security (function code 600) contains some non-welfare expenditures, specifically outlays for retired Federal employees and other retirement spending. However, the rate of growth of this retirement spending changes little from 1 year to the next, therefore once the Code 600 outlay totals are known one can predict the means-tested component with reasonable accuracy. 5 The White House, p. 196. 6 Projected outlay figures taken from Office of Management and Budget, Budget of the U.S. Government: Fiscal Year 2001, (Washington, D.C.; U.S. Government Printing Office, 2000). Table 32-2, pp.352–364. 7 The outlay figures in Appendix A are less detailed than the past spending figures used in Table 1. This accounts for small discrepancies between the FY2000 figures in Table land Appendix A. These minor differences do not appreciably affect the overall analysis. Sources. US Offen of Management and Banget (1980-2000). State outlay figures calculated by the author; Again, although we do not yet have program by program spending projections from the Bush administration, the broad budget function figures we do have allow for the same rate of growth in cash, food, and housing as Clinton's plan. Moreover, the Bush figures would permit more rapid growth in health spending. Thus, clearly, President Bush's plan does not require cuts in welfare spending or even a slowdown in the rate of spending growth. Welfare and Defense The rapid projected rate of growth of future welfare spending can be illustrated by comparing welfare to defense. The President has promised to make defense spending a priority. Under his budget plan, nominal defense outlays would increase for the first time in a half decade. Defense spending would rise by 17 percent over 5 years from $299 billion in FY2000 to $347 billion in FY2005. During the same period, however, welfare spending is scheduled to rise by 31 percent. As Chart 4 shows, the gap between welfare and defense spending will actually broaden during this period. |