Romney’s Wrong: Federal Low-Income Program Dollars Go Overwhelmingly to Beneficiaries

January 12, 2012 at 10:22 am

Presidential candidate Mitt Romney has endorsed a proposal to eliminate major federal assistance programs for low-income Americans and turn them over to the states, often with deep funding cuts.  But the rationale he offered for doing so in this past Sunday’s “Meet the Press” debate — that the federal bureaucracy eats up most of the money Congress provides for these programs, and little actually reaches people in need — is simply false, as our new paper explains.

At least nine-tenths of federal spending for each of these programs (and in most cases, a higher percentage) reaches low-income Americans (see graph).

Romney said that “all these federal programs that are bundled to help people and make sure we have a safety net need to be brought together and sent back to the states,” and he specifically called for subjecting Medicaid, food stamps, and housing vouchers to this treatment.  He added:

What unfortunately happens is with all the multiplicity of federal programs, you have massive overhead, with government bureaucrats in Washington administering all these programs, very little of the money that’s actually needed by those that really need help, those that can’t care for themselves, actually reaches them.

This statement is far off-base.  Budget data for the major low-income assistance programs — Medicaid, food stamps (now known as the Supplemental Nutrition Assistance Program, or SNAP), the Supplemental Security Income program for the elderly and disabled poor, housing vouchers, the school lunch and breakfast programs, and the Earned Income Tax Credit — show that 91 to 99 percent of total federal spending on these programs reaches beneficiaries in the form of benefits or services, as does 90 to 99 percent of combined federal and state spending for these programs.  These figures are for fiscal year 2010, the latest year for which full data are available.

Here are the specifics:

  • Medicaid: 96.2 percent of federal spending, and 95.4 percent of combined federal and state spending, went for care for beneficiaries.
  • SNAP (formerly known as food stamps): 94.6 percent of federal spending, and about 90 percent of combined federal and state spending, went for food that beneficiaries purchased.
  • Housing vouchers: 90.9 percent of federal spending went for rental assistance for low-income tenants.
  • Supplemental Security Income (SSI): 92.8 percent of federal spending went for benefit payments to beneficiaries.
  • School lunch and breakfast programs: 97.4 percent of federal spending went to schools to subsidize their costs in operating the school meals programs.
  • Earned Income Tax Credit: Over 99 percent of EITC dollars went directly to households receiving the EITC.

Turning the programs over to the states, as Romney has proposed, likely would not reduce their administrative costs materially, if at all.  State and local governments would still incur administrative costs, and states would have to assume some administrative costs that the federal government now bears.  In addition, splitting certain administrative tasks among the 50 states would likely be less efficient and more costly than having the federal government continue to carry them out.

Congress Should Start Minding the Tax Gap

January 11, 2012 at 5:16 pm

The IRS’s new estimate of the “tax gap,” its first in six years, shows that taxpayers failed to pay $450 billion in federal taxes on time in 2006, $385 billion of which they never paid.  That’s real money (more than Medicare cost that year, as the graph shows), particularly for a country facing wrenching choices on how much to raise taxes on honest taxpayers and to cut Medicare, health and science research, education, and other vital priorities in order to rein in long-term deficits.

What is most frustrating about the new figures is that they restate a simple message that isn’t new but that the current Congress has chosen to ignore.  In the areas of the tax code with substantial information reporting and withholding requirements — most notably workers’ wages, which employers report to the IRS and on which they withhold income and payroll taxes — compliance is extremely high.  But where there is no third-party information reporting or withholding, tax collections are abysmal.  Sole proprietors, a major class of small businesses, report less than half of their income to the IRS.

In fact, under-reported business income is the single largest source of the tax gap, amounting to fully $122 billion in 2006 alone.

Eliminating the tax gap would be impossible.  Nor can any single measure substantially reduce it.  But Congress can — and should — take a number of steps that would boost collection of taxes that are already owed by many billions of dollars.

Not too long ago, there were signs that policymakers of both parties recognized this.  The Bush Administration pushed successfully for new withholding requirements on government contractors on the heels of troubling Government Accountability Office investigations showing widespread tax abuse.  Then, in the 2010 health reform law, the Obama Administration teamed up with congressional Democrats to tighten reporting requirements on certain business transactions.  These were two modest but real steps forward.

The current Congress, however, repealed both measures.  To make matters worse, in last year’s deficit-reduction legislation (the Budget Control Act), House Republicans blocked Senate Majority Leader Reid’s effort to ensure sufficient funding for IRS tax compliance activities, even though the Congressional Budget Office concluded that it would have generated net budget savings of $30 billion over a decade.

The new IRS figures are a stark reminder to policymakers that some taxpayers are not paying substantial sums of legally owed taxes and that we know how to address this problem: by expanding information reporting and withholding.

Criminal Justice Reforms Can Save States Money — But Do States Know How Much?

January 11, 2012 at 4:20 pm

Corrections spending is absorbing a growing share of states’ budgets (see map), leaving less for education, health care, and other priorities.  Some states have adopted criminal justice reforms that reduce costs while protecting public safety — offering effective addiction treatment to more people convicted of drug-related crimes instead of incarcerating them, for example, or imposing sanctions other than prison time for people who miss meetings with their parole officer.

Corrections Spending Has Grown as a Share of States Budgets More states might implement these reforms if lawmakers had a rigorous assessment of the likely impact on the state budget, such as expected cost savings.  Unfortunately, many states do a poor job of producing this vital assessment (called a “fiscal note”), as a new report from CBPP and the ACLU explains.

We examined more than 600 significant bills on adult sentencing and corrections policy that 49 states have enacted in the past three years and found that:

  • States did not write fiscal notes for about 40 percent of them. Without an official certification that a bill would save money, lawmakers may have less incentive to vote for it.
  • Most states failed to examine the bill’s fiscal impacts beyond a year or two. Some effective reforms, including certain drug and mental health treatment programs, require modest startup costs but reduce future prison spending significantly.  Lawmakers need to be aware of these long-term benefits.
  • About 15 percent of fiscal notes did not estimate a budgetary impact or indicated only that the impact was positive or negative. While some of these notes contained some useful information, they failed to accomplish the primary goal of a fiscal note:  to provide the best possible estimate of the bill’s impact on the state budget.
  • Few states’ fiscal notes explain their methodology. Without an understanding of the method used to determine a bill’s cost or savings, lawmakers and the public can’t evaluate the accuracy of fiscal notes, reducing their credibility and usefulness.
  • Some states do little to ensure the credibility of their fiscal notes. In some states, executive branch agencies produce fiscal notes with no review by nonpartisan analysts. Lawmakers must believe that fiscal notes are credible before they can rely on them when deciding how to vote.

A few states, including Texas and Washington, produce fiscal notes that meet high standards.  Our analysis describes the best practices in this area.  To achieve them, many states may need to invest more resources in their fiscal note process, for example by hiring more professional research staff and upgrading the data available to them.  But investing in good fiscal notes is far less costly than enacting or maintaining criminal justice policies that require more prison spending.

The Facts on SNAP

January 10, 2012 at 11:05 am

We have updated two papers that provide background information on SNAP (the Supplemental Nutrition Assistance Program, formerly the Food Stamp Program), the nation’s most important anti-hunger program.

  • Policy Basics:  Introduction to SNAP.  In 2011, SNAP helped almost 45 million low-income Americans to afford a nutritionally adequate diet in a typical month.  Nearly 75 percent of SNAP participants are in families with children; more than one-quarter are in households with seniors or people with disabilities.  While SNAP’s fundamental purpose is to help low-income families, the elderly, and people with disabilities afford an adequate diet and avoid hardship, it promotes other goals as well, such as reducing poverty, supporting and encouraging work, protecting the overall economy from risk, and promoting healthy eating.
  • SNAP Is Effective and Efficient.  SNAP caseloads have risen significantly since late 2007, as the recession and lagging recovery battered the economic circumstances of millions of Americans and dramatically increased the number of low-income households who qualify and apply for help from the program.  Yet, despite the rapid caseload growth, SNAP payment accuracy has continued to improve, reaching all-time highs (see graph).  Moreover, the Congressional Budget Office predicts that SNAP spending will fall as a share of the economy in coming years as the economy recovers and temporary benefit expansions that Congress enacted in 2009 expire.

Long and Uncertain Recovery for State Budgets

January 9, 2012 at 2:36 pm

Our latest update on state budget shortfalls shows that states continue to face a long and uncertain recovery.

The report finds that:

  • States’ budget challenges remain considerable. Twenty-nine states have projected or have addressed budget gaps totaling $44 billion for fiscal year 2013, which begins July 1 in most states.  (See map.)  This number is almost certain to grow as governors release new gap projections along with their budgets in the coming months.  States will have to close these gaps before the fiscal year begins, since nearly every state is required to balance its budget.  (These 29 states include some states with two-year budget cycles ending in fiscal year 2013, most of which have already closed their projected 2013 shortfalls through spending cuts and other measures scheduled to take effect next year.)
  • State finances are recovering, but slowly. Shortfalls are generally smaller than in previous years.  But they remain large by historical standards, as the economy continues to be weak and unemployment is still high.

Revenues remain below the amount needed to sustain services like education and public safety, in part because states are coming out of such a deep hole.  State revenues plunged as a result of the recession, and, while they are now growing again, it would take years of growth at the current rate to maintain services at anywhere near pre-recession levels, as my colleague Elizabeth McNichol has pointed out.

Moreover, states are facing serious headwinds that will slow their recovery.  Emergency federal aid to states has largely expired, and large cuts in federal spending scheduled for coming years will likely affect ongoing federal funding for states and localities.  Growth in the broader economy has been sluggish, as well.

Given these challenges, states should take a balanced approach as they prepare their budgets for the coming year — one that draws on reserves (in states that have them) and raises additional revenue, rather than relying on cuts alone.

The budget that California governor Jerry Brown proposed last week provides a good example:  while it makes $4.2 billion in cuts to Temporary Assistance for Needy Families (TANF), Medicaid, and a host of other programs, it also raises $4.7 billion in additional revenue, primarily by creating new income tax rates for very high earners and raising the sales tax rate by half a percentage point.  As Governor Brown recognized, a cuts-only approach would deepen the already severe cuts that states have made over the last several years to services that are critical to states’ economic futures, like K-12 education.