The Myth of the Exploding Safety Net

October 23, 2012 at 4:06 pm

A new Congressional Research Service (CRS) report shows that federal spending on low-income programs has risen significantly in recent years.  Does this mean that safety net programs are growing out of control and are a major cause of the nation’s long-term budget problems, as some have suggested?  No.

As we explained in May, virtually all of the recent growth in spending for means-tested programs is due to the recession and rising costs throughout the U.S. health care system, which affect costs for private-sector care at least as much as for Medicaid and other government health programs.

The Congressional Budget Office (CBO) projects that federal spending on means-tested programs other than health care will fall substantially as a percent of gross domestic product (GDP) as the economy recovers (see graph) — and fall below its 1972-2011 average.

Here are the specifics:

  • Federal spending for mandatory programs outside health care, including refundable tax credits such as the Earned Income Tax Credit, averaged 1.3 percent of GDP over the past 40 years.  This spending reached 2.0 percent of GDP in fiscal year 2011, a substantial increase.  But CBO projects that it will return to 1.3 percent by 2020 and then remain there.
  • Federal spending for low-income discretionary programs is virtually certain to fall as a percent of GDP in the coming decade as well.  Under the 2011 Budget Control Act’s funding caps, non-defense discretionary spending will fall over the decade to its lowest level as a percent of GDP since 1962 (and probably earlier).
  • As a result, total spending for low-income programs outside health care — both mandatory and discretionary — is expected to fall below its prior 40-year average.

Since these programs aren’t rising as a percent of GDP, they do not contribute to our long-term fiscal problems.

To be sure, Medicaid is projected to rise significantly as a share of GDP, largely because of the growing cost of health care throughout society.  Medicaid, however, isn’t the cause of this systemwide cost growth.

Per-beneficiary costs have risen more slowly in Medicaid than under private insurance over the past decade and are expected to continue doing so.  Moreover, it costs Medicaid much less than private insurance to cover people with similar health status because Medicaid pays providers lower rates and has lower administrative costs.  And the health reform law is testing new methods of delivering health care, which hold the promise of cutting costs and improving the quality of care throughout the U.S. health care system.

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More About Richard Kogan

Richard Kogan

Richard Kogan rejoined the Center in May 2011 after having served as a Senior Adviser at the Office of Management and Budget since January 2009. During his second tour at the Center, from 2001 to 2009, he served as a Senior Fellow specializing in federal budget issues, including aggregate spending, revenues, surpluses and deficits, and debt. Kogan is also an expert in the congressional and executive budget processes and budget accounting concepts.

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1 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    Thank you for reminding us again that safety net programs aren’t growing out of control or responsible for the projected long-term deficit. We need also, I think, to recognize the significant difference between these programs and programs that involve some sort of means testing.

    The myth the Congressional Republicans are perpetuating is based on an extraordinarily broad definition of “welfare programs”—originated, I think, by the Heritage Foundation. The figures CRS reported, because of the instructions it received, include many programs that we don’t think of as parts of the safety net. Some, in fact, don’t even benefit only low-income people—Title I of the Elementary and Secondary Education Act, for example, and the Community Development Block Grant.

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