Cross-posted at Reports from the Economic Front.
One of the subthemes of current discussions about how best to reduce our national debt is that we must rein in out-of-control spending on federal safety net programs. The reality is quite different.
The chart below shows spending trends in terms of GDP for the ten major needs-tested benefit programs that make-up our federal social safety net. The programs, in the order listed on the chart, are:
- The refundable portion of the health insurance tax credit enacted in the 2010 health care reform law
- Medicaid and the Children’s Health Insurance Program (CHIP)
- The Supplemental Nutrition Assistance Program (SNAP)
- Financial assistance for post-secondary students (Pell Grants)
- Compensatory Education Grants to school districts
- Assisted Housing
- The Earned Income Tax Credit (EITC)
- The Additional Child Tax Credit (ACTC)
- Supplemental Security Income (SSI)
- Family Support Payments
As Jared Bernstein explains:
…for all the popular wisdom that programs to help low-income people are swallowing the economy, the truth is that like so much else that plagues our fiscal future, it’s all about health care spending. The figure shows that as a share of GDP, prior to the Great Recession, non-health care spending was cruising along at around 1.5% for decades. It was Medicaid/CHIP (Medicaid expansion for kids) that did most of the growing.
Regardless, the recent explosion in the ratio of Medicare/CHIP spending to GDP is largely due to the severity of the Great Recession, not the generosity of the programs. The recession increased poverty and thus eligibility for the programs, thereby pushing up the numerator, while simultaneously lowering GDP, the denominator. Moreover, spending on all non-health care safety net programs is on course to dramatically decline as a share of GDP. Even Medicare/Chip spending is projected to stabilize as a share of GDP.
These programs are essential given the poor performance of the economy, and in most cases poorly-funded. Cutting their budgets will not only deny people access to health care, housing, education, and food, it will also further weaken the economy, in both the short and long run.