This is the best discussion of how to reform entitlements I have thus far read.
This is a long one, about 21 pages single spaced in word. It will be a 3 part post.
From National Affairs:
Restoring a True Safety Net
The Obama years have seen unprecedented growth in spending on what used to be known as the federal "anti-poverty" or "welfare" programs: means-tested initiatives to provide food, health insurance, housing benefits, and income support to the poor. These programs certainly grew during the Bush administration, with spending increasing by a total of about $100 billion over that eight-year period ($12.5 billion per year in 2010 dollars). But that spending increased another $150 billion in just the first two years of the Obama administration.
The scale of these increases is staggering. In three years, from 2008 through 2010, total annual spending on welfare programs (in 2010 dollars) increased from $475 billion to $666 billion — a 40% increase after accounting for inflation. At a combined annual cost of two-thirds of a trillion dollars, these programs are now on the same scale as the defense budget ($693 billion), Social Security ($700 billion), and Medicare ($551 billion).
Some of these spending increases were justified by the deep recession that began in December 2007. Indeed, the American Recovery and Reinvestment Act (ARRA), or the stimulus program, specifically targeted poverty programs for greatly expanded funding. And, as in the recessions of the early 1980s and early '90s, the poverty rate climbed during the 2008 recession — to 15% from an average of about 12.5% during the mid-2000s. But this rise in poverty does not explain most of the recent increases in spending on anti-poverty programs.
Rather, it is the dramatic expansion of eligibility for these programs — spreading their benefits well into the middle class — that has driven the explosion of spending. Today, more than half of the benefits allocated through programs we think of as "anti-poverty" efforts actually go to people above the poverty line as defined by the U.S. Census Bureau. As a result, our poverty programs — once justified and defended as a safety net for Americans truly in need — exist, increasingly, to make life more comfortable for the middle class.
Clearly, if the United States is to control its growing budget deficit, the next Congress and president will have to seriously examine anti-poverty spending and bring these programs back into line with their original purpose. The good news is that, because of the ways in which federal anti-poverty benefits are currently distributed, policymakers can pursue fairly straightforward remedies. The fact that much of today's spending on anti-poverty programs goes to people who are not in fact poor means that resetting eligibility requirements can yield significant savings — and thereby help restrain the growth of federal deficits and debts.
By carefully reviewing the data about safety-net programs — data that are not well known even among policymakers in Washington and that are, in some cases, analyzed here for the first time — we can understand the trends in welfare spending that have brought us to this point, and can find ways to significantly reduce federal spending without harming Americans who are actually in need.DEFINING POVERTY
In the world of government programs, "poverty" is not a simple label. There is only one official definition of poverty, set by the U.S. Census Bureau and updated each year to reflect inflation. The most recent definition, for instance, set the poverty threshold for 2011 at $11,702 in annual income for a single person under 65 years of age, and at $22,811 for a family of four that includes two children. Most of our assessments use 2010 data, since these are the most recent available authoritative figures, and the 2010 definitions were slightly lower: $11,344 for a single person and $22,113 for a family of four.
The problem comes in applying poverty definitions, because Congress allows federal agencies wide latitude in determining eligibility thresholds. Federal "poverty guidelines" allow agencies to move the threshold up to 130% or 200% of the official poverty level. For reference, using a poverty threshold of 200% for a family of four in 2011 would have given poverty benefits to families earning more than $45,000 annually. Throughout this analysis, when we refer to the "poverty level," "poverty line," or simply "poverty," we mean the official federal definition of poverty as established by the U.S. Census Bureau, using annual income.
It is worth noting that average incomes and living costs differ significantly among the states. According to the Census Bureau, in 2010, the median income in Mississippi was $45,484; in Maryland, it was $83,137. Because of these differences, the federal government gives some leeway to the states to determine eligibility for anti-poverty programs, though there is only one federal definition of poverty, which is designed to reflect an absolute subsistence standard rather than one relative to incomes.FEDERAL FOOD AID
With these facts in mind, it makes sense to begin our investigation with federal food programs — which, among the various anti-poverty programs that have grown in recent years, have seen the largest spending increase (as a percentage). Between 1992 and 2007, spending on food programs did not vary by more than a few billion dollars, after adjusting for inflation. But according to the Congressional Budget Office, spending on food programs rose from $57 billion in 2007 to $95 billion in 2010 (again, adjusted for inflation), an utterly unprecedented increase of 66%.
The two best-known federal food programs are the Supplemental Nutrition Assistance Program, or SNAP (formerly known as food stamps), and the school lunch and breakfast program. These are also the two largest food programs, accounting for approximately $68 billion and $14 billion, respectively, of the total federal funds spent on food assistance in 2010. The only other significant food program is the Women, Infants, and Children (WIC) program, which adds another $6.7 billion to the total. If we exclude administrative and other program costs and look only at direct spending on food benefits, we find approximately $65 billion in spending for SNAP, $13.5 billion for school meals, and $4.5 billion for the food-packages component of the WIC program.
Between 2000 and 2010, the number of persons receiving food stamps more than doubled, increasing from 17 million to slightly more than 40 million. Real spending more than tripled during this period, rising from $22 billion to $68 billion. This huge increase represents a major break from the historical pattern: Between the early 1990s and 2005, adjusted for inflation, the relationship between SNAP expenditures and food-stamp enrollment was quite stable. This suggests that the average per-person benefit was relatively constant during this period, with only a modest period of growth during the early 1990s. Starting in 2009, however, the relationship changed dramatically, with spending on benefits climbing much more rapidly than the number of beneficiaries.
The relationship between enrollment and average benefit is illustrated in the figure below, in which monthly benefits are expressed in 2010 dollars. Note that the average monthly benefit per person was approximately $90 during the 1980s, and rose only to a little over $100 per month during the recession of the early '90s before falling back to $90 in the early 2000s. The benefit then rose again to $100 in 2003 and remained fairly level through 2008. In 2009, however, the average monthly benefit spiked to $127, and the next year it increased again to $134 per person.
The main reason for the increase in average benefits after 2008 was President Obama's 2009 stimulus program, which directed an additional $20 billion to the food-stamp program over five years, with the purpose of increasing per-person benefits. While the stimulus legislation stated that the increase in average benefits would be 13% in the first year, the official expenditure data reveal that the actual increase was much larger: 27%. SNAP expenditures in fact increased by $30 billion over the two years following the stimulus law.
It is important to note that food-price inflation played virtually no role in these increases, since there was very little change in food prices in 2009 and 2010. This means that the average monthly benefits for a SNAP-eligible family of four climbed from about $400 in 2008 to $536 in 2010 without any real intervening increase in the cost of food.
But the growth of spending on the SNAP program has not been purely a function of increased benefits per person. SNAP participation rates, too, have risen sharply. For more than two decades starting in the early 1980s, SNAP enrollment hovered around 20 million people. During the recession of the early 1990s, enrollment increased by several million — understandably, given that the poverty rate rose to 15%, roughly the same as the rate in this most recent recession. But between 2003 and 2007, when the economy was strong and poverty rates were relatively modest, SNAP enrollment nevertheless climbed to 26 million people. And after 2007, enrollment figures skyrocketed — climbing to 33 million people in 2009 and to 40 million in 2010.
What caused this unprecedented increase? There were 46 million people in poverty in the United States in 2010; if the increase in SNAP participation were attributable to more poor Americans' receiving food stamps, then we could conclude that the food-stamp program was working more effectively by reaching more people in poverty. Unfortunately, this is not what happened: Most of the increases in food-stamp participation in the past several years have instead resulted from an increase in benefits going to people above the poverty line.
The figure above shows trends in the number of households in poverty, the number of households in SNAP, and the percentage of SNAP households over the poverty line between 2004 and 2010. As early as 2004, nearly 40% of households receiving food stamps were above the poverty line. The proportion of non-poor households receiving food stamps hovered just above 40% until 2008, when it rose to 45%. In 2009, the proportion rose to 46%, and in 2010 it reached 48% — nearly half of all households receiving food stamps. The increase in the number of households participating in the food-stamp program is thus being driven disproportionately by households above the poverty line.
The trend is even more surprising when we look at individuals rather than households, using data from the 2010 American Community Survey Public Use Microdata Sample (PUMS) provided by the Census Bureau. The figure below shows the number of people receiving food stamps in different income categories; of the 40.3 million people receiving food stamps in 2010, slightly more than half, or 20.4 million people, were above the official poverty line.
One would expect some food-stamp recipients to have incomes above the poverty line, as Congress permits the SNAP program to set the eligibility threshold at 130% of the poverty level. What is remarkable, however, is the fact that, among recipients of federal food-stamp benefits, there are more people above the poverty line than below it.
Within the category of food-stamp recipients living above the poverty line, the breakdown into income sub-groups merits further consideration. Only about one-fourth of recipients in this over-poverty group — some 5.2 million people — have incomes between 100% and 130% of the poverty level, making them eligible for food stamps according to the Food and Nutrition Service guidelines. Another 7.2 million recipients have incomes between 130% and 200% of the poverty level, and an astonishing 8 million recipients have incomes that are greater than 200% of poverty. This means that 15 million Americans living above the food-stamp eligibility threshold established by Congress are receiving food stamps.
How did this happen? One possible explanation is that the SNAP program determines eligibility by looking at monthly income, while the PUMS data are based on 12 months of income. Obviously, by not counting income received prior to the past month, some people will qualify for food stamps when their current incomes fall below the poverty line, even if they earned, say, $50,000 over the previous 12 months. We investigated this possibility (using monthly data from the longitudinal Survey of Income and Program Participation), however, and found that the percentage of food-stamp recipients living above poverty remained very high (45%) when income was measured month to month.
A second explanation involves recent changes in the definition of so-called "categorical eligibility." Categorical eligibility allows states to declare large numbers of families eligible for SNAP without actually going through the SNAP program's own process for determining eligibility; families receiving in-kind benefits from the Temporary Assistance for Needy Families welfare program, for instance, are deemed automatically eligible for food stamps. Coupled with the fact that Congress allows states to use categorical eligibility for families with incomes up to 200% of the poverty line, this practice allows large numbers of non-poor persons to qualify for SNAP. In 2010, 12 states (Delaware, Florida, Hawaii, Maryland, Massachusetts, Michigan, Montana, Nevada, North Carolina, North Dakota, Washington, and Wisconsin) as well as the District of Columbia allowed benefits up to 200% of poverty. Another seven states (Arizona, Connecticut, Maine, New Hampshire, New Jersey, Rhode Island, and Vermont) allowed benefits up to 185% of poverty. Four states (Iowa, New Mexico, Pennsylvania, and Texas) allowed benefits up to 160% or 165% of poverty.
Increasing the eligibility threshold for federal benefits from 130% to 200% of the poverty line is an enormous change. According to census data, there are 38.3 million Americans between 130% and 200% of poverty; were the benefit threshold to be lifted to 200% of poverty nationwide, a total of 94.4 million Americans — nearly a third of the entire U.S. population — would be eligible for food stamps.
Fortunately, two of the largest states — California and New York — keep the eligibility limit at 130%, although Florida has adopted the 200% rule and Texas has adopted a 165% rule. Also fortunately, there are many people in these income categories who choose not to accept food stamps; otherwise, the program's participation rates and spending would be even higher. Nevertheless, calling SNAP a "poverty" benefit in states with a 200% rule is a serious misrepresentation.
Spending on the federal government's two other major food programs — the school lunch and breakfast program and the WIC program — is significantly lower than spending on SNAP. During fiscal year 2010, benefit spending was $10.8 billion for the lunch component of the school meal program, $2.9 billion for the breakfast component, and $4.6 billion for the WIC program. Total spending on these programs was therefore slightly more than $18 billion per year, bringing total benefit spending on the major federal food programs to $83 billion annually.
But these programs, too, have witnessed major expansion and growth in recent years. During the decade between 1995 and 2005, total spending for the school lunch and breakfast program grew by only $2 billion (in 2010 dollars). But it grew by that same amount again in just two years, between 2008 and 2010. Likewise, the WIC food program grew by only half a billion dollars between 1995 and 2005 (in 2010 dollars), but grew by roughly a billion dollars in the three years between 2007 and 2010.
With these programs, too, benefits are available to recipients well above the poverty line. For the school lunch and breakfast program, students are eligible for free meals if their family incomes are 130% of the poverty line or less; they are eligible for reduced-price meals if their family incomes are between 130% and 185% of poverty. Pregnant women, infants, and children under the age of five in the WIC program are eligible for food benefits if their incomes are at or below 185% of poverty.
With eligibility thresholds set well above the poverty level, the number of people enrolled in these food-aid programs who are not officially "poor" is significant. For the school lunch program, of the 17.6 million students receiving free meals, an estimated 4.9 million (28.1%) fall between 100% and 130% of poverty. Since the total cost of free meals is approximately $8 billion a year, this means that approximately $2.2 billion is going to students above the poverty line. Another 3 million students (those with family incomes between 130% and 185% of poverty) receive reduced-price lunches at a total cost of $1.1 billion. Finally, schools also receive subsidies for the 11 million students who pay for their lunches, adding another $1.7 billion to the cost of the school meal program. In total, approximately $5 billion a year is being spent to subsidize school lunches for non-poor children. Doing the same calculations for the school breakfast program, we find a total of approximately $1 billion being paid to support breakfasts for students above the poverty line. Finally, the WIC program has about 9 million participants, of whom approximately 31.4% are above the poverty line. This translates into about $1.4 billion in food benefits being paid to support women and infants who are not technically poor.