Safety-Net Cuts Won’t Solve U.S. Fiscal Problems

Blog Post
Tuesday, July 17, 2018

When politicians start talking about spending cuts, they can be quick to focus on a group of federal programs -- often described loosely as “welfare” -- that provides benefits to individuals and families based on need.

These and some other programs -- notably Social Security and Medicare -- are labeled “mandatory,” meaning their spending does not require annual approval from Congress. These program’s spending levels each year depend on how many people are eligible for their benefits.

Lawmakers and President Trump should scrutinize mandatory spending programs as part of a larger effort to put the country on a more sustainable path. But a recent report from the Congressional Budget Office reiterates a point CBO has made in the past: The need-based programs, which are means-tested, are not the central problem with mandatory spending growth.

“Mandatory spending on means-tested programs is projected to grow more slowly than spending for non-means-tested programs,” the report says. In addition, the budget office says means-tested programs account for just over a fourth of all mandatory spending.

As the report explains, the means-tested programs “provide cash payments or other forms of assistance to people with relatively low income or few assets.”

This can make these “safety net” programs an easy political target for some candidates and elected officials who claim that reducing or eliminating these programs is the key to reducing federal deficits.

The CBO projects that outlays this year for all means-tested mandatory programs will total $742 billion, while mandatory programs that are not means-tested will add up to $2.053 trillion.

The largest means-tested mandatory programs are Medicaid, the earned income and child tax credits (which are refundable), the Supplemental Nutrition Assistance Program (SNAP) and the Supplemental Security Income program.

The biggest mandatory programs that are not means-tested are Social Security, the federal civilian and military retirement programs, and most of Medicare.

Under current law and correcting for certain payment-timing issues, CBO projects that outlays for means-tested mandatory programs would grow at an average rate of 4.2 percent a year for the coming decade. The comparable figure for non-means-tested mandatory programs is 5.9 percent.

Compared to the last 10 years, the projected growth rate for the means-tested programs is significantly lower, and the projected growth rate for the other mandatory programs is considerably higher.

These projections indicate that Congress and the president should be focusing more on reforms for the non-means-tested mandatory programs, notably Social Security and Medicare.

That conclusion is reinforced by the annual report released last month by the trustees of Social Security and Medicare; it charts an unsustainable rise in spending on these programs and recommends corrective action on them sooner rather than later.

The non-means-tested mandatory programs are expected to grow more rapidly in part because they largely serve older people. With an aging population, the government must spend more just to provide the same level of benefits to a larger number of people.

Means-tested programs, on the other hand, generally provide benefits to a broader part of the U.S. population, including people of all ages.

Yet Trump and many lawmakers seem content to squeeze these broader safety-net programs while doing little or nothing about the mandatory spending programs that require far more tax dollars -- and are projected to claim even bigger slices of the federal budget in the future.