Is Welfare Really Breaking the US Federal Budget?
Whenever people start talking about our federal debt or a trillion dollar deficit, it does not take long for someone to point a finger at welfare spending. It sounds simple really: government handouts to the poor are bleeding taxpayers dry, and if we just manage welfare programs better, then we could manage our budget better.
Prior to my research, I believed about the same. I mean, when you hear the government spends approximately 1.3 trillion each year on programs to support Americans in poverty, it sounds like a crazy unsustainable amount of money. However, looking at the actual balance sheet, I reevaluated where the actual fiscal pressure is.
Putting $1.3 Trillion in Perspective
When we consider the budget in terms of the entire country, a big dollar amount can easily be misinterpreted unless we have the proper context. Total federal outlays currently stand at a bit over 7 trillion annually. So, when we add up the major federal programs targeted to support the poor, the total comes out to be about 18% of federal spending. This is not a trivial amount, but it is far from the primary issues.
The largest amount of federal spending doesn’t actually go to the poor directly. Instead, it goes into universal programs like Social Security and Medicare which are not means tested. These programs accounting for more than 35% of the entire budget are not welfare in the traditional sense. They instead distribute beneifits based on age and lifetime work rather than an explicit financial need. To add to the strain, since the baby boom generation is retiring and medical inflation continues to increase rapidly, these programs are automatically expanding each year without any Congressional intervention.
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Adding our interest payments on our $32 trillion public debt, which costs us about a trillion dollars each year and will probably increase if borrowing rates stay this high, it becomes clear that cutting every low income welfare program would not come close to solving our debt.
A Reflection on My Own Thinking
Based on this research, it is tempting to look at the 18% share and assume that we don’t need to worry about it at all. This $1.3 trillion was simply appropriated, and its recipients may not have actually been helped. These programs can almost become self-defeating if recipients are trapped where earning an extra dollar costs them two dollars in healthcare or childcare subsidies. In order to truly evaluate the effectiveness of these programs one needs to look at the outcomes, such as reductions in infant mortality and long-term gains.
Blaming our budget problems on social welfare is certainly an easy target, but it is misidentified. In order to have an honest discussion about fiscal sustainability we have to look past this and look at big percentages of the budget: universal retirement payments and the general snowballing costs of our national debt.
