[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

STRENGTHENING THE SAFETY NET

=======================================================================

HEARING

before the

COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

HEARING HELD IN WASHINGTON, DC, APRIL 17, 2012

__________

Serial No. 112-24

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COMMITTEE ON THE BUDGET

PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho Ranking Minority Member
JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri LLOYD DOGGETT, Texas
TOM COLE, Oklahoma EARL BLUMENAUER, Oregon
TOM PRICE, Georgia BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma TIM RYAN, Ohio
DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin
BILL FLORES, Texas KATHY CASTOR, Florida
MICK MULVANEY, South Carolina HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas KAREN BASS, California
TODD C. YOUNG, Indiana SUZANNE BONAMICI, Oregon
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia

Professional Staff

Austin Smythe, Staff Director
Thomas S. Kahn, Minority Staff Director

C O N T E N T S

Page
Hearing held in Washington, DC, April 17, 2012................... 1

Hon. Paul Ryan, Chairman, Committee on the Budget............ 1
Prepared statement of.................................... 3
Hon. Chris Van Hollen, ranking minority member, Committee on
the Budget................................................. 4
Prepared statement of.................................... 6
Submission for the record: Saint Camilius Food Pantry
Report................................................. 93
Casey B. Mulligan, professor of economics, University of
Chicago.................................................... 7
Prepared statement of.................................... 9
Ron Haskins, co-director, Center on Children and Families,
Brookings Institution; senior consultant, Annie E. Casey
Foundation................................................. 16
Prepared statement of.................................... 19
Robert Rector, senior research fellow, family & welfare
studies, the Heritage Foundation........................... 26
Prepared statement of.................................... 31
Robert Greenstein, president, Center on Budget and Policy
Priorities................................................. 36
Prepared statement of.................................... 41

STRENGTHENING THE SAFETY NET

----------

TUESDAY, APRIL 17, 2012

House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room
210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of
the Committee] presiding.
Present: Representatives Ryan, Garrett, Cole, McClintock,
Stutzman, Lankford, Black, Ribble, Flores, Mulvaney, Huelskamp,
Young, Rokita, Van Hollen, Kaptur, Blumenauer, McCollum, Ryan
of Ohio, Moore, Castor, Bass, Bonamici.
Chairman Ryan. Before I start with my opening statement, I
want to outline our plan for a hearing next week. As part of
the House Budget, we propose to replace the sequester with
reforms to ensure that we get the deficit reduction we all want
without the huge reductions on top of reductions that the Obama
administration is already planning in the defense program.
So, pursuant to the budget, we are going to consider
reconciliation and other legislation to fix this sequester as
we discussed in our markup. As a result, I think we need to
learn more about the sequester, how OMB would implement the
sequester, and what the impact would be, and to learn about the
specific proposal for replacing the sequester.
To that end, we plan on holding a hearing on the Budget
Control Act on April 25th. For the past couple of weeks, we
tried to get OMB to agree to testify. They have refused so far.
We sent a letter to OMB yesterday to the acting director,
asking that they testify. My hope is that we can have a hearing
next week. It's critical we fix this sequester and secure the
deficit reduction called for in the Budget Control Act, and I
just want to have members know this to mark their calendars for
the hearing we're planning on having. You want to speak on
this?
Mr. Van Hollen. Just very briefly, Mr. Chairman. I just
want to make the point, and I think the CBO has been clear on
this, as has the White House, they have a plan for replacing
the sequester. They have a budget that they presented to the
United States Congress that would replace the $1.2 trillion in
deficit reduction mandated by the sequester with a balanced
approach. So, they have been very clear and on the record
through their budget as to how they would avoid the sequester
in a way that maintains deficit reductions.
Chairman Ryan. Right, but the question is if no plan is
passed to replace it, then how is it to be implemented? That's
what we want to get at.
Before we start, let me note today that millions of workers
and businesses are filing their taxes today. I view the core
mission of this committee as ensuring that every dollar the
government takes from hard-working citizens is spent as
efficiently and as effectively as possible and only on programs
where the federal government has a critical role to play.
To that end, the focus of today's hearing is on reforming
the federal government's role in public assistance programs, so
that taxpayer dollars are carefully targeted to those in need,
the disabled, the sick, and those who, through no fault of
their own, have fallen on hard times. As we seek to end
wasteful practices, promote independence, and protect the
safety net from the threat of a debt crisis, we should learn
the extraordinary successes of the 1996 Welfare Reform Act.
There is a lot to be learned there.
The hearing will come to order. On the eve of the 1996
Welfare Reform, democratic senator Frank Lautenberg voiced his
concern that the bill would transform America into a third
world nation, leaving quote, ``children hungry and homeless,
begging for money, begging for food, and even at eight and nine
years old engaging in prostitution,'' closed quote.
Senator Lautenberg was not alone in making these kinds of
apocalyptic predictions about this historic law. But, what
happened in reality? Transforming welfare, among other things,
instituting meaningful work requirements, setting time limits,
and empowering states to design more effective programs, just
like we did in Wisconsin, cut case loads in half against a
backdrop of falling poverty rates.
There was the single greatest reduction in poverty among
children since the 1960s. Poverty among children in female-
headed households fell from 55.4 percent in 1991 to 39.3
percent in 2001. The Congressional Research Service said this
past December that quote, ``Since 1996 welfare reform, progress
appears to have been largely sustained in both reducing welfare
dependency and poverty among children and female-headed
families in spite of the recent recession.'' Today, over 15
years later, we are hearing the same kinds of hysterical
predictions from critics of our budget. Last week, President
Obama accused republicans of being ``social Darwinists.'' I did
not think that Senator Lautenberg's outlandish accusation could
be topped, but I think it has been now.
Let's put aside the outrageous rhetoric. Let's look at the
facts. Let's look at what works and what does not work. Let's
look at where we are headed. Let us look at what a debt crisis
would do to us. Let's look at what the House Budget actually
does. This budget treats all Americans with respect and
dignity. It recognizes that the federal government's attempts
to help can often do more harm than good. One honest observer
of government could not agree, disagree with that.
It is in our national interest to create a class of people
permanently dependent on the government? No, it is not. More to
the point, is it in the best interest of these individuals to
become dependent upon government? No. We must also ask what
happens to those who are most in need of government assistance
when the government can no longer pay its bills if we have a
debt crisis? We face the most predictable debt crisis in
history, and if this crisis hits those who rely on the safety
net the most will be hurt the first and the worst. Just turn on
the TV. Look what is going on across the Atlantic.
In contrast to the gradual reforms that our budget faces
in, reforms that protect those most in need of help, a debt
crisis would force sharp, immediate cuts in spending, hurting
those who cannot help themselves. Meanwhile, sharp, immediate
tax increases would stunt job growth and opportunity for those
who can. We saw the success of welfare reform. Our budget
follows the tradition of this success. Opponents of reform were
wrong in 1996, as we believe they are today. As we act to
prevent a debt crisis that truly would devastate the poor, they
are even more wrong.
I want to thank all the witnesses for coming today. I
appreciate you taking time out of your busy schedule to provide
us with your testimony. We have people who have been involved
in this issue for years and decades, who have done great,
scholarly work, and I welcome the insights that you are going
to bring to this committee. And, with that, I would like to
turn to the ranking member, Mr. Van Hollen.
[The prepared statement of Paul Ryan follows:]

Prepared Statement of Hon. Paul Ryan, Chairman, Committee on the Budget

Before we start, I just want to note that today, millions of
workers and businesses will file their taxes.
I view the core mission of this committee as ensuring that every
dollar the government takes from a hardworking citizen is spent as
efficiently and effectively as possible, and only on programs where the
federal government has a critical role to play.
To that end, the focus of today's hearing is on reforming the
federal government's role in public-assistance programs, so that
taxpayer dollars are carefully targeted to those in need--the disabled,
the sick, and those who, through no fault of their own, have fallen on
hard times.
As we seek to end wasteful practices, promote independence, and
protect the safety net from the threat of a debt crisis, we should
learn from the extraordinary success of the 1996 Welfare Reform Act.
On the eve of the 1996 welfare reform, Democratic senator Frank
Lautenberg voiced his concern that the bill would transform America
into a Third World nation, leaving ``children hungry and homeless * * *
begging for money, begging for food, and even at eight and nine years
old engaging in prostitution.''
Senator Lautenberg was not alone in making these kinds of
apocalyptic predictions about that historic law. But what happened in
reality?
Transforming welfare--by, among other things, instituting
meaningful work requirements, setting time limits, and empowering
states to design more effective programs--cut caseloads in half against
a backdrop of falling poverty rates.
There was the single greatest reduction in poverty among children
since the 1960s. Poverty among children in female-headed households
fell from 55.4 percent in 1991, to 39.3 percent by 2001.
The Congressional Research Service said this past December that,
``Since 1996 welfare reform, progress appears to have been largely
sustained in both reducing welfare dependency and poverty among
children in female-headed families, in spite of the recent recession.''
Today, over 15 years later, we are hearing the same kinds of
hysterical predictions from critics of our budget.
Last week, President Obama accused Republicans of being `social
Darwinists.'
I didn't think that Senator Lautenberg's outlandish accusation
could be topped, but I think it has been.
Let's put aside the outrageous rhetoric. Let's look at what the
House-passed budget actually does.
This budget treats all Americans with respect and dignity. It
recognizes that the federal government's attempts to help can often do
more harm than good. What honest observer of government could disagree?
Is it in our national interest to create a class of people
permanently dependent on the government? More to the point, is it in
the best interest of these individuals to become dependent on
government?
We must also ask: What happens to those who are most in need of
government assistance when the government can no longer pay its bills?
We face the most predictable debt crisis in history--and if this
crisis hits, those who rely on the safety net the most will be hurt the
first and the worst.
In contrast to the gradual reforms our budget phases in--reforms
that protect those most in need of help--a debt crisis would force
sharp, immediate cuts in spending, hurting those who cannot help
themselves. Meanwhile, sharp, immediate increases in taxes would stunt
job growth and opportunity for those who can.
We saw the success of welfare reform. The Republican budget follows
in the tradition of this success.
Opponents of reform were wrong in 1996, and today--as we act to
prevent a debt crisis that truly would devastate the poor--they are
even more wrong.
I want to thank all of witnesses for coming today. I appreciate all
of you taking time out of your busy schedules to provide us with your
testimony.

Mr. Van Hollen. Thank you, Mr. Chairman. I join the
chairman in welcoming all of our witnesses today to a very
important hearing. I think there is universal agreement that we
should spend taxpayer money wisely. I also think there is
agreement that we should learn from a successful reforms. I
think, as we will find out in this hearing, some of the
successes that apply to the welfare reform provision simply do
not apply in this case, and we will also hear some of the
consequences of certain aspects of that reform.
Mr. Chairman, there is a difference between reform and just
taking a hatchet to important social safety net programs. We
obviously have deep differences of opinion on this issue. I
happen to think that the president's characterization of this
budget is correct, and I think it is Orwellian to present a
budget that tears a huge hole in the safety net as one that is,
in fact, designed to strengthen support for vulnerable
Americans. This week brings a very strong contrast to the
different approaches that would be taken in this body and in
the senate.
We saw in the senate yesterday a vote on the Buffet Rule,
asking millionaires to pay more to help reduce our deficit.
Meanwhile, here in the House, we are having a vote this week on
a bill that would add billions of dollars to the deficit by
providing tax breaks to hedge fund owners, to Washington law
firms, all under the guise of a small business bill. And, here
in the Budget Committee, we are talking about quote;
``strengthening the social safety net'' when in fact this
budget tears big holes in it.
Let's put this hearing in context and why we are here
today, and it is because the budget that has been presented by
our Republican colleagues takes a lopsided approach. It ignores
the advice of bipartisan commissions that say that any
credible, responsible approach to reducing the deficit combines
cuts, and we need to make cuts and difficult decisions, but it
combines those cuts with an end to special interest tax
loopholes and asking the folks at the very top to pay a little
bit more to help reduce our deficit. And because it refuses to
ask wealthier Americans to pay one penny toward deficit
reduction, because it takes that whole revenue stream out of
the equation, it means that their budget hits everyone and
everything else harder. That is simple math.
We have talked in this committee about the impact the
Republican budget would have on the Medicare guarantee and
ending the Medicare guarantee. We have talked about how it
would cut very important investments necessary to keep our
economy strong, in our infrastructure, in transportation,
education. Today, we will focus on its impact in the social
safety net.
I have to say that the storyline, at least part of the
storyline that accompanies this Republican budget is, in my
view, a cynical one. It is one designed to tell Americans that
these social safety nets are not necessary because people
choose these safety nets over getting a job, that people who
are out of work choose to be out of work, that people who need
the support of food and nutrition and health programs choose to
be in that position, and that by cutting these essential
supports, by making people who are on the economic edge even
more desperate, that we will give them renewed willpower to
pull themselves up by their bootstraps, that, in fact, we are
doing a favor to the people who will be most harmed.
As we consider how we can strengthen the social safety net,
we should be clear about what our goals are and how we define
success. Is our goal, in fact, to strengthen that social safety
net? If that is the goal, Mr. Chairman, we join you in an
effort to find essential reforms. But, if our goal simply is to
take a hatchet to part of the budget in order to meet certain
targets while refusing to take a balanced approach, we cannot
join in that effort.
What this does is cut Medicaid by $810 billion. By the year
2020, the Medicaid program would be reduced by a full third. By
2050, and these numbers are according to the Congressional
Budget Office, it would cut Medicaid by a whopping 75 percent.
It does this by converting Medicaid into a block grant program
that provides inadequate funding that fails to keep pace with
the need. It does this under the name of flexibility, refusing
to recognize that Medicaid already has a lot of flexibility.
More than 30 states already operate under the Medicaid waiver.
CBO has concluded that this will mean states either have to
pay a lot more, which means increased taxes on their citizens,
or cut back significantly. An Urban Institute study recently
explained what the consequences are.
We will have a conversation about to what extent the work
incentives under welfare reform, actually apply to a program
like Medicaid. I think we will find that the comparison stops
very early on.
We will also have a conversation about SNAP, the Food
Assistance And Nutrition Program. It was decided back during
welfare reform not to block grant that because it did provide
an essential, absolute safety net for people in need and
provided an economic stabilizer.
So, Mr. Chairman, again, I think that people are willing to
explore ways that really reform the process for the better.
What we are not willing to do is simply blindly cut programs
that are absolutely necessary to provide help to people in
need, including lots of seniors, simply to meet one half a
budget equation that refuses to look at the revenue half of
that equation, while cutting provides additional tax breaks to
people who are the best off in this country. We do not think
that is shared responsibility. We look forward to working with
you on a budget plan, a deficit reduction plan that truly meets
that goal. Thank you.
[The prepared statement of Chris Van Hollen follows:]

Prepared Statement of Hon. Chris Van Hollen, Ranking Member,
Committee on the Budget

While today's hearing is titled ``Strengthening the Safety Net,''
it is mostly an effort to sugarcoat a Republican budget that shreds the
social safety net while providing gold-plated tax breaks to the
wealthiest Americans. It's truly Orwellian to present a budget that
tears apart the social safety net as one designed to strengthen support
for vulnerable Americans.
This week presents a very clear contrast in the priorities between
Republicans and the Democrats in Congress. Yesterday, the Senate voted
on the Buffett Rule to make sure that millionaires take greater
responsibility for reducing the deficit. All but one Republican voted
no and all but one Democrat voted yes.
Meanwhile, this week in the House, we're going to be doing two
things. We're taking up legislation that will add billions to the
deficit by providing big tax breaks to hedge fund owners, big
Washington law firms, and others under the guise of a small business
bill. And here in the Budget Committee, we are holding a hearing
attempting to put a compassionate face on the shredding of the social
safety net.
Let's put this hearing in context. The Republican budget takes a
lopsided approach to addressing our deficit. Rather than taking the
balanced approach that has been recommended by bipartisan groups--an
approach that requires deficit reduction through a combination of
spending cuts and additional revenue--the Republican budget refuses to
eliminate one single tax break for the purpose of deficit reduction. It
refuses to ask the wealthiest Americans to pay one penny more for the
purpose of deficit reduction. Simple math tells you that, because that
revenue is taken off the table, the Republican budget hits everyone and
everything else much harder.
We've talked about the impact of the Republican budget in terms of
ending the Medicare guarantee. We've talked about the fact that it
would slash important investments necessary to keep our economy strong,
like investments in education, infrastructure, science, and research.
And today we will focus on what it does to the social safety net.
The storyline that accompanies the Republican budget is a
particularly cynical one. It is one designed to tell Americans that
these social safety nets are not necessary because people choose those
safety nets over getting a job; that most people who are out of work
choose to be out of work; that most people who need the support of food
and nutrition programs choose to be in that position; and that by
cutting these essential supports--by making people on the economic edge
even more desperate--they will be giving people the willpower to pull
themselves up by their bootstraps; that they are in fact doing a favor
to the people who will be most harmed.
As we consider how we can ``strengthen the safety net,'' we should
be clear about what our goals are and how we define success. Are we
focused first on helping vulnerable Americans and what success means
for their lives? Or is our first goal to cut deficits by dismantling
programs that preserve the economic well-being of the vulnerable while
expanding tax breaks to the wealthiest people and corporations in
America? The answers to these questions lead to very different
approaches.
If one starts with the goal of simply cutting these programs, then
the Republican budget is one way to get there. It attempts to balance
the federal budget on the backs of the poor, by gutting federal
spending on safety net programs and replacing it with the failed
philosophy of ``trickle-down'' economics--arguing that somehow, if we
shower the richest among us with hundreds of billions of dollars more
in tax breaks, they will pass on the benefits to those at the lowest
economic rungs. The Republican budget cuts $810 billion from Medicaid.
It will be cut by 30 percent by 2022, and by an astounding 75 percent
by the year 2050.
The Republican budget converts Medicaid into a block grant to
states and provides inadequate funding that fails to keep pace with
need. It speaks vaguely of providing more flexibility to states,
missing the point that states already have significant flexibility. For
example, 30 states operate Medicaid under one or more waivers of
federal rules.
CBO concluded that the Republican budget would mean that states
will need to increase their spending on these health programs, cut back
services, or both. Cutbacks could involve reduced eligibility, coverage
of fewer services, lower payments to providers, or increased cost-
sharing by beneficiaries--all of which would reduce access to care. An
Urban Institute study of the same Medicaid plan in last year's
Republican budget found that 14 million to 27 million people could lose
Medicaid coverage. Millions of poor people losing health care
coverage--in a program where half of all beneficiaries are children and
another quarter are either senior citizens or people with significant
disabilities that make them unable to work.
I also note that concerns about work incentives that drove welfare
reform in 1996 have no relevance to Medicaid. First, it is a program
that provides health care coverage to those left behind by the private
insurance market. Second, two-thirds, or 66 percent, of Medicaid
spending is for senior citizens and people too disabled to work, while
another 20 percent is for children. Medicaid costs reflect underlying
health sector trends and population aging, as more people need help
paying for long-term care. Spending also reflects the economy--more
people rely on Medicaid when jobs are scarce.
As for SNAP, it already has strong work incentives built in.
Moreover, in 1996, rejecting proposals to block-grant SNAP (known then
as food stamps) was critical to building bipartisan support for welfare
reform. SNAP continues to serve the most critical of roles in society--
providing food security for families who have fallen on hard times. It
is a major stabilizer that allows the federal government to respond
quickly to changes in economic conditions. SNAP spending will decline
as the economy recovers. Attempting to force further cuts will leave
millions of children without adequate diets.
The idea that the approach in the Republican budget strengthens or
repairs the social safety net is the kind of doublespeak that
aggravates Americans. The plain meaning of ``strengthen'' is to make
something stronger and more vigorous. The Republican budget does the
direct opposite: it shreds that safety net; it weakens it. To make
matters worse, it does so while expanding tax breaks for millionaires
and corporations that have done exceedingly well not only by their own
efforts, but because of their workers, customers, and fellow citizens.

Chairman Ryan. Thank you. Gentlemen, obviously our goal is
to bring spending that's sustainable and to include reforms
that actually work to serve the purpose of these programs,
which we think we have missed on that by virtue of just the
results and the fact that poverty is at an all-time high.
With that, we will start with Dr. Casey Mulligan, professor
of economics at the University of Chicago. Welcome, and I think
it is your first time coming to the Hill. Then we will go with
Ron Haskins, co-director of the Center on Children and Families
at the Brookings Institution. Ron is no stranger to this body,
nor is Dr. Robert Rector, senior research fellow at the
Heritage Foundation, and, Bob, we kept your seat warm. I think
that is where you always sit. It is good to see you again. Bob
Greenstein, president of the Center on Budget and Policy
Priorities. Why do we not go with Casey, then Ron, then Robert,
and then Bob. Dr. Mulligan.

STATEMENTS OF CASEY MULLIGAN, PROFESSOR OF ECONOMICS,
UNIVERSITY OF CHICAGO; RON HASKINS, CO-DIRECTOR, CENTER ON
CHILDREN AND FAMILIES, BROOKINGS INSTITUTION; ROBERT RECTOR,
SENIOR RESEARCH FELLOW, HERITAGE FOUNDATION; ROBERT GREENSTEIN,
PRESIDENT, CENTER ON BUDGET AND POLICY PRIORITIES

STATEMENT OF CASEY MULLIGAN

Mr. Mulligan. Chairman Ryan, Ranking Member Van Hollen, and
members of the committee, thank you for the opportunity and
honor to discuss with you today. Our new safety net program
rules over the past couple of years have changed the reward to
work. A multitude of public policies effect that reward and
thereby effect who is employed.
A basic economic principle is that the monetary reward to
working has important effects on how many people are employed
and how much they work. By definition, the monetary reward to
working is the difference between the resources a person has
available to use or save if she works and what she has
available when she does not work.
The effect of taxes and subsidies on the reward to working
can be summarized as a marginal tax rate, and by that I mean
the difference between taxes paid and that of subsidies
received when working, and that taxes paid when not working,
sometimes expressed as a fraction of the amount produced when
working.
Now, people without jobs or otherwise with low incomes
sometimes receive benefits from social safety net programs. The
benefits are rarely called taxes by layman, but economists
understand the benefits to have many of the characteristics of
marginal tax rates because a program beneficiary loses some or
all of her benefits as a consequence of working. The more
income that a person receives when not working, the less is the
reward to working.
A multitude of public polices affect the reward to working,
to name just a few: federal, state, and local income taxes,
payroll taxes, unemployment insurance benefits, and nutrition
assistance programs.
Thanks to a labyrinth of relevant programs the marginal tax
rate can equal or exceed 100 percent in some cases, which means
that the reward to working is zero or negative. In such cases a
person might have more resources available to use or save as a
consequence of working less. Legislation that supposedly cuts
or credits taxes can nonetheless reduce the reward to working
and increase the marginal tax rate appropriate for labor market
analysis. If it cuts taxes more for those who work less, then
it cuts taxes for those who work more. Even private sector
transactions, such as the settlement of mortgage, consumer, and
child support debts sometimes may have many of the
characteristics of taxes paid to the public treasury,
especially in terms of their propensity to reduce the reward to
working.
The reward to working, and, therefore, the marginal tax
rates, affects what people do. High marginal tax rates mean
small incentives to seek, create, and retain jobs. The
consequences of high marginal tax rates are found all over the
economy, even by persons whose individual marginal tax rates
might not be all that high.
Now, America absolutely must have taxes and must have
safety net programs, even though they reduce the reward to
working, but if this Congress wants to understand or shape what
is happening in labor market or to the budgets of social
programs, it would be counterproductive to approximate marginal
tax rates as zero or to assume them to be eternally constant,
regardless of what incentives are embodied in new legislation.
In reality, at least a dozen new and important federal and
state safety net benefit rules have collectively changed the
reward to working, especially for groups whose employment rates
are particularly sensitive to safety net benefits. Of course,
unemployment insurance program benefits are now available
longer into unemployment spells up to 99 weeks than they were
five years ago; but also do not forget that new modernization
provisions now provide unemployment benefits in a variety of
circumstances when benefits were formerly unavailable.
While it lasted, the 2009 American Recovery and
Reinvestment Act also added a bonus to weekly unemployment
checks and helped unemployed people pay for their health
insurance. The food stamp program expanded in a variety of
dimensions. All of these policy changes, and more, serve to
increase marginal tax rates over the past couple of years. By
my calculations, the net effect of all of these changes through
2012 was to increase marginal tax rates for the median
household head or spouse at least 4 percentage points above
what they were in 2007, and this was on top of the 40 plus
percent marginal tax rate already in place back then. Marginal
tax rates have increased even more for less skilled people.
It is sometimes claimed by non-economists, at least, that
the safety net does not prevent anyone from working because
supposedly everyone strives to have more income rather than
less, and we gladly take any job that paid them more than the
safety net did. This income maximization claim is contradicted
by the most basic labor market observations, not to mention
decades of labor market research. A presumably unintended
consequence of the recent safety net expansions has been to
reduce the reward to working, and, thereby, keep employment
rates low, keep unemployment rates high, and keep national
spending low longer than they would have if safety net program
rules had remained unchanged.
The bottom line is that helping the poor and economically
vulnerable has a price in terms of labor market inefficiency.
Since 2007, we have been paying more of that price. American
public policies have moved significantly in the direction of
less labor market efficiency and, perhaps, more than was
necessary for providing the assistance to those who need it.
Thank you.
[The prepared statement of Casey Mulligan follows:]

Prepared Statement of Casey B. Mulligan, Professor of Economics,
University of Chicago

Chairman Ryan, Ranking Member Van Hollen, members of the committee:
thank you for the opportunity and honor to discuss with you today how
new safety net program rules over the past couple of years have changed
the reward to work. A multitude of public policies affect that reward,
and thereby affect who is employed. In some cases, the monetary reward
to work is zero, or worse.
overview
A basic economic principle is that the monetary reward to working
has important effects on how many people are employed, and how much
they work. By definition, the monetary reward to working is the
difference between the resources a person has available to use or save
if she works and what she has available when she does not work.
The effect of taxes and subsidies on the reward to working can be
summarized as a marginal tax rate: that is, the difference between
taxes paid net of subsidies received when working and net taxes paid
when not working, sometimes expressed as a fraction of the amount
produced when working.
People without jobs or otherwise with low incomes sometimes receive
benefits from social safety net programs. The benefits are rarely
called taxes by laymen, but economists understand the benefits to have
many of the characteristics of marginal tax rates because a program
beneficiary loses some or all of her benefits as a consequence of
working. The more income that a person receives when not working, the
less is the reward to working.
A multitude of public policies affect the reward to working. To
name just a few: federal, state and local income taxes, payroll taxes,
unemployment insurance benefits, and nutrition assistance programs.
Thanks to a labyrinth of relevant programs, the marginal tax rate
can equal or exceed 100 percent in some cases, which means that the
reward to working is zero or negative. In such cases, a person might
have more resources available to use or save as a consequence of
working less.
Legislation that ``cuts'' or ``credits'' taxes can nonetheless
reduce the reward to working, and increase the marginal tax rate
appropriate for labor market analysis, if it cuts taxes more for those
who work less than it cuts taxes for those who work more.
Even private sector transactions such as the settlement of
mortgage, consumer, and child support debts sometimes have many of the
characteristics of taxes paid to the public treasury, especially in
terms of their propensity to reduce the reward to working.
The reward to working, and therefore the marginal tax rate, affects
behavior. High marginal tax rates mean small incentives to seek,
create, and retain jobs. The consequences of high marginal tax rates
are felt all over the economy, even by persons whose individual
marginal tax rates might not be all that high.
America absolutely must have taxes and safety net programs, even
though they reduce the reward to working. But if this Congress wants to
understand or shape what is happening in the labor market or to the
budgets of social programs, it would be counter-productive to
approximate marginal tax rates as zero, or to assume them to be
eternally constant regardless of what incentives are embodied in new
legislation.
In reality, at least a dozen new and important federal and state
safety net benefit rules have collectively changed the reward to
working, especially for groups whose employment rates are particularly
sensitive to safety net benefits.
Of course, unemployment insurance program benefits are now
available longer into unemployment spells--up to 99 weeks--than they
were five years ago. But also don't forget that new modernization
provisions now provide unemployment benefits in a variety of
circumstances when benefits were formerly unavailable. While it lasted,
the 2009 American Recovery and Reinvestment Act (hereafter, ARRA) also
added a bonus to weekly unemployment checks, and helped unemployed
people pay for their health insurance. The food stamp program expanded
in a variety of dimensions. All of these policy changes, and more,
served to increase marginal tax rates over the past couple of years.
By my calculations, the net effect of all of these changes through
2012 was to increase marginal tax rates for the median household head
or spouse at least four percentage points above what they were in 2007
(Mulligan 2012), on top of the forty-plus percent marginal tax rate
already in place. Marginal tax rates have increased even more for less-
skilled people.
It is sometimes claimed, by non-economists at least, that the
safety net does not prevent anyone from working because supposedly
everyone strives to have more income rather than less, and would gladly
take any available job that paid them more than the safety net did.
This ``income maximization'' claim is contradicted by the most basic
labor market observations, not to mention decades of labor market
research. A presumably unintended consequence of the recent safety net
expansions has been to reduce the reward to working and thereby keep
employment rates low, keep unemployment rates high, and keep national
spending low, longer than they would have been if safety net program
rules had remained unchanged.
The remainder of my testimony offers more detail as to marginal tax
rate changes in recent years, and how they relate to the government
safety net.
a labyrinth of public policies affect the reward to working
The marginal tax rate is the difference between taxes paid net of
subsidies received when working and taxes paid net of subsidies
received when not working, sometimes expressed as a fraction of the
amount produced when working. Among the variety of measures that
economists use to study the reward to working, this concept of the
marginal tax rate has the advantage that it readily captures important
combined incentive effects of a multitude of tax and subsidy programs
(Gruber and Wise 1999).
The marginal tax rate appropriate for labor market analysis
includes not only the combined sum of the extra taxes owed when
working, but also adds the combined sum of all safety net benefits
foregone, because taxes generally take away from the resources
available to people who work while safety net benefits generally add to
the resources available to people who do not work.
Many of us worked on our federal individual income tax Form 1040
over the weekend and may be familiar with our tax rate on that form.
But the marginal tax rate as defined above is significantly different
from the Form 1040 rate because, among other things, the federal
individual income tax is only one of many taxes. As a consequence of
working, and the additional spending and saving that wage income
permits, American workers (and employers on behalf of employees) pay
income, payroll, sales, excise, property, and other taxes to federal,
state and local governments.
Federal, state, and local governments deal in massive amounts of
resources, and affect the reward to working both in the process of
obtaining revenue and in the process of distributing revenue to
beneficiaries. The Bureau of Economic Analysis estimates that income,
payroll, sales, and excise taxes amounted to about 23 percent of
national income and over 30 percent of the nation's labor income, on
average between 2000 and 2010. Even if none of that revenue had been
spent on safety net programs, the tax collections by themselves would
have reduced the reward to working.
Safety net program spending is also significant, especially during
the last several years. I estimate that federal, state, and local
spending on non-elderly beneficiaries of unemployment insurance,
nutrition assistance, Medicaid, and other means-tested subsidies
occurred at a combined rate of more than $400 billion per year in 2009
and 2010, measured in fiscal year 2010 dollars (Mulligan 2011). Even if
governments had somehow been able to fund these programs without any
taxes, the process of distributing the program benefits would have
reduced the reward to working.
Legislation that ``cuts taxes'' can nonetheless reduce the reward
to working, and increase the marginal tax rate appropriate for labor
market analysis, if it cuts taxes more for those who work less than it
cuts taxes for those who work more because the reward to working is the
difference between taxes (net of subsidies) paid when working and taxes
(net of subsidies) paid when not working.
Thanks to the labyrinth of relevant programs moving large amounts
of resources, the marginal tax rate can equal or exceed 100 percent in
some cases (Romich, Simmelink and Holt 2007), which means that the
reward to working is zero or negative. In such cases, a person might
have more resources available to use or save as a consequence of
working less.
The reward to working, and therefore the marginal tax rate, affects
behavior. High marginal tax rates mean small incentives to seek,
create, and retain jobs, and to make the sacrifices of time, hassle,
etc., naturally required by employers, customers, and clients in
exchange for a paycheck. The consequences of high marginal tax rates
are felt all over the economy, even by persons whose individual
marginal tax rates might not be all that high.
The economic distortions created by marginal tax rates are not
linear: an increase from 90 percent to 100 percent has a greater effect
on incentives than an increase from 40 percent to 50 percent, which
itself has a greater effect on incentives than an increase from 0
percent to 10 percent. A rate increase from 0 to 10, for example, still
leaves a worker with 90 percent of her reward from working, whereas a
rate increase from 90 to 100 leaves her with no reward.
marginal tax rate and government safety net changes in and around the
great recession
At least a dozen new and important federal and state safety net
benefit rules have collectively changed the reward to working,
especially for groups whose employment rates are particularly sensitive
to safety net benefits.
The unemployment insurance (hereafter, UI) program offers weekly
cash benefits to people who have lost their jobs and have as yet been
unable to find and start a new one. On average they receive about $300
a week until they start working again, until they stop looking for
work, or until their benefits are exhausted. Before the recession, an
unemployed person in a typical state without high unemployment would
often have his benefits limited to a maximum of twenty-six weeks
(United States Department of Labor 2007). The federal law in place
before the recession included some local labor market ``Extended
Benefit'' triggers that, based on the statewide unemployment rate,
would automatically lengthen the maximum benefit period. These
automatic triggers began to extend the duration of benefits around the
nation in the middle of 2008 (United States Department of Labor 2011a).
At about the same time, the Supplemental Appropriations Act of 2008
included new ``Emergency Unemployment Compensation'' (EUC) legislation
that extended maximum benefit periods for the entire nation. The
Worker, Homeownership, and Business Assistance Act of 2009 further
extended the EUC periods, so that unemployment insurance benefits could
be paid up to 99 weeks (United States Department of Labor 2011b).
It is widely recognized that the UI benefit duration rules changed
over the past couple of years (see Elsby, Hobijn and Sahin (2010),
Shimer (2010), Daly, et al. (2012) and the studies cited in Council of
Economic Advisers (December 2010)). Nor is it a surprise that a person
unemployed more than 26 weeks saw her marginal tax rates increase as a
result of the rule changes, because they provided benefits that would
terminate if and when she went back to work before the benefits were
exhausted. More surprising is that other safety net expansions
collectively served to increase marginal tax rates significantly more
than the new UI benefit duration rules did, not to mention reinforce
the labor market impacts of the latter (Mulligan 2012).
The February 2009 American Recovery and Reinvestment Act
(hereafter, ARRA) expanded eligibility by encouraging states to
``modernize'' (and relax) their UI eligibility requirements by
processing earnings histories through an ``alternative base period,''
including persons who quit their job for compelling family reasons,
adding 26 weeks of eligibility for persons enrolled in training
programs, and/or paying benefits to persons who search only for part-
time work (United States Department of Labor 2009). The modernization
provisions raised marginal tax rates for people who would have found it
difficult or impossible to qualify for UI under the previous rules.
The ARRA also raised marginal tax rates by exempting the first
$2,400 of unemployment benefits received by an unemployed person from
2009 federal income tax (United States Department of Labor 2011b). This
provision is an example of a ``tax cut'' that nevertheless reduced the
reward to working because it reduced taxes for people who experienced
unemployment sometime during 2009 and did not reduce taxes for people
who worked throughout the year.
The ARRA's Federal Additional Compensation (FAC) provision also
raised marginal tax rates by adding $25 per week to unemployment
compensation checks. This $25 per week was not available to people who
were working, because unemployment compensation checks are reserved for
people who are unemployed.
For laid off workers who wanted to remain on their former
employer's health plan, the ARRA's COBRA subsidy offered to pay 65
percent of the cost. For a $13,027 annual family health insurance
premium (Crimmel 2010), that subsidy was worth more than $700 per
month. Many of the unemployed did not receive the COBRA subsidy, but
the subsidy increased marginal tax rates for people who did receive it,
or would have received it had they not been working.
The Department of Agriculture's food stamp program, now known as
Supplemental Nutrition Assistance (SNAP), provides funds to low income
households for the purpose of buying food (Social Security
Administration 2008), often in conjunction with cash assistance
programs. The rules for SNAP eligibility were relaxed in and around the
2008-9 recession as states were eliminating the ``asset test,'' as the
2002 Farm Bill permitted them to do. The asset test elimination
increased marginal tax rates appropriate for labor market analysis
because households could receive SNAP benefits based solely on their
net income, and not based on the value of their assets. For persons in
the few states that retained asset tests, new federal asset eligibility
rules were relaxed by the 2008 Farm Bill (Eslami, Filion and Strayer
2011, 6).
Both the 2008 Farm Bill and the 2009 ARRA increased the amount of
the SNAP benefits paid to eligible households, and thereby increased
marginal tax rates.
The Housing and Economic Recovery Act of 2008 created a first-time
home buyers' tax credit of up to $8000, but it phased out as annual
family income varied beyond the income limitation. This provision is
another example of a ``tax cut'' that nevertheless reduced the reward
to working because it reduced taxes for people below the annual income
limit more than it reduced taxes for people earning above it (people
who work fewer weeks during the year are more likely to earn below the
annual income limit required to obtain the full credit).
The 2009 ARRA created a refundable personal income tax credit for
calendar years 2009 and 2010 called the ``Making Work Pay Tax Credit''
(hereafter, MWPTC). For most people, the MWPTC had no effect on the
reward to working because they or their household would have received
the same amount of the credit regardless of an individual's work
decision. A few persons saw their reward to working increase, a few
others saw it reduced.
In contrast to the many provisions cited above, the employer
portion of the federal payroll tax has been reduced since January 2011
and thereby reduced marginal tax rates appropriate for labor market
analysis since that date. By my calculations, the net effect of all of
these changes through 2012 is still to leave marginal tax rates for the
median household head or spouse at least four percentage points higher
now than they were in 2007 (Mulligan 2012), on top of the forty-plus
percent marginal tax rate already in place. Marginal tax rates have
increased even more for less-skilled people.
Of the several safety net expansions cited above, three of them
from the ARRA have expired and thereby no longer elevate marginal tax
rates as they did when the expansions were active: the COBRA subsidy,
the FAC, and the federal income tax exemption for UI. MWPTC has also
expired. The other marginal-tax-rate-elevating provisions remain in
place today.
The Patient Protection and Affordable Care Act was passed in March
2010. As a result of this legislation, Medicaid enrollment and spending
are expected to increase significantly in 2014, when the program is
made ``available to able-bodied adults with incomes up to 133 percent
of the federal poverty level'' (Sack 2010). By increasing the resources
that part of the population can have when their incomes are low, this
provision of the Act will increase their marginal tax rates. Other
provisions of the Act, such as means-tested health insurance premium
assistance, will also increase marginal tax rates when they go into
effect.
wage garnishment and related private sector activities affecting the
reward to work
The Internal Revenue Service, Department of Agriculture, and state
unemployment agencies are not the only institutions looking at a
person's employment status and federal individual income tax return to
determine how much she should pay or receive. My own employer, the
University of Chicago, and thousands of other universities, colleges,
and schools look at federal income tax returns through their financial
aid programs to determine how much a parent should pay for her child's
education. While we welcome the opportunity to help students from
disadvantaged families, economists have long recognized that financial
aid practices affect incentives for students' parents to work and save
(Dick and Edlin 1997).
Workers sometimes have their wages garnished by creditors and/or
child support agencies. Garnishments may be a necessary part of a well-
functioning credit market and necessary to properly support children,
but they also serve to reduce the reward to working by the person whose
wages would be garnished (Holzer, Offner and Sorensen 2005).
Even if these private sector actions affecting the reward to work
had been constant over time, they still interact with the safety net
expansions cited above because the economic distortions resulting from
marginal tax rates depend on the sum total of all taxes, subsidies and
garnishments that derive from a person's wages. Moreover, it does not
appear that the private sector's influence on marginal tax rates has
been constant over time. A new federal bankruptcy law went into effect
in late 2005. The 2009 ARRA stepped up enforcement of child support
debts (National Conference of State Legislatures 2009).
Perhaps the most dramatic single increase in marginal tax rates has
been associated with the federal guidelines for the settlement of
``under-water'' home mortgages. Mortgage modification initiatives have
been the one of the main ways the federal government has sought to
reduce home mortgage foreclosures, especially when those foreclosures
are motivated by negative home equity (Congressional Oversight Panel
2009, 4). In 2008, the Federal Deposit Insurance Corporation (FDIC),
Federal National Mortgage Association (Fannie), and the Federal Home
Loan Mortgage Corporation (Freddie) all announced debt forgiveness or
``loan modification'' formulas. The Treasury Department continued this
work under President Obama's administration with its ``Home Affordable
Modification Program'' (HAMP) as part of its ``Making Home Affordable
Initiative,'' which replaced the Fannie and Freddie programs.
These programs often recommend a new mortgage payment amount that
is lower than the payment specified in the original mortgage contract.
More important in terms of marginal tax rates, the new payment is set
in proportion to the borrower's income at the time of the modification.
The more the borrower is earning at the time of the modification, the
more she will be required to pay her lender over the next five to seven
years, or more. The marginal tax rate on income earned at the time of
modification can easily exceed one hundred percent and sometimes exceed
two hundred percent as a result of the federal modification guidelines,
not to mention the many other taxes and subsidies that also reduce the
reward to working (Mulligan 2009; Herkenhoff and Ohanian 2011).
the income maximization fallacy
It is sometimes claimed, by non-economists at least, that the
safety net does not prevent anyone from working because everyone
strives to have more income rather than less, and would gladly take any
available job that paid them more than the safety net did. This
``income maximization'' hypothesis is contradicted by the most basic
labor market observations, not to mention decades of labor market
research.
Before the recession began, well over 100 million Americans were
not working. To be sure, some of them could find no reward in the labor
market and would be stuck without gainful employment no matter how lean
the safety net got. But many others were not working by choice. You
probably know skilled stay-at-home mothers or fathers who could readily
find a job but believe that the net pay from that job would not justify
the personal sacrifices required. They are examples of people who
deliberately do not maximize their income. Other examples are people
who turn down an out-of-town promotion in order to avoid relocating
their families, and workers who eschew higher paying but less safe
occupations. Earning income requires sacrifices, and people evaluate
whether the net income earned is enough to justify the sacrifices.
When the food stamp or unemployment programs pay more, the
sacrifices that jobs require do not disappear. The commuting hassle is
still there, the possibility for injury on the job is still there, and
jobs still take time away from family, hobbies, and sleep. But the
reward to working declines, because some of the money earned on the job
is now available even when not working.
Decades of empirical economic research show that the reward to
working, as determined by the safety net and other factors, affects how
many people work and how many hours they work. To name a small fraction
of the many studies: Hoynes and Schanzenbach (2012) show how potential
participants stopped working or reduced their work hours when the food
stamp program was introduced. Studies of unemployment insurance find
that program rules have a statistically significant effect on how many
people are employed, and how long unemployment lasts. Yelowitz' (2000)
research shows how a number of single mothers found employment exactly
when, and where, state-level Medicaid reforms increased their reward
from working. Gruber and Wise (1999) and collaborators show how the
safety net for the elderly results in less employment among elderly
people. Autor and Duggan (2006) and the Congressional Budget Office
(2010) explain how the number of disabled people who switch from work
to employment-tested disability subsidies depends on the amount of the
subsidy relative to the earnings from work. Murphy and Topel (1997)
show how poor wage growth among less-skilled men helps explain their
declining employment rates during the 1970s and 1980s.
Because economists have identified many other cases in which means-
tested and employment-tested subsidies caused people to work less
(Krueger and Meyer 2002), it should be no surprise that the same kinds
of behavioral responses occurred since 2007: a larger safety net
reduced aggregate employment and hours worked.
other misconceptions about marginal tax rates
I previously cited at least a dozen changes in subsidy rules that
served to raise marginal tax rates. Any one of them may appear
insignificant by itself, especially for the purpose of aggregate labor
market analysis. But that doesn't mean that the combination of a dozen
or more potentially small marginal tax rate increases is itself small.
Focusing on just one of any of the safety net expansions is also
misleading as to the magnitude of the overall increase in marginal tax
rates and therefore potentially misleading as to the sources of the
major changes in the labor market since 2007. It is even possible that
attention to one program in isolation of the wider safety net could
motivate backwards public policy responses.
To see this, imagine that UI rules became more generous, and that
added to the number of households who were unemployed and with less
income than they have when working. A number of the added unemployed
people apply for food stamps, which from the food stamp program's point
of view makes it look like ``the economy is getting worse,'' so food
stamp officials recommend enhancing food stamp benefits, which further
increases the marginal tax rate. But, in this example, the added food
stamp applications come from higher marginal tax rates created by UI,
and the right food stamp policy response may be to reduce benefits in
order to stabilize the overall marginal tax rate. My point here is not
that the actual safety net expansions were excessive but rather that
the economics of the safety net can be different when the safety net is
viewed as a whole rather than on a program-by-program basis. The
distinction is more than academic: recent events involved expansions of
the safety net in many dimensions, and all of that occurred on top of a
labyrinth of other safety net programs.
Another misconception is that most of the growth of federal income
security program spending came from the recession, and not from more
generous program rules (Krugman 2011). My estimates suggest the 2007 to
2010 rate of increase of inflation-adjusted per capita government
spending on Unemployment Insurance and SNAP was at least triple of what
it would have been if the real benefit and eligibility rules had
remained what they were in 2007 (Mulligan 2012).
It is sometimes thought that safety net transactions only impact
the people who participate in the programs. To the contrary, the safety
net is funded by taxpayers, lenders, owners of government debt,
beneficiaries of government programs other than the safety net, or some
combination thereof. As a portion of the beneficiaries opt to earn
less, they also opt to spend and save less, as their household budget
constraint requires. They lawfully pay less taxes. Businesses
anticipate having fewer employees and invest less. These behavioral
changes are bad news for employers in general, for people who produce
the consumer and investment goods that beneficiaries would be buying if
they were back at work (and goods the program funders would be buying
if they were not funding the expansions), and for people who live in
places like Michigan whose economies are especially intensive in the
production of such goods (Gali, Gertler and Lopez-Salido 2007).
conclusions
The bottom line is that helping the poor and economically
vulnerable has a price in terms of labor market inefficiency. Since
2007, we have been paying more of that price: American public policies
moved significantly in the direction of less labor market efficiency,
and perhaps more than was necessary for providing assistance to those
who need it.
First of all, 100 percent marginal tax rates are difficult to
justify as a reasonable balance between equity and efficiency, yet even
in 2005 some demographic groups were subject to 100 percent marginal
tax rates (Romich, Simmelink and Holt 2007), and the recent safety net
expansions documented here added to the number of people facing such
rates.
Second, rather than making people feel safer, a number of the
safety net expansions may themselves be a source of uncertainty via the
political process because, among other things, they must be repeatedly
renewed by Congress, and taxpayers are still unsure of exactly who will
pay for them (Baker, Bloom and Davis 2011).
Third, my testimony explains how multiple parties--governments,
lenders, and courts--have claims on the income that appears on a
person's tax return. Multiple tax collectors can lead to excessive
marginal tax rates, as each individual collector might not value the
effect of his extraction on the revenues received by the other
collectors (Olson 2000). For these reasons, it is likely possible to
reduce marginal tax rates and enhance labor market efficiency without
giving up much or any of the benefits that come from safety net
programs.
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wdr.doleta.gov/directives/corr--doc.cfm?DOCN=2715 (accessed
January 18, 2012).
----. ``Unemployment Laws and Insurance.'' Chronology of Federal
Unemployment Compensation Laws. May 3, 2011b. http://
workforcesecurity.doleta.gov/unemploy/pdf/chronfedlaws.pdf
(accessed October 28, 2011).
Yelowitz, Aaron S. ``Evaluating the Effects of Medicaid on Welfare and
Work: Evidence from the Past Decade.'' Employment Policies
Institute, 2000.

Chairman Ryan. Thank you. Mr. Haskins.

STATEMENT OF RON HASKINS

Mr. Haskins. Chairman Ryan, Ranking Member Van Hollen,
members of the committee, thank you for inviting me. It is a
great honor to be here to testify. I think this is the only
place in the country where American people can come and see a
budget that will actually seriously address our long-term
deficit and bring it into acceptable range in the foreseeable
future. I think that is a great achievement; of course, it does
not mean that it has to happen exactly the way Chairman Ryan
lays it out, but I assume that this committee will have a full
argument about how the Democrats would like to change it, and,
in the end, we are going to have to change a lot that we do,
including, I think, with taxes and spending. And, so, have at
it. I am glad to participate in it.
I am going to, was asked by the committee to talk about
three things: spending, phase-out rates, or benefit reduction
rates that Casey just talked about, and block grants. Let me
just say a few words about each.
First, on spending, Robert Rector has laid out the spending
in great detail. I am going to defer mostly to him, but I do
want to make a few points. First, if you look at Figure 1 in my
testimony, here you see that there has been a huge increase in
spending on means-tested programs. These are the 10 biggest
means-tested programs taken from a CRS document, so this is not
the entire safety net; it is the 10 biggest programs, and it
has increased almost every year both in constant dollars, total
spending, and per person in poverty. So we are spending more
and more and more.
To give you an example, if you take 1980, we spent about
$126 billion on these 10 programs. In 2011, we spent $626
billion on these programs, and if you translate that to
spending per person in poverty, it goes from about $4,300 to
$13,000. So no matter how you look at this, we have very
substantially increased spending. By the way, it has also
increased about 31 percent in the three years of the Obama
administration, even though in one year and, perhaps, two years
spending per person in poverty actually fell. That shows you
how much the poverty rate increased.
We have a lot of spending. I was on the staff of the Ways
and Means Committee in 1996, and we thought we had a pretty
good safety net, and we were spending about a third of what we
spend now. So the point of this is that I think there ought to
be savings in here, and it is a matter of looking to how to get
it.
So spending: big increases, no matter how you measure it
some of the money is spent by people above the poverty line,
and the big question is what are the programs that we are
getting the most benefit from, and what are the programs we are
not because we need to change something. Some of the savings
are going to have to come out of low-income programs, I
believe.
Second, phase-out rates: This is a huge problem. Casey's
testimony is the best short treatment of this issue that I have
ever seen. It is really complete. If you read the references,
it will drive you nuts, because it is a very complex area. If
you show the third figure here, this shows a chart.

I am not going to explain the chart, but I just wanted you
to see what you could nicely call a spaghetti chart. It is from
the Congressional Research Service in 1995, and what it does is
trace out what happens to various taxes and benefit programs as
a person's earnings increase. This is exactly the topic that
Casey was addressing. And, as you can see, you never get as
much as you earn. That is the disincentive effect; and at some
point in the distribution you lose almost everything you earn;
and at one point you actually lose more than 100 percent of
what you earn. It does not pay to earn that extra dollar. So,
these are a big issue in our programs, and they stem especially
from the fact that we have so many programs in both the tax
code and in spending programs, and some are going down and up.
They are not coordinated at all. We could create one big
program, but that would create all kinds of headaches,
administrative and otherwise, that I outline in the testimony.
So, this is definitely a problem.
But, I want to point something out. In the welfare reform
legislation of 1996, we basically cut through this problem by
saying you have to work. Work requirements and time limits,
seeing also a time limit on welfare, they trump phase-out
rates. Why? Because you have to work, and that is what the
welfare reform bill did, and people went to work in droves.
And, secondly, we have created, over the years, what I
would call a work support system. It has the earned income tax
credit, childcare, and other benefits, that help low income
working families. Back in the old days if people took a job
they lost all their welfare benefits. So we have reduced those
benefit reduction rates, but they are still very substantial,
as Casey points out. But in a program where you are required to
work and lose your benefits if you do not, then I state the
benefit reduction rate makes much less difference than under
other circumstances.
Finally, I want to say just a few words about block grants.
Block grants have two huge advantages. One is from the state
perspective they give a lot of flexibility; now not every block
grant does that. You could write a block grant so it is full of
all kinds of details and requirements, what governors used to
call strings, in which case it does not give states the
flexibility.
The other advantage is from the federal perspective that it
is a way to control spending. An open-end entitlement like
Medicare, Social Security, Medicaid, and so forth, you are
subject to the whims of the population and what changes people
make in benefits and so forth, and those programs do not come
up for review very often. So a way to control the spending is
to give a block grant with a fixed amount of money and give the
states flexibility. I would make at least one exception to
that, and that is I think we still have to have accountability.
We have to have financial accountability, which I think we
would have almost no matter what you did because of the Single
Audit Act, but we also have to find out if these programs
actually have impacts; so I would require data reporting from
the states to see if these programs are having their intended
effects.
Another thing I want to say about block grants is that when
we passed two big block grants in 1996, both the TANF Program,
which ended about three welfare programs and put them in a
block grant, and a daycare program block grant, which ended
about five programs, and when we did that we consulted
carefully with the states. We had one consultation session that
I remember that had 30 or 40 people from state governments in
there, and we went through the changes that we were making and
the strings that were on the block grants. Since the states
have to implement them, I think it is a very good idea to
consult carefully with the states in the construction of the
block grant.
So, Chairman Ryan, thank you again for asking me to
testify. We simply have to do something about our deficit. Our
children and grandchildren are paying a price, and it is going
to involve some changes in low income programs for sure. Thank
you.
[The prepared statement of Ron Haskins follows:]

Prepared Statement of Ron Haskins, Co-Director of the Center on
Children and Families, Brookings Institution; Senior Consultant, Annie
E. Casey Foundation

Chairman Ryan, Ranking Member Van Hollen, and Members of the
Committee: Thanks for inviting me to testify today. I consider it a
privilege to have the opportunity to talk to members of the House
Budget Committee.
In response to instructions from the Committee, I'm going to talk
about three topics: trends in spending on means-tested programs; work
incentives and phase out rates for means-tested programs; and block
grants.
trends in means-tested spending
The lower line in Figure 1, based on a Brookings analysis of
federal budget data published by the Office of Management and Budget,
shows federal spending since 1962 in the ten biggest means-tested
federal programs. In 2011, we estimate that about 87 percent of the
spending was on entitlement programs.\1\ Federal spending on poor and
low-income Americans has increased enormously. Since 1980, by which
time all but two of the ten programs that spent the most money in 2011
were in place, spending has increased by about $500 billion, from $126
billion to $626 billion after adjusting for inflation.
One cause of the increase in spending is that both the population
and the number of poor people in the U.S. have increased over time.
Thus, even if the federal government spent the same amount of money in
2011 on means-tested programs per person in poverty as we spent in
1962, spending would have increased. The solid line in Figure 1
expresses the increase in federal means-tested spending as spending per
person in poverty. Expressed in this way, over the past five decades,
federal spending on major means-tested programs has increased from
about $516 to a little more than $13,034 per person in poverty. If we
use the figure on spending per person in poverty in 1980, when most of
the major means-tested programs were in place, the increase is from
about $4,300 to $13,000 per person or more than $3 spent in 2011 for
every dollar spent in 1980.\2\ More recently, means-tested spending
increased from about $477 billion to $626 billion in the three years of
the Obama administration, an increase of about 31 percent. However, the
recession that began in December 2007 and the increase in poverty
during and following the recession is an important part of the
explanation for increased means-tested spending during the Obama
administration. Spending per person in poverty increased by about 9
percent as compared with the 31 percent increase in total spending
during the first three years of the Obama administration. A portion of
the rise in means-tested spending, which was authorized as part of the
American Recovery and Reinvestment Act of 2009, began to expire in
2010.

Figure 2 shows how means-tested spending is distributed among eight
broad categories of programs.\3\ The categories include health, cash,
food, housing, education, social services, energy, and employment and
training. The figures are for 2009, the last year for which the
Congressional Research Service has calculated means-tested spending
within these eight categories. Not surprisingly, the figure shows that
health is by far the biggest category of spending at $319 billion in
2009, about 2.5 times as much as cash programs, the second biggest
category. Employment and training at $9 billion is the smallest of the
eight categories. Figure 2 shows that means-tested spending, like total
spending in the federal budget, is driven in large part by the rising
cost of health care. In this respect, figuring out ways to control the
growth of health care spending would reduce the rate of increase in
both total federal spending (and debt) as well as federal means-tested
spending.

A few additional points about these figures are in order. First,
keep in mind that these spending data are for only the ten largest
means-tested programs. The Congressional Research Service estimates
that in 2009, spending on these ten programs represented about 75
percent of total federal means-tested spending.\4\ If that percentage
remained roughly the same for 2011, total federal means-tested spending
in that year was closer to $835 billion than the $626 billion spent on
the ten biggest programs.
Second, state and local governments spend their own money on many
of these programs. The Congressional Research Service has estimated
that state and local governments supplemented federal spending on
means-tested programs by around 27 percent in 2004.\5\ If we assume
that the 27 percent has remained roughly constant, we can estimate that
total federal, state, and local government spending on means-tested
programs was probably around $1,143 billion in 2011.
On a per-person in poverty basis, that figure represents about
$23,731 in spending by federal, state, and local governments. But this
estimate should be considered in light of several caveats. The first is
that not all of the spending on means-tested programs goes directly to
individuals and families. Some of the money is spent on programs, such
as the $14.5 billion spent on Title I of the No Child Left Behind Act
and the $9 billion in spending on employment and training programs,
that provide services rather than direct cash or in-kind benefits.
Second, some of the money in programs that provide cash or in-kind
benefits directly to households goes to individuals and families that
are not below the poverty level. Children in families of up to 200
percent of the poverty level, for example, are eligible for Medicaid or
the Child Health Insurance Program (CHIP) in almost every state.\6\
Similarly, people in households with incomes up to 130 percent of
poverty are eligible for SNAP benefits (Supplemental Nutrition
Assistance Program, previously food stamps). In the case of the Earned
Income Tax Credit (EITC), in 2010 a single mother with two children
could receive benefits if the mother's income was below $40,964, about
225 percent of the poverty level for this family. Professor David Armor
of the School of Public Policy at George Mason University is in the
process of using Census Bureau data and data from other sources to
estimate the percentage of benefits in health, nutrition, housing, and
cash means-tested programs that go to individuals or households with
income above the poverty line. Although Armor's work has not yet been
published, he is finding substantial fractions of the benefits in all
these programs going to individuals and families with income above the
poverty level and some of it even going to those with incomes above 200
percent of the poverty level.
Means-tested spending has increased enormously, no matter how it is
measured. Although there have been some periods of comparatively rapid
growth, such as during the recession of 2007 to 2009, Figure 1 shows
that spending has grown almost every year for the last five decades.
The increase in spending has been the most rapid in health programs,
but cash, nutrition, and several other types of spending have also
increased rapidly. Similarly, spending per person in poverty has also
increased substantially, although not quite as rapidly as total
spending.
work incentives and benefit phase outs
The impact of welfare benefits on work incentive has always been a
contentious issue. Common sense tells us that if able-bodied people get
welfare benefits without doing anything in return, their incentive to
work and achieve self-sufficiency will be diminished. This common sense
view is also supported by a host of research studies. Reviews of the
empirical evidence on this issue have consistently shown that welfare
reduces work effort.\7\ To reduce such work disincentive, most means-
tested programs have phase out rates because program designers want to
maintain a financial incentive for benefit recipients to work. The hope
is that by reducing welfare benefits by less than a dollar for each
dollar of earnings, recipients will have at least some incentive to
work or work more. The ideal outcome would be to design benefits so
that an extra dollar of earnings would always produce a net income
increase that is as close to the amount of earnings as possible. The
lower the phase out rate, the greater the increase in net income and
therefore work incentive. However, lower phase out rates make means-
tested programs more expensive. There is a clear tradeoff between
program cost, benefit phase out rates, and work incentive.
The difficult problems posed by phase out rates and work
disincentives is greatly complicated by the fact that all families with
earnings are subject to taxation of their earnings and some families
receive more than one means-tested benefit. Consider some of the
possibilities: workers are subject to the roughly 15.3 percent FICA
tax\8\ from their first dollar of earnings; they could face an EITC
phase out of up to 21 percent; families with housing benefits face a
marginal tax rate of 30 percent on their earnings; and so forth.
Considering all of the effects on net income and work incentives
simultaneously strains the ability to understand just how much net
income would change at a particular point in a person's earnings curve.
Figure 3 is taken from a 1995 report from the Congressional Research
Service. Although the specific phase out rates portrayed in the figure
are somewhat out of date, a mere glance at the figure conveys the
immense complexity of trying to figure out the net impact of so many
different phase out and phase in rates operating simultaneously. The
Congressional Budget Office is now completing a similar report on
marginal tax rates in the tax and transfer system which goes into great
detail in showing the actual marginal tax rates faced by individuals
and families with various characteristics. Some of the rates are very
high and under some circumstances an extra dollar of earnings can
result in net income increases of 50 cents or less.

Problems maintaining work incentives are an inevitable consequence
of means-tested programs. It would be possible to reduce, but not
eliminate, the work disincentive effect of the current system if all
benefits could be combined and then phased out at a single phase out
rate. However, there are many problems with creating such a system. For
one thing, the current benefits system is a combination of cash (the
EITC, the Child Tax Credit, TANF, and Supplemental Security Income) and
in-kind benefits (primarily SNAP and other nutrition programs, housing,
Medicaid and SCHIP, and home heating). Perhaps the in-kind benefits
could be paid as cash, but that would cause problems with various
interest groups such as the National Grocers Association that would
fight against cashing out SNAP benefits. Democrats might oppose
converting benefits to cash because providing a lump sum cash payment
would make the high level of benefits paid to some families more
transparent than under a system when some of the benefits are paid in
kind, thereby raising objections from Republicans who would likely
argue that the system is too generous and should be cut. Moreover, the
administrative complexity of such a system might make it very difficult
to operate. Yet another problem is that an all-cash system could
greatly increase the number of means-tested benefits families receive
(although they would be combined into one benefit). As surprising as it
might seem, under the current system few families actually receive all
the means-tested benefits for which they qualify. A recent study
sponsored by the Department of Agriculture showed that only 72 percent
of people qualified for SNAP benefits actually receive them and that in
some states the rate is below 60 percent.\9\ Both the Current
Population Survey and the Survey of Income and Program Participation
show that random samples of Americans receive relatively few of the
benefits for which they are qualified.\10\
Given the difficulty of phasing out means-tested benefits and
maintaining work incentives, an approach to this issue taken in the
TANF program established by the 1996 welfare reform legislation is
important to consider. Regardless of benefit phase out rates, a matter
that was left up to states by the 1996 law, the federal statute
requires state programs to have two features that directly address work
incentive. The first is that all state programs are required to have
strong work requirements. Specifically, at any given moment 50 percent
of TANF recipients must be involved in work activities that are tightly
defined in the legislation. States that do not comply are fined. As
part of the work requirement, states are required to impose financial
sanctions on recipients who do not comply with the work requirement.
The combination of work requirements imposed on both states and
individuals backed up by financial sanctions serve to motivate states
to adopt demanding programs and recipients to prepare for and look for
work, usually in the private sector. In addition, the TANF legislation
imposes a five-year limit on benefit receipt, sending a strong signal
that benefits are not permanent, as they had been under the Aid to
Families with Dependent Children program that TANF replaced. With
strong work requirements and time limits, the work incentive created by
benefit phase out rates is much less important. Soon enough,
individuals must work regardless of the financial work incentives.
Despite these strong pro-work features of the TANF program, it
would be a serious mistake to think that American social policy depends
exclusively on these essentially negative inducements to work.
Beginning roughly in the mid-1980s, Congress created or reformed a host
of programs that supplemented the income of poor and low-income working
families, especially single mothers. These reforms included:
Expansion of Medicaid and CHIP benefits so that all
children in families under 200 percent of poverty are eligible for
coverage in most states
Several expansions of funding for child care and reform of
child care programs to give states more flexibility in use of child
care subsidies to help working families
Several reforms of the SNAP program making it easier for
working families to receive food subsidies
Numerous expansions of the EITC; the maximum EITC benefit
in most states is greater than the average value of their TANF benefit
Creation of the refundable child tax credit that, like the
EITC, provides a cash benefit to low-income families with earnings.
Taken together, these work support benefits constitute the nation's
most successful method of attacking poverty among families with
children.\11\ The combination of increased work by poor mothers
following welfare reform and benefits from the work support system
resulted in substantial declines in poverty among children in female-
headed families. Even today, after two recessions, the poverty rate
among children living in female-headed families is lower than it was
before welfare reform and the work rate among single mothers is still
higher than before welfare reform.\12\
The TANF experience demonstrates that using phase out rates to
increase work incentive can be trumped by strong work requirements and
a comprehensive work support system.
block grants
Block grants provide states with a sum of money to accomplish broad
policy purposes which are specified in the authorizing language. Block
grants can be constructed so that they achieve a major goal of state
policy and a major goal of federal policy.\13\ States are always
pleased to accept federal dollars, of course, but they also want
flexibility with how the dollars are to be spent. Thus, states are
doubly pleased if the block grant specifies the broad purposes of the
federal grant and leaves it to state government to decide how best to
achieve those purposes. From the federal perspective a major potential
advantage of block grants is that spending can be controlled. In the
case of open-ended entitlement programs such as Medicaid and SNAP,
everyone who meets program qualifications has a legal right to receive
the benefit. By contrast, in programs with capped spending such as
housing programs and the major child care programs, local authorities
or states receive a fixed amount of money and individuals are not
entitled to receive the benefits. Most block grants, including the TANF
program, the Child Care and Development Fund, and the Social Service
Block Grant, have fixed funding. In all three of these cases, federal
spending has increased slowly if at all in recent years and then only
when Congress explicitly authorized and appropriated the additional
funds. Given the enormous and growing deficit that afflicts the federal
government, the possibility of spending control in major areas of
social policy through the use of block grants should not go unnoticed.
The history of federal block grants shows that it is rare for the
federal government to provide states with funds to achieve broad social
goals without some strings attached. In the case of TANF, for example,
the block grant came accompanied by substantial requirements for data
reporting, work requirements that states had to follow, and many other
strings. These requirements were negotiated with states in marathon
sessions that resulted in requirements that states felt they could live
with. If Congress is to create additional block grants, it would be
advisable to negotiate the terms of the block grant with states. In the
case of TANF, Congress worked with the National Governors Association,
the National Conference of State Legislators, and the American Public
Human Services Association to find mutually acceptable provisions on
work requirements, data reporting, and other details.
The general issue of block grant requirements is especially
important because of the need for accountability in spending federal
funds. Under the Single Audit Act, all federal grants of over $100,000
given to states must be audited under widely accepted audit standards.
But accountability for spending goes far beyond ensuring that funds are
spent on activities for which they are intended. Rather, recent years
have seen increased emphasis on showing whether federal funds are spent
on state programs that actually achieve their purposes. Especially in
education programs and welfare programs designed to encourage work,
high quality program evaluations, usually involving random assignment
designs, are the order of the day. Both the Bush and Obama
administrations placed great emphasis on the importance of evidence-
based policy.\14\ Evidence-based policy is especially important today
because the nation's major social intervention programs in preschool,
the public schools, delinquency, employment and training, and many
other areas usually do not have significant impacts on the social
problems they were designed to address.\15\
To continue this growing federal practice of insisting on program
accountability, block grants should include, in addition to financial
accountability, two types of mandatory reporting. First, all programs
receiving block grant funds should be required to report a standard set
of data on program participants such as number and characteristics of
people served, type of treatment, length of treatment, and, where
possible, evidence of program success. Second, the secretary of the
federal agency administering the program should be provided with funds
to conduct high-quality evaluations of selected programs to determine
if particular approaches or program models, as well as the specific
characteristics of program models, are effective in producing the
desired program outcomes.
endnotes
\1\ Housing, Title I grants to local education agencies, and half
of Pell Grants were counted as non-entitlement spending. Thus, $545.0
of total spending of $626.2 or 87 percent was entitlement spending in
2011.
\2\ The number of people in poverty in 2011 will not be published
by the Census Bureau until next fall. Based on a model designed by
Richard Bavier, a former senior official at OMB, that has successfully
predicted the poverty level for the past several years, poverty
increased by .6 percentage points in 2011, bringing the poverty rate to
15.7 percent in that year. According to the American Community Survey,
the population of the United States in 2011 was 306 million. Thus,
around 48,042,000 people were poor in 2011. This is the figure used to
compute means-tested spending per person in poverty for 2011.
\3\ Karen Spar, ``Federal Benefits and Services for People with Low
Income: Programs, Policy, and Spending, FY2008-FY2009'' (R41625),
Washington, DC: Congressional Research Service, January 2011, p. 9.
\4\ Karen Spar, ``Federal Benefits and Services for People with Low
Income: Programs, Policy, and Spending, FY2008-FY2009'' (R41625),
Washington, DC: Congressional Research Service, January 2011, p. 12.
\5\ Domestic Social Policy Division, ``Cash and noncash Benefits
for Persons with Limited Income: Eligibility Rules, Recipient and
Expenditure Data, FY2002-FY2004'' (RL33340), Washington, DC:
Congressional Research Service, March 2006.
\6\ According to the Kaiser Family Foundation, only North Dakota,
Oklahoma, Arkansas, and Idaho set the child eligibility level for
Medicaid and CHIP below 200 percent of poverty; half the states are at
250 percent or above. See http://www.kff.org/medicaid/upload/7993-
02.pdf
\7\ Robert Moffitt, ``Incentive Effects of the U.S. Welfare System:
A Review,'' Journal of Economic Literature, 1992, 30(1): 1-61; Sheldon
Danziger, Robert Haveman, and Roert Plotnick, ``How Income Transfers
Affect Work, Savings, and the Income Distribution: A Critical Review,''
Journal of Economic Literature, 1981, 97(3): 975-1028.
\8\ The FICA tax for Social Security and Medicare is split between
employer and employee payments totaling 15.3 percent of earnings (up to
a limit of about $106,800 in the case of the Social Security Tax).
However, economists assume that if the portion of the tax paid by
employers were not required by federal law, employers would increase
wages by an amount equal to the tax.
\9\ Karen E. Cunnyngham, ``Teaching Those in Need: State
Supplemental Nutrition Assistance Program Participation Rates in
2009,'' Washington, DC: U.S. Department of Agriculture, December 2011.
\10\ Janet Currie, ``The Takeup Rate of Social Benefits,'' Los
Angeles, CA: UCLA, 2004.
\11\ A study in the 2008 edition of the Ways and Means Committee's
Green Book (see Appendix E, Table E-31) shows that, primarily because
of increased work rates, the poverty rate of families headed by never-
married mothers before any government taxes or transfers, fell from
48.3 percent to 39.6 percent between 1989 and 2006. Thus, due to work
effort by these mothers, the poverty rate before taxes and transfers
had fallen by nearly 20 percent. When support for these working
families from the work support system were added to income in 2006, the
poverty rate fell from 39.6 percent to 26.1 percent or by an additional
35 percent. The combination of increased work rates and an improved
work support system has had a major impact on poverty among families
headed by never-married mothers.
\12\ Poverty rates for families headed by single mothers decreased
between 1996 and the start of the Great Recession in late 2007, from
35.8 percent to 30.7 percent. Even with increased hardship and
unemployment during the recession, the 2010 rate of 34.2 percent is
still below the 1996 rate. According to Brookings tabulations of data
from the Current Population Survey, the average employment-to-
population ratio for never-married mothers in the five years before
welfare reform in 1996 was 44.6 percent. The ratio increased every year
through 2000, increasing to 65.6 percent in that year, an increase of
47 percent compared with the five years before welfare reform. Even in
2010, after two recessions, the rate was 58.7 percent, still over 30
percent above the pre-welfare reform level.
\13\ Pietro S. Nivola, Jennifer L. Noyes, and Isabel V. Sawhill,
``Waive of the Future? Federalism and the Next Phase of Welfare
Reform,'' Brookings Institution, Welfare Reform and Beyond Policy Brief
#29, March 2004.
\14\ Ron Haskins and Jon Baron, ``Building the Connection between
Policy and Evidence,'' London: NESTA, September 2011.
\15\ Isabel V. Sawhill and Jon Baron, ``Federal Programs for Youth:
More of the Same Won't Work, Youth Today, May 2010, p. 21.

Chairman Ryan. Thank you, Mr. Haskins. Mr. Rector.

STATEMENT OF ROBERT RECTOR

Mr. Rector. Thank you very much for the opportunity to
testify here today. If we were to look at the overall safety
net, I think it basically has three components, which are for
the elderly, Social Security and Medicare, for the unemployed,
unemployment insurance, and worker's compensation; and, for the
poor, what I call the means-tested welfare state.
Now, the means-tested welfare state is largely unknown.
Everybody understands we spend a lot of money on Social
Security and Medicare. Virtually no one understands that for
every dollar we spend on Social Security and Medicare, we are
spending 75 cents on assistance to the poor. And, this year
alone that spending came to $927 billion, close to a trillion
dollars a year, on expenditures that are largely unrecognized.
Most of the debate about this system is irrational because
there are 79 different programs, and when we talk about welfare
we basically talk about one program at a time while ignoring
the other 78. It is like having a jigsaw puzzle with 78 pieces,
but when you write a press story about it, you only write a
press story about one piece at a time. That always makes the
welfare state seem very small, very meager, and it always seems
like we are not spending enough, basically, because we are
never actually discussing how much is going out the door on
these programs.
Now, if you take this $927 billion, these programs are
unique in the sense that they have required state spending in
them, so you cannot just look at federal spending. You are
requiring states to spend money on these programs, particularly
on Medicaid, and that goes out the door, and it assists poor
people, and that is about a quarter of all this spending. You
have to add that in order to get a good sense of the resources.
When you look at these 79 programs what you find is about half
the spending goes to medical care, primarily through the
Medicaid program, about 40 percent of it, which is about $380
billion a year, goes to cash, food, housing, and housing
programs, a lot of different programs there. And about 10
percent of this spending goes to what I call our enabling
programs, programs that are intended to make the poor more
self-sufficient, like child development or targeted job
training or targeted education funds into poor communities from
the federal government.
About half of these benefits go to families with children,
predominantly single parent families with children. About a
quarter of them go to the disabled. About 15 percent go to the
elderly; so it is a diverse population.
And Ron has gone into the spending. Adjusting for inflation
back when the war on poverty started in 1965, we were spending
about, I think, $60 billion a year. This spending, adjusting
for inflation, has increased sixteen fold since that time. All
together, we have spent $19.8 trillion in means-tested
assistance since the beginning of the war on poverty. People
would say that is mainly in medical care. This breaks it out.
The purple is the medical care, but, you can see even after
adjusting for inflation, all the other types of spending went
up very dramatically as well.
For example, means-tested cash, food, and housing, over the
last 20 years, actually grew faster than Social Security
spending; most people have no idea of this. In fact, a lot of
people are surprised when they see this, and they say, ``I
thought we ended this back in 1996.'' And I say, ``Yeah, you
ended it short of $927 billion, okay?'' Enormous growth in
spending with really no stopping point.
This chart shows this spending as a percentage of GDP.

What you can see is back at the beginning of the war on
poverty the spending was about one percent of GDP, and it
increases about one percentage point of GDP each decade. By the
1980s you were up to around 3.5 percent of GDP. During Bush's
presidency, you were at about 5 percent of GDP. We have now
ratcheted up to 6 percent of GDP. And people might say that is
reasonable. We are in a recession. We ought to spend more money
on the poor during a recession. But when you look at Obama's
out year projections in his fiscal year 2013 budget this
spending never comes back down. It grows dramatically over the
next ten years and will remain always at or above 6 percent of
GDP for the foreseeable future.
One of the rules here is the ratchet principle. When this
spending goes up, there is never any press comment on it, okay?
It is invisible, absolutely invisible. It just goes up, and you
never will see a press story about this at all. Then after it
goes up 1 percentage of GDP, if you were to try to pull it back
down to, say, 5 percent of GDP, then you are savaging the
safety net and so forth and so on; so all the increases are
always invisible. They are off-camera. They are never talked
about. If you try to take a dime out of this after it has been
ratcheted up then the sky is falling. The end of the world is
right here upon us.
Now, one question is, well, how much is this spending? How
much is $927 billion a year? Well, the answer is if you just
took that money and divided by the number of poor people in the
U.S., it comes to around $19,000 per poor person per year. My
figures are a little different than Dr. Haskins because I have
the state contributions in this as well; and that is not a very
accurate figure, because a lot of this spending goes to non
poor people as well.
A more accurate way of assessing these resources is to say
if you took all of this spending and spread it out equally
within the lowest income one-third of the population, about 100
million people, which is probably the pool of overall
recipients, how much does that amount to? It comes to around
$9,000 per person per year, or around $36,000 for a family of
four.
One way to understand this, how much is being spent, is if
you took that $927 billion and you converted it all into cash
and you handed it out, you would have enough money there to
raise the income of every family in the United States to 200
percent of the poverty level. That's $44,000 a year. You could
take every single low income family and raise their minimum of
$44,000 a year and still have about $200 billion in spare
change on the side. That is how much is being spent here,
largely invisibly, largely without any acknowledgement, and
when you try to talk about this, which is very important, you
will immediately get caught in the briars nest of trying to
talk about one program at a time. Well, let's talk about WIC.
Let us talk about Section 8 housing.
The fact of the matter is that there is an enormous
overlapping system of benefits with far more money going out
the door than anyone knows. I would say before we permanently
ratchet this spending up from 5 percent to 6 percent of GDP,
which is what Obama is asking for, we ought to figure out where
that money goes, because I do not know where this money goes
nor does anyone else in this city. It goes out the door, but
when you go to try to count it in the census and so forth, most
of it disappears.
You guys are stuck with the game, and the game I call it
that has been going on in this city for 40 years is you spend
it and we in the welfare industry will not count it. All of our
surveys and so forth, we will hide. We will not count this
money as received by the poor. In fact, out of this $900
billion in spending, only about 4 percent of this is routinely
counted as income received by poor people. And then we say my
goodness, poor people do not have any economic resources. You
need to spend more money. It is a permanent con game on the
American taxpayer. You have to have an honest accounting of how
much money is going out the door. This is important spending.
It does go, it does help people, but you have to have a real
accurate understanding of how much you, in fact, are asking the
taxpayers to pay in support.
Now, people would say under the Obama administration, this
spending has been ratcheted up by 30 percent in three years. It
is the largest increase ever in the U.S. welfare system, a
huge, huge increase. And most people, when I talk to the press
or to just ordinary people will say that sort of makes sense,
okay? We are in the middle of a very severe recession. We need
more spending. But the anticipation is that that spending will
go back down after the recession ends. No way. You have not
been in Washington very long if you think that is what is going
to happen, okay?
If you looked at that earlier chart and the one that Dr.
Haskins had, this spending never goes down, okay?

Maybe three years out of 50 years does this spending ever
go down. And if you look at Obama's 2013 budget, what he shows
is that this spending pauses for one year, and then it starts
to grow and grow and grow and grow very rapidly. It never goes
back down. It will always remain above 6 percent of GDP, and by
2021, you are going to be spending $1.5 trillion on means-
tested welfare. And, again, do not ever expect to see any
mainstream news story on this as this spending goes up year
after year after year. The stories you will get is about some
marginal cut in one of the programs or something like that
because, basically, the left does not want to acknowledge how
much we currently redistribute income. Not to say that these
programs should be just slashed or abolished or that they do
not help people, they do, but we have to be honest about the
magnitude of help that we are giving and try to design these
programs more accurately.
One other thing that is very important, I think, in the
Obama budget, is to look at the relative priorities given to
the means-tested welfare system and national defense. This is
out years. The blue line in the Obama budget, that is national
defense spending. The pink line is means-tested welfare.

And what you find historically is in the entire post-war
period, defense spending always greatly outstripped welfare
spending, and that was true up until 1993, which was the first
year that welfare actually jumped above defense spending. But
from 1993 through the present time, really we have spent about
$1.33 in welfare for every dollar that we were spending on
national defense, not exactly a story you see in the press,
either, but the Obama budget breaks that entirely. What Obama
is saying is he is going to freeze national defense spending in
nominal terms for a decade while he is going to increase means-
tested welfare by about 70 percent during that same period.
So while the current ratio of means-tested welfare to
defense is about $1.30 to a dollar, Obama by 2021 is going to
take that up to around $2.40 of welfare for every dollar spent
on national defense, a huge transformation in national
priorities and national programming.
I think that it is clear that the deficits that are in the
Obama budget are unsustainable and to a significant degree,
although not entirely, those deficits are the result of these
very rapid planned increases in the welfare state that are
buried in that budget. I think that what we need to do, among
other things, is begin to get this welfare spending under
control, not by severely cutting it, but by rolling the
spending back to the levels that existed before the beginning
of the current recession, adjusting for inflation, and then
allow that spending to increase at the rate of inflation for
the next 10 years.
We were already at record levels of spending in 2007 before
the recession began. If this spending is a temporary response
to the recession instead of a permanent increase in the welfare
state, we ought to be able to go back to those levels. If we
did that the savings for the federal government would be $2.7
trillion over the next decade. That is how large this
expenditure system is.
Again, I am not calling for massive cuts. I am calling for
going back to the sort of system that we had before the planned
expansions that Obama is seeking to put into the welfare
system. Thank you.
[The prepared statement of Robert Rector follows:]

Prepared Statement of Robert Rector, Senior Research Fellow,
Family & Welfare Studies, the Heritage Foundation

My name is Robert Rector. I am a Senior Research Fellow at The
Heritage Foundation. The views I express in this testimony are my own,
and should not be construed as representing any official position of
The Heritage Foundation.
summary
The governmental safety net has three basic components: 1) Social
Security and Medicare for the elderly; 2) unemployment insurance and
worker's compensation; and 3) anti-poverty or means-tested welfare
programs. My testimony will deal with the means-tested welfare system
which could also be called comprehensive assistance to the poor.
The means-tested welfare system consists of 79 federal programs
providing cash, food, housing, medical care, social services, training,
and targeted education aid to poor and low income Americans. Means-
tested welfare programs differ from general government programs in two
ways. First, they provide aid exclusively to persons (or communities)
with low incomes; second, individuals do not need to earn eligibility
for benefits through prior fiscal contributions. Means-tested welfare
therefore does not include Social Security, Medicare, Unemployment
Insurance, or worker's compensation.
Although the public is aware that Social Security and Medicare are
large expensive programs, few are aware that for every $1.00 spent on
these two program, government spends 76 cents on assistance to the poor
or means-tested welfare.
In FY2011, federal spending on means-tested welfare came to $717
billion. State contributions into federal programs added another $201
billion, and independent state programs contributed around $9 billion.
Total spending from all sources reached $927 billion.
About half of means-tested spending is for medical care. Roughly 40
percent goes to cash, food, and housing aid. The remaining 10 to 12
percent goes what might be called ``enabling'' programs, programs that
are intended to help poor individuals become more self-sufficient.
These programs include child development, job training, targeted
federal education aid and a few other minor functions.
The total of $927 billion per year in means-tested aid is an
enormous sum of money. One way to think about this figure is that $927
billion amounts to $19,082 for each American defined as ``poor'' by the
Census. However, since some means-tested assistance goes to individuals
who are low income but not poor, a more meaningful figure is that total
means-tested aid equals $9,040 for each lower income American (i.e.,
persons in the lowest income third of the population).
If converted to cash, means-tested welfare spending is more than
sufficient to bring the income of every lower income American to 200
percent of the federal poverty level, roughly $44,000 per year for a
family of four. (This calculation combines potential welfare aid with
non-welfare income currently received by the poor.)
In the two decades before the current recession, means-tested
welfare was the fastest growing component of government spending. It
grew more rapidly that Social Security and Medicare and its rate of
increase dwarfed that of public education and national defense. While
means-tested medical benefits have been the fastest growing part of the
welfare system, most other forms of welfare aid have grown rapidly as
well.
For example, spending on means-tested cash, food and housing has
grown more rapidly than Social Security over the last two decades.
Adjusting for inflation and population growth, the U.S. now spends 50%
more on means-tested cash, food and housing than it did when Bill
Clinton entered office on a promise to ``end welfare as we know it''.
It comes as a surprise to most to learn that the core welfare state has
expanded dramatically since reform allegedly ``ended welfare'' in the
mid 1990's.
Total means-tested spending on cash, food and housing programs is
now twice what would be needed to lift all Americans out of poverty.
Why then does the government report that over 40 million persons live
in poverty each year? The answer is that, in counting the number of
poor Americans, Census ignores almost the entire welfare state: Census
counts only a minute fraction of means-tested cash, food and housing
aid as income for purposes of determining whether a family is poor.
Despite the fact that welfare spending was already at record levels
when he took office, President Obama has increased federal means-tested
welfare spending by more than a third. Some might this is a reasonable,
temporary response to the recession, but Obama seeks a permanent, not a
temporary, increase in the size of the welfare state.
According to the President's FY2013 budget plans, means-tested
welfare will not decline as the recession ends but will continue to
grow rapidly for the next decade. According to Obama's budget, total
annual means-tested spending will be permanently increased from five
percent of GDP to six percent of GDP. Combined annual federal and state
spending will reach $1.56 trillion in 2022. Overall, President Obama
plans to spend $12.7 trillion on means-tested welfare over the next
decade.
Obama's budget plans call for ruinous and unsustainable budget
deficits. These deficits are, in part, the result of dramatic,
permanent increases in means-tested welfare. An important step in
reducing future unsustainable federal deficits would be to return
welfare spending to pre-recession levels.
To accomplish this, Congress should establish a cap on future
welfare spending. When the current recession ends, or by 2013 at the
latest, total federal means-tested welfare spending should be returned
to pre-recession levels, adjusted for inflation. In subsequent years,
aggregate federal welfare spending should grow no faster than
inflation. This type of spending cap would save the taxpayers $2.7
trillion dollars during its first decade. An aggregate welfare spending
cap of this sort is contained in HR 1167, The Welfare Reform Act of
2011 introduced by Congressman Jim Jordan (R-OH).
the hidden welfare state
Most discussion of government spending and deficits assumes that
the federal budget consists of four principal parts: entitlements
(meaning Social Security and Medicare); defense; non-defense
discretionary spending; and interest. This perspective is misleading
because it ignores the hidden welfare state: a massive complex of 79
federal means-tested anti-poverty programs.
The public is almost totally unaware of the size and scope of
government spending on the poor. This is because Congress and the
mainstream media always discuss welfare in a fragmented, piecemeal
basis. Each of the 79 programs is debated in isolation as if it were
the only program affecting the poor. This piecemeal approach to welfare
spending perpetuates the myth that spending on the poor is meager and
grows little, if at all.
The piecemeal, fragmented character of the hidden welfare system
makes rational policy-making and discussion impossible. Sound policies
to aid the poor must be developed holistically, with decision makers
and the public fully aware of the magnitude of overall spending.
understanding means-tested welfare or aid to the poor
Means-tested welfare spending or aid to the poor consists of
government programs that provide assistance deliberately and
exclusively to poor and lower-income people.\1\ By contrast, non-
welfare programs provide benefits and services for the general
population. For example, food stamps, public housing, Medicaid, and
Temporary Assistance to Needy Families are means-tested aid programs
that provide benefits only to poor and lower-income persons. On the
other hand, Social Security, Medicare, police protection, and public
education are not means-tested; they provide services and benefits to
persons at all income levels.
---------------------------------------------------------------------------
\1\ The only exception to this rule is a small number of means-
tested programs that provide aid to low income communities rather than
individuals.
---------------------------------------------------------------------------
Means-tested programs are anti-poverty programs: they are intended
to increase the living standards or improve the capacity for self-
support among the poor and near-poor. Unlike many other government
programs, means-tested welfare programs do not require a prior fiscal
contribution to establish eligibility.
The size of the federal means-tested aid system is particularly
large because it is funded not only with federal revenue but also with
state funds contributed to federal programs. Ignoring these matching
state payments into the federal welfare system results in a serious
underestimation of spending on behalf of the poor. Prior to the current
recession, one dollar in seven in total federal, state, and local
government spending went to means-tested welfare.
79 assistance programs
The 79 means-tested programs operated by the federal government
provide a wide variety of benefits. The federal welfare state includes:

12 programs providing food aid;
12 programs funding social services;
12 educational assistance programs;
11 housing assistance programs;
10 programs providing cash assistance;
9 vocational training programs;
7 medical assistance programs;
3 energy and utility assistance programs; and,
3 child care and child development programs.

Several programs provide more than one type of benefit. In addition
there are a few independent state programs providing cash and medical
aid. A full list of these programs is provided at the end of this
testimony. (Note: Social Security, Medicare, veterans programs,
unemployment insurance and workmen's compensation are not considered
means-tested aid and are not included in this list, nor in the spending
figures in this testimony.)
In FY2011, federal spending on means-tested welfare, plus state
contributions to federal programs, reached $927 billion per year. The
federal share came to $717 billion or 77 percent; state spending was
$210 billion or 23 percent. (See chart 1.)
In recent years, 49 percent of total means-tested spending went to
medical care for poor and lower-income persons, and 39 percent was
spent on cash, food, and housing aid. The remaining 12 percent was
spent on social services, training, child development, targeted federal
education aid, and community development for lower-income persons and
communities. (See chart 2.)
means-tested spending by recipient category
Roughly half of means-tested spending goes to families with
children, most of which are headed by single parents. Some 28 percent
of spending goes to disabled persons. Another 14 percent goes to
elderly persons. A final eight percent of spending goes able-bodied,
non-elderly adults without children. (See chart 3.)
growth of the welfare state
Welfare spending has grown enormously since President Lyndon B.
Johnson launched the War on Poverty. After adjusting for inflation,
welfare spending was 16 times greater in FY 2011 than it was when the
War on Poverty started in 1964. (See charts 4 and 5.)
Means-tested welfare spending was 1.2 percent of the gross domestic
product (GDP) when President Johnson began the War on Poverty. By the
1980's spending had risen to around 3.5 percent of GDP. During the
first decade of the twenty first century, spending averaged slightly
less than 5 percent of GDP. By 2011, spending had reached 6.1 percent
of GDP. However, under Obama's budget plans spending will not decline
as the current recession ends but will remain at 6 percent of GDP for
the next decade. (See chart 6.)
welfare spending: the fastest growing component of government spending
For the past two decades, means-tested welfare or aid to the poor
has been the fastest growing component of government spending,
outstripping the combined growth of Medicare and Social Security
spending, as well as the growth in education and defense spending. Over
the 20-year period between FY 1989 and FY 2008, total means-tested
spending increased by 292 percent over the period. The increase in
combined Social Security and Medicare spending was 213 percent over the
same period.
Means-tested spending on cash, food, and housing increased more
rapidly (196 percent) than Social Security (174 percent). The growth in
means-tested medical spending (448 percent) exceeded the growth in
Medicare (376 percent).\2\ The growth in means-tested aid greatly
exceeded the growth in government spending on education (143 percent)
and defense (126 percent).
---------------------------------------------------------------------------
\2\ Some have attributed the rapid growth in means-tested medical
spending to inflation in medical prices. Medical prices only doubled
during the period. The rest of the increase was due to expansions in
the number of recipients and services provided.
---------------------------------------------------------------------------
total cost of the war on poverty
Since the beginning of the War on Poverty, government has spent
$19.8 trillion (in inflation-adjusted 2011 dollars) on means-tested
welfare. In comparison, the cost of all military wars in U.S. history
from the Revolutionary War through the current war in Afghanistan has
been $6.98 trillion (in inflation-adjusted 2011 dollars).\3\ The War on
Poverty has cost three times as much as all other wars combined.
---------------------------------------------------------------------------
\3\ Stephen Daggett, ``Costs of Major U.S. Wars,'' Congressional
Research Service, June 29, 2010. The CRS report counts the cost of wars
through FY2010; the additional cost of the wars in Iraq and Afghanistan
in FY2011, at $159 billion, was added to the CRS figures.
---------------------------------------------------------------------------
means-tested welfare spending on lower-income persons
With 79 overlapping means-tested programs serving different low-
income populations, it is difficult to determine the average level of
benefits received by low-income persons. One way of estimating average
welfare benefits per recipient would be to divide total means-tested
spending by the total number of poor persons in the United States.
According to the Census Bureau, there were 46.2 million poor persons in
the U.S. in 2010. Total means-tested spending in 2010 was $881.2
billion. If this sum is divided by million poor persons (including
residents in nursing homes), the result is $19,082 in means-tested
spending for each poor American.
However, this simple calculation can be misleading because many
persons with incomes above the official poverty levels also receive
means-tested aid. Although programs vary, most means-tested aid is
targeted to persons in the lowest income third of the population. Thus,
a more a accurate sense of average total welfare spending per recipient
can be obtained, if total welfare aid is divided among all persons
within this larger group. Dividing total means-tested aid by all
persons in the bottom third of the income distribution results in
average welfare spending of $9,040 per person in 2011, or around
$36,000 for a family of four. (See chart 7)
This is not precise estimate of benefits received. Rather, the
calculation is intended to gauge spending relative to the potential
population of beneficiaries. Benefits are not uniform: disabled and
elderly persons receive substantially higher assistance than do other
recipients.\4\ Despite these caveats, a simple fact remains: the ratio
of welfare outlays relative to the population served is very high.
---------------------------------------------------------------------------
\4\ The per capita cost of medical care for elderly persons in
nursing homes is particularly high; however, such spending is less than
a tenth of overall means-tested spending, its exclusion would not
greatly alter the figures in the text.
---------------------------------------------------------------------------
means-tested spending on families with children
Another way of examining spending levels is to look at welfare
spending on families with children. In FY 2011, total means-tested
spending was $927 billion. About half of this spending ($462 billion)
will go to families with children. (Around one-third of this spending
went to medical care.)
If the $462 billion in welfare spending were divided equally among
the lowest income one third of families with children (around 14
million families), the result would be around $33,000 per low income
family with children.
In addition, most of these lower-income families have earned
income. Average earnings within the whole group are typically about
$16,000 per year per family, though in the midst of a recession,
earnings will be lower. If average welfare aid and average earnings are
combined, the total resources is likely to come to between $40,000 and
$46,000 for each lower-income family with children in the U.S. It is
very difficult to reconcile this level of resources with conventional
claims that millions of lower-income families are chronically hungry,
malnourished, or ill-housed.
welfare spending and the poverty gap
The Census Bureau measures poverty in the U.S. by comparing a
family's annual cash income with the federal poverty income threshold
for a similar size family. The poverty income threshold for a family of
four was roughly $22,000 in 2010. If the family's cash income is less
than the poverty income threshold then the family is deemed poor.
The poverty gap is a measure of the total amount of extra income
needed to raise the incomes of all poor Americans up to the federal
poverty income threshold. In other words, the poverty gap measures the
extra economic resources needed to eliminate official poverty in the
U.S. The pre-welfare poverty gap is the poverty gap if the current
means-tested aid which Census reports as received by poor households is
excluded from the initial count of income.
In 2010, the poverty gap for all households was $152 billion. The
pre-welfare poverty gap was $173 billion. Total means-tested spending
in that year was $881 billion or five times the pre-welfare poverty
gap. Means-tested cash, food and housing was $339 billion or nearly
twice what was needed to raise all families out of poverty.
The double poverty gap is the total amount of extra income needed
to raise incomes of all low income households to twice the federal
poverty income threshold. In 2010, twice the federal poverty income
threshold for a family of four would be an income of around $44,000 per
year. The pre-welfare double poverty gap is the amount of income needed
to raise all low income family's income to twice the federal poverty
threshold if current welfare benefits counted as received by the family
are excluded from the initial count of family income.
The pre-welfare double poverty gap for all households in 2010 was
$720 billion. By comparison, total means-tested spending was $881
billion in 2010 and $927 billion in 2011. If converted into cash, total
welfare spending would be more than sufficient to raise the incomes of
all U.S. households to twice the poverty level. This does not mean that
restructuring benefits in this manner and converting all aid to cash
would be an optimal policy, but it does illustrate the high level of
resources that are currently allocated to assisting lower income
persons.
welfare spending increases under the obama administration
Table 1 shows the growth in means-tested spending over recent
years. In FY 2007, total government spending on means-tested welfare or
aid to the poor was a record high $657 billion. By fiscal year 2011,
total government spending on means-tested aid had risen to $927
billion, a forty percent increase.

TABLE 1.--GROWTH IN MEANS-TESTED SPENDING
[In billions]
----------------------------------------------------------------------------------------------------------------
Federal
spending State spending Total spending
----------------------------------------------------------------------------------------------------------------
FY 2007...................................................... $468.7 $189.2 $657.9
FY 2008...................................................... $522.3 $191.6 $714.1
FY 2009...................................................... $612.7 $167.2 $779.9
FY 2010...................................................... $695.3 $192.7 $888.0
FY 2011...................................................... $717.1 $210.1 $927.2
----------------------------------------------------------------------------------------------------------------

President Obama's increase in federal means-tested welfare spending
during his first two years in office was two and a half times greater
than any previous increase in federal welfare spending in U.S. history,
after adjusting for inflation.
obama plans permanent increases in welfare
Supporters of the President's spending might counter that these
spending increases are merely temporary responses to the current
recession. But that is not the case; most of Obama's spending increases
are permanent expansions of the welfare state. According to the long-
term spending plans set forth in Obama's FY 2013 budget, combined
federal and state spending will not drop significantly after the
recession ends. In fact, according to the President's own spending
plans, by 2014, welfare spending exceeds one trillion per year. By
2022, total means-tested spending will reach $1.57 trillion.\5\ (See
chart 8.) Much of this increase in spending will be due to the increase
in medical expenditures under Obamacare.
---------------------------------------------------------------------------
\5\ Most future state welfare spending will occur in the Medicaid
program. Outyear state Medicaid spending figures were obtained from the
Department of Health and Human Services, 2010 Actuarial Report on the
Financial Outlook for Medicaid, page 19. www.cms.gov/ActuarialStudies/
downloads/MedicaidReport2010.pdf State Medicaid spending after 2019 was
estimated based on the prior ratios of federal to state Medicaid
spending. State means-tested spending for programs other than Medicaid
is modest; outyear spending figures were estimated based on the
required state contributions into a program relative to federal
outlays.
---------------------------------------------------------------------------
According to President Obama's budget projections, federal and
state welfare spending will total $12.8 trillion over 10 years (FY 2009
to FY 2018). This spending will cost over $130,000 for each taxpaying
household in the U.S.
spending priorities: welfare and defense
Throughout most of the post-war period, annual defense spending
greatly exceeded means-tested welfare. In 1993 welfare spending
exceeded defense spending for the first time since the great depression
of the 1930's. In subsequent years the ratio of welfare to defense
spending averaged about 1.33 to 1.00.
Obama's budget calls for jettisoning this pattern. Defense spending
will decline in nominal dollars while means-tested welfare spending
will increase 70 percent. By 2022, there will be $2.33 in federal and
state welfare spending for every one dollar spent on national defense.
(See chart 9.)
conclusion
Means-tested spending comprises a vast, hidden welfare state. The
public is almost totally unaware of the size and scope of government
spending on the poor. This is because Congress and the mainstream media
always discuss welfare in a fragmented, piecemeal basis. Each of the 79
programs is debated in isolation as if it were the only program
affecting the poor. This piecemeal approach to welfare spending
perpetuates the myth that spending on the poor is meager and grows
little, if at all.
The piecemeal, fragmented character of the hidden welfare system
makes rational policy-making and discussion impossible. Sound policies
to aid the poor must be developed holistically, with decision makers
and the public fully aware of the magnitude of overall spending.
America faces a fiscal crisis. Obama's budget plans call for
ruinous and unsustainable future budget deficits. These deficits are,
in part, the result of dramatic, permanent increases in means-tested
welfare. An important step in reducing future unsustainable federal
deficits would be to return welfare spending to pre-recession levels.
To accomplish this, Congress should establish a cap or limit on the
future growth of total means-tested spending.
When the current recession ends, or by 2013 at the latest, total
means-tested welfare spending should be returned to pre-recession
levels, adjusted for inflation. In subsequent years, aggregate welfare
spending should grown no faster than inflation. This type of spending
cap would save the taxpayers over $2.7 trillion dollars during its
first decade. An aggregate welfare spending cap of this sort is
contained in HR 1167, The Welfare Reform Act of 2011 introduced by
Congressman Jim Jordan (R-OH).

Chairman Ryan. Thank you. Bob?

STATEMENT OF ROBERT GREENSTEIN

Mr. Greenstein. Thank you, Mr. Chairman, for the
opportunity to discuss these important issues. The leading
research suggests that the safety net is actually functioning
much better than is often recognized. A comprehensive review is
conducted by some of the leading scholars in the field on the
impact of the safety net, among other things, they looked at
the impact of the safety net on the amount that people work and
found that the impact was quite small and that after taking
this behavioral effect into account, that the safety net cuts
poverty about in half. They found that one in every seven
Americans would be poor without the safety net but is lifted
above the safety net by it.
Now, as we are hearing in this hearing and elsewhere,
questions are raised about the safety nets impact on
dependency, on the budget, and there are also issues about its
impact on deep poverty. Let me briefly cover each of those in
turn.
Over the past few decades, we have moved, as Ron Haskins
indicated, very much toward a work-based safety net. Cash
welfare assistance for families who do not work has diminished
greatly. Support for the working poor has increased. The
results are notable. Even though 2010 was a year with an
unemployment rate of 9.6 percent, and could I have the first
slide, please?

In 2010, 91 percent of all spending on federal entitlement
benefits went to people who either are not expected to work
because they are elderly or disabled, or were members of
households that did work. These data are consistent with the
findings of the comprehensive review of the research I
mentioned, which finds that today's much more work-based safety
net does not have a large effect in reducing work effort.
The study reported, for example, that the research shows
the effect of SNAPS, formerly called food stamps, on work, is
quite small and that the impact on, of Medicaid on work appears
to be minimal. This is in significant part of result of major
changes in both programs from programs where you largely had to
be on welfare to get the assistance to programs primarily for
low-income working families who are not on welfare and where
you do not have to be on welfare and can work at low wages and
continue to get this support.
The findings on these programs differ significantly from
the findings regarding the effect of the old welfare system on
work prior to welfare reform. Concerns that the current safety
net is leading millions to become dependent and cease working
are simply not consistent with the research.
Let me turn to the budgetary issue, which the previous two
members of the panel have talked a lot about. Now, we all know
that Medicaid has been rising substantially in costs, and is
projected to rise further. Health care costs are rising faster
than GDP throughout the entire health care system, private
sector, Medicare, and Medicaid. They have been for several
decades, and the system-wide cost increases raise Medicaid
costs with them, even though Medicaid costs less per
beneficiary than private insurance. Medicaid pays providers
less.
Medicaid costs also will rise further in coming years
because of the aging of the population. Older people have much
higher average health care costs than younger people do, and
costs will rise also because of the coverage expansions in the
Affordable Care Act. They do not add to the deficit in that
their costs were offset by reductions in Medicare and increases
in revenue, but they push up costs for means-tested programs.
Now, here is the key point. The figures that Ron Haskins
and Robert Rector have just presented of the safety net
exploding and cost are dominated by health care. They are
largely a story of health care. Let us look at the data. What I
suggest is for us to really dig in and understand what is going
on, and that we take means-tested programs and we divide them
into two categories: health care, and all of the rest. When we
do that, here is what we find. Next slide, please.

We find that federal expenditures for all means-tested
entitlements outside health care equaled 2 percent of GDP in
2011, and, to be sure, that is 50 percent higher for the
average for the previous 40 years. However, the recent
increases are largely driven by the economic downturn and
temporary program expansions under the Recovery Act. The CBO
projections show that expenditures for means-tested
entitlements outside health care will decline as the economy
recovers. They will fall to 1.3 percent of GDP, these are CBOs
figures, by 2020 and thereafter.
In other words, by 2020, total means-tested entitlement
expenditures outside health care will return all of the way to
their prior 40 year average, the average for 1972 to 2011, and
those figures do not include discretionary programs. Low-income
discretionary programs are going to shrink because all non-
defense discretionary shrinks under the Budget Control Act caps
even if there is not a sequester that falls by 2021 to its
lowest share of GDP since 1962.
So, total means-tested spending outside of health care is
on track, under the CBO figures, to actually fall over the
coming decade below its previous 40 year average.
What about Roberts figures on the Obama budget about how
much means-tested spending goes up in coming years? That is an
artifact of the expansions in the Affordable Care Act. Again,
let us look at health care and the others separately. I would
also note that when you look at how much the money is per poor
person, you have to keep in account that over two-thirds of all
Medicaid spending is for the elderly and disabled. Half of all
nursing home expenditures in this country are paid for through
Medicaid. You cannot take the big nursing home expenditures per
person and somehow hand out as a per cash amount to a low
income family with children.
Final issue, deep poverty: This is a matter of concern. The
number of children living below half the poverty line increased
by 650,000 between 1995 and 2005, even before the economy
turned down, and these figures do count non-cash benefits, like
food stamps and housing and so forth, and the earned income
credit, as income.
So, basically what has happened is the changes brought by
the 1996 welfare law, in combinations with expansions in the
earned income credit, have pulled more single mother families
into the labor market and raised many of their incomes. At the
same time, the welfare changes also deepened poverty among
another group of single mother families, primarily those with
less education and skills and more physical, mental health, or
other problems. Some of those families fell deeper into poverty
as a result of having little, or nothing, from either earnings
or cash assistance.
Basically, any intervention in any field of government or
even health care, whatever, can hurt some people, help some
people and hurt others. The evidence suggests that the changes
under the welfare law did reduce the number of people below 100
percent of poverty, and, at the same time, increased the number
people below 50 percent of poverty. Next slide, please

This phenomenon is reflected in a recent study; it just
came out about a month ago about by leading researchers that
finds that the number of families and the number of children
living below a standard that the World Bank uses to measure
serious poverty in third-world countries living on less than $2
per person per day has doubled since 1995. These findings are
of particular concern in light of emerging research which shows
that among low-income families, the level of income on a child
as young affects school achievement and may well affect later
employment and earnings as an adult.
I would note here in this vein that were it not for the
SNAP program, the rise in deep poverty would be much greater.
The data showed that SNAP cuts nearly in half the percentage of
children living below that World Bank poverty standard and
plays a very important role here. So, in conclusion, one thing
all panel members agree on is that we are on an unsustainable
fiscal course, but we also have levels of poverty and
inequality that are higher than those in most western nations.
The Bowles-Simpson Commission Report sought to balance both of
those concerns. It adopted and emphasized as one of its core
principles that deficit reduction should not increase poverty
or harm the disadvantaged, and it did not call for reductions
in any low income programs outside Medicaid.
Last year, a group of Christian leaders, ranging from the
Catholic Bishops Conference and the Episcopal Church to the
Salvation Army and the National Association of Evangelicals
issued a call for policymakers to safeguard the poor in deficit
reduction and draw a circle of protection, in other words,
around programs targeted on them. So I will urge policymakers
to seriously consider those principles as they face the tough
decisions ahead. Thank you again for the opportunity to
testify.
[The prepared statement of Robert Greenstein follows:]

Chairman Ryan. Thank you, Bob. Let me just begin with you,
Dr. Mulligan. One in six people are in poverty today. Our rates
are the highest they have been in a generation. And as we have
seen, our spending on these programs is at an all-time high as
well. So it is not working. That is the whole point here. What
can we do to have our anti-poverty programs work? And that is
the goal of this.
I think this study in marginal tax rates, the implicit
incentive or disincentive to move on to a life of independence
on upward mobility is something that we need to look at. You
have done so much work on this, Dr. Mulligan. Can you bring up
Chart 8?

We have Gene Sterling, his chart, you may be familiar with
this, at the Urban Institute, who talked about the implicit
marginal tax rate is as high as 80 percent or higher between
the income thresholds of $15,000 and $40,000. You mentioned
what the effect this has on labor force participation. I have
two quick questions. What is the effect, in your quantitative
analysis, on its effect on labor force participation, and what
was the implicit rate before the recession, and what do you
think it is now? And then onto that I think you have done some
research into how much increasing spending on the safety net
was due to natural increases related to the recession, and how
much was due to changes in eligibility and benefits?
So where were we before the recession started with the
sense of spending and the implicit marginal tax rate? Where are
we now with respect to the marginal tax rate? And how much of
the additional spending was because of eligibility or because
of the recession?
Mr. Mulligan. Okay, Mr. Chairman, you pointed us to the
chart here from the Urban Institute, and that is showing
something like a marginal tax rate as a function of income. It
is at a certain point in time. I do not know what year is
covered, here, maybe it is 2011 or something. But the point is
we are comparing different income groups, and you can see the
line wiggles. There is not one marginal tax rate, of course.
My work has really focused on, not comparing the income
groups but comparing different years. Last year compared to
2007 before there was a recession. And in doing so, of course,
I look at charts like this, but I like to summarize things in
terms of kind of just a middle person. I call it in my
testimony, the ``median household head or spouse.'' What does
their marginal tax rate look like? In 2007, their marginal tax
rate from all these programs considered, as well as some others
that are not considered there, was in the 40s, the low 40s,
let's call it 42 percent for a precise number. And when the
ARRA was at its heyday, that marginal tax rate went up around
50 percent, so it went up about eight points, maybe nine
points. Some of those provisions expired, and now we are down
to maybe 46 percent; so there was an increase at one point of 8
or 9 percent. Now we are just 4 percent or so higher. I say,
``just;'' 4 percent is very big by historical standards, it is
not like the marginal tax rate for the median household head or
spouse changes every month or changes every year. That is a big
change.
I like to use the analogy of a 100 gallon fish tank and it
is full of water, and there is fish living in there swimming
around having fun and stuff. And you ask me, ``Well, what if I
take a gallon of water out of that fish tank?'' And I say,
``Well, the tank is already full, probably not going to be a
big deal. There might be one sensitive fish there who is
bothered, but most of the fish will be fine.''
But if you got a fish tank that is half full or half empty
because somebody else took 50 gallons out of it, and now you
ask me, ``Can I take a gallon out of that tank?'' I say, ``You
better be careful. You are going to do a lot more damage to
those fish when you take 1 percent of the tank's capacity out
of a tank that is already half empty.'' And that is where we
were in 2007. People were not quite at 50 percent, but their
marginal tax rates were up there around 40 or 50 percent, and
what we did is we added several more percentage points to that.
And that affects the economy.
I do not claim by any means that everyone or most people
stop working because the marginal tax rate goes from 42 to 46.
I am not claiming that. But we have decades of research on
those effects, and what I have found is that, you know, in
reality, work hours per capita fell about 10 percent during the
recession. Now they have rebounded a little bit, maybe they are
down about 8 percent. If we had just kept the safety net rules
and the marginal tax rates the way they were in 2007, if we had
just kept it that way, the recession would have been kind of
half as deep. Hours per capita would have fallen half as much.
Employment per capita would have fallen half as much.
Now if you look at any single provision, as Ron was saying,
you look at any single provision, you might say, ``Well, what
effect can that have on the employment rate?'' ``What effect
can that have on our unemployment rate?'' Well, that is just
one provision and it is small, but we have a safety net with
many provisions. In my testimony I list at least a dozen
changes in the rules. When you add those changes together, that
is what is having a sizable impact on the employment rate.
So to put it simply, the safety net rule changes roughly
doubled the magnitude of the recession if you measure the
magnitude of the recession in terms of either employment per
capita or work hours per capita.
The other question you asked, Mr. Chairman, was about the
effects of the rule changes on the government spending, as
opposed to the economy. And Dr. Greenstein said that the growth
in spending over these last couple years is some combination of
the recession and legislation. And I agree with that, but I
understand your question to be, Mr. Chairman, what is the
breakdown? How much is coming from the recession versus the
legislation.
I have prepared estimates of causes of spending changes on
non-elderly people. A lot of the safety net spending is on
elderly people; let me put that to the side for a second. Even
if we ignore what I just said, that the social programs
affected the economy, let's ignore that. The new eligibility
and benefit rules added many more dollars to safety net
spending than the recession did. Take, for example, the
combined inflation-adjusted spending on unemployment insurance
and SNAP, adjusted for population growth. That spending would
have increased about 40 percent if the program rules had been
constant, thanks to the recession. The 40 percent is
historically unprecedented, that is a big change. It would have
changed 40 percent.
But what happened, in reality, on top of the recession, we
had program rules and program rule changes and those two
programs combined, their spending increased almost 200 percent.
So the breakdown, Mr. Chairman, is 40 percentage points from
the recession, another 160 percentage points from rule changes.
Chairman Ryan. In UI and SNAP?
Mr. Mulligan. In UI and SNAP combined. And those are the
source of, in the non-elderly safety net spending, that is over
three-quarters of the growth in the safety net spending in the
past couple years has been in those two programs. So, I do not
have a breakdown for you on the other programs, but you could
see we got a big piece of the pie already.
Now I put elderly to the side. Spending on the elderly and
programs for the elderly, that is an important and interesting
topic.
Chairman Ryan. Let me get you there, because I am trying to
keep Chris and myself to time limit, so we can get to other
members, because I wanted to get to some of these other
gentlemen if you do not mind. Let me just ask you quick, Ron,
you were deeply involved in 1996 reform, so were you, Robert.
Knowing what you now know from that experience, what would you
do now in a very brief time period, to do, say welfare reform
round two, to try and replicate the sort of successes we saw in
the late 1990s?
Mr. Mulligan. I think that the biggest mistake in the
legislation, and I do not think anybody anticipated exactly how
this was going to unfold, but there is a problem, I think, at
the bottom. Robert and I disagree about this.
Chairman Ryan. Deep poverty, you are talking about?
Mr. Mulligan. Well, yes, measured in various ways. I think
they are incompetent. I do not think they are capable of
holding down even a minimum wage job. They get a job, they lose
it, and they just cannot sustain themselves in the market. And
they are the ones that are worse off. I think that problem is
undeniable. Other people deny it and say that's not a big deal.
Now, what would we do about it? We do not really know. When
I testified for the Budget Committee a couple years ago, I
said, ``We should do experiments to find out and try different
things,'' I am not talking about a lot of money here. I am
talking about trying to figure out how we can help these people
at the bottom.
Here is the point. More than in the past, our safety net is
not just giving stuff away, it is requiring work, and I am sure
at least one-and-a-half million low-income mothers went to work
as a result of welfare reform, and they are better off, poverty
fell, it turned out as Republicans said it would. But this
group at the bottom, they at least appear to be incapable of
sustaining employment, so they are really in trouble. They get
food stamps, they live with other people, but their poverty
rates are extremely high, and they last longer than in the
past; so that is the group that I am concerned about.
But the rest of it, I think, is a good model for the kind
of things that you want to do. I think block grants definitely
should be on the table; I am sure we would have big arguments
about exactly what the characteristics are and what the strings
would be for the states. Here is one notable difference,
though, I will just take one second and say this, and that is
in 1996, both Democratic and Republican state governors
supported block grant. They wanted to block grant, and we knew
it negotiating with them and so forth. I am not sure that is
true now, and I am quite certain would not be true about
Medicaid. The governors would be opponents, at least Democratic
governors, and I think some Republican governors, too. That is
a big difference between now and then.
Chairman Ryan. Thank you. I want to keep time-sensitive,
the other two gentlemen, we will just get you in on some other
questions from other members. Mr. Van Hollen.
Mr. Van Hollen. Thank you, Mr. Chairman. First, I would
observe that while spending on safety net programs is high now
it is largely the function of the economic downturn. It has
been called the most serious downturn since the Great
Depression, and that obviously has an impact on safety net
programs. In fact, they are designed to help cushion people
during especially during different economic times. And so,
while spending is up, the poverty levels would be much higher
in the absence of those programs, and a little later I am going
to ask Mr. Greenstein to comment on that.
Mr. Haskins, as you said, the safety net programs are
requiring work now more than they did in the past. I assume,
based on your involvement that you think that the EITC, the
earned income tax credit, is an important part of the reforms
that have been made.
Mr. Mulligan. Yes.
Mr. Van Hollen. And Mr. Rector, you pointed to the fact
that there are 79 programs. There is no doubt that there are
lots of programs, and I think we would all agree that we can
look to see whether we can better coordinate programs and where
we can find efficiencies, we should. But I think you know that
big drivers of costs are really about five programs that really
drive those. I assume one of the ones you are talking about on
your list as means-tested programs is the EITC, is that not
right?
Mr. Mulligan. Yes.
Mr. Van Hollen. Mr. Mulligan, I just wanted to ask you
about your analysis, because you state here, and I appreciate
it. Obviously anytime you have these kind of programs, it will
have some impact on labor market efficiency, that is not the
argument here. The argument is the magnitude and the extent.
Here you say America absolutely must have taxes and safety net
programs, even though they reduce the reward to working. And
so, there is no doubt at the margins here, these things have
impact. The issue is how much?
Mr. Greenstein referenced another study that has been done,
and I would just like, Mr. Chairman, to include it in the
record. It was revised June 2011 by three very distinguished
economists where they found that taking into account all the
behavioral effects in response to these incentives has very
little impact on the incentive to work. And I would just like
to ask you, Mr. Mulligan, and I understand that you recognize
that some of the ARRA provisions are expiring. Others are also
going to expire in time. For example under SNAP, there is a
November 2013 end to the enhanced benefit. Have you broken out
the different components of that as part of your analysis with
respect to the 4 percent?
Mr. Mulligan. Yes, I have done some breakdowns. Actually it
was not so much a break-out, it was a build-up; I built up all
the programs together. And yes there is an expiration coming on
some of these things. On the other hand, we have the Patient
Protection Act that is going to bring in some increases in
marginal tax rate. And so, on the whole, going out four or five
years, it looks like marginal tax rates will continue to be
elevated above 2007 levels.
Mr. Van Hollen. Right. So I am glad you brought up the
Patient Protection Act, because it goes to Mr. Greenstein's
point, that really to have a conversation about this that sheds
more light than noise, we need to separate means-tested
programs into health programs and everything else.--And if you
could put up the next slide, please.

This is based on Congressional Budget Office data. And this
is based on current law, CBO looks at current law, so Mr.
Mulligan, they look at the expiration dates for different
enhancements in ARRA, for example. And what this shows, the
bottom line shows all the major non-health-related means-tested
anti-poverty efforts, safety-net efforts. And what you see is
obviously they increased as the economy hit the skids, more
people out of work, that is the bump up, and over time as those
provisions phase out and the economy improves, you will see
that that bottom line, the purple line actually returns down by
the year 2022 to 1 percent of GDP, in fact lower than it was in
the pre-recession period of time.
The top line are the healthcare spending, so that includes
Medicaid, that includes CHIP programs, children's health
insurance program, it also includes the additional people who
will be eligible for Medicaid as a result of the Affordable
Care Act. So this chart, I think, is very important as we have
this conversation, as Mr. Greenstein pointed out, because when
you are talking about Medicaid, let's put aside the Patient
Protection Act, when talk about the current Medicaid program,
the question I have for you, Mr. Mulligan, is if you agree with
the statement made in the study that I cited. And here's what
they say: They say that they find that when it comes to labor
supply effects, the effects from Medicaid appear to be minimal,
and they make no adjustment. Have you done an analysis of the
labor supply effects of the Medicaid program?
Mr. Mulligan. Yes, in fact my estimates are built on a lot
of the work that Dr. Moffet [spelled phonetically] in that
study has done. I was more ambitious. I look at a lot more
programs as included in their study, unemployment insurance
would be an important thing.
Mr. Van Hollen. I am just asking right now, with respect to
Medicaid, the Medicaid program, the effect of the access and
ability of people to access that program on incentives to work.
Mr. Mulligan. In what year?
Mr. Van Hollen. This year and going forward.
Mr. Mulligan. Yes, I have looked at that, and I agree with
your characterization that by itself, it is small.
Mr. Van Hollen. Okay. Now the reason I raise that is this
is the Budget Committee, right? We are looking at ways to
reduce the deficit, I believe, we have a joint effort to do
that. If you look at their budget, they cut $800 billion out of
Medicaid over 10 years. And I just want to go to the next chart
that shows what the composition of people on Medicaid is by
dollar; these are the costs from Medicaid.

Almost two-thirds of Medicaid dollars go to seniors and
individuals with disability. I would venture to guess, you are
not going to get a lot of work incentive changes out of seniors
in nursing homes. Another 20 percent benefits kids. I venture
we are not talking about trying to put kids to work.
So if you look at the big cost drivers, and you look at the
Republican budget, where they go is after Medicaid. And as you
have said, Mr. Mulligan, the impact that Medicaid has on
incentives to work is minimal, and we can see one of the
reasons why, at least on a cost basis.
So, let's be serious about this conversation here in the
Budget Committee. We are happy to look at reforming programs.
As I said, there may be 79 programs. A lot of them may be very
small, and if we can find savings, we should. But the
Republican budget reduces the Medicaid spending by 30 percent
in the year 2022 and 75 percent in the year 2050. That is CBO,
Congressional Budget Office, numbers. And I think we should
keep our eye on the ball here in the conversation.
And I would just like to end by asking Mr. Greenstein to
comment on that, because every member of this committee knows
Medicaid is already stretched to the limit. And everybody talks
about the provider cuts under Medicare? We already know that
there are really high provider expenditures in Medicaid. You
have a waiver system that allows states great flexibility right
now. And so to suggest that as part of this analysis and work
incentives that we are going to get a lot of budget savings and
the number one driver Medicaid is just wrong. Mr. Greenstein,
if you could just comment about that.
Mr. Greenstein. Two comments. Interestingly, some of the
studies that Dr. Mulligan cites in his testimony, when you look
at them, what they find is, and this is something. An expansion
in a safety net program, depending on how it is designed, can
actually increase work incentives. Example, one of the studies
he cites, issued by a conservative think tank here in
Washington, found that the changes in Medicaid, which were
bipartisan, in the 1980s and early 1990s that changed Medicaid
so that children did not have to be in welfare families to get
Medicaid and the children in low-income working families became
eligible, it found that that increased work incentives,
decreased welfare use.
When you make it so that you have to be on welfare and
cannot work to get benefits, you are going to have big work
disincentive effects. When you change the programs so you can
work and get them, and as the welfare law does, it is hard to
not work and get cash assistance, then you can actually
increase work incentives.
I would argue that the Affordable Care Act is likely to
increase work incentives. A little example, today under
Medicaid in the median state, if you are a low-income working
family, you as a parent lose eligibility for Medicaid when your
earnings hit 63 percent of the poverty line. If you are at 75
percent, if you are a full-time minimum wage worker, and I
would note that 55 percent of all employees in the United
States whose families are below the poverty line do not have an
offer of coverage from their employer, if you are working
minimum wage and you do not have an employer offer of coverage,
and you get really sick, you often have to quit your job in
order to qualify for Medicaid. That is crazy, and the
Affordable Care Act fixes that.
With regard to the proposal in the House Budget, my concern
is since Medicaid already pays about 20 percent less per
beneficiary than private insurance, it pays providers a lot
less, and its costs are actually been rising a little slower
than private insurance, and mostly it is already contract with
private managed care companies to run the Medicaid program for
children and parents, it is extremely difficult to see how you
could get savings of the magnitude in the House Budget without
really deep cuts.
In the Urban Institute study this last year, and under
their most optimistic scenario, in which states exceeded in
doing efficiencies that reduced Medicaid cost-growth per
beneficiary all the way to GDP plus zero, they found that
states would have to take 14 million low-income people off of
Medicaid to fit within the budget parameters. And if they were
not as successful, it could be as much as 27 million people
losing Medicaid coverage, with a average reduction in provider
rates of about 30 percent on top of that, meaning there being
few doctors to accept patients.
Chairman Ryan. Thank you. Mr. Garrett?
Mr. Garrett. I yield the first 30 seconds.
Chairman Ryan. I just want to point for clarification, I
think it has been said a couple of times, our budget does not
propose on Medicaid, work requirements or time-limits. That is
not a proposal contained in our budget. I just want to clarify
that.
The other point is we are spending $100 billion next year
on Medicaid alone. So I know this is the Washington talk. It is
not being cut. It is not growing as fast as what the
president's Budget proposes. And yes, we do propose to repeal
the president's health care law, which has a dramatic increase,
but we are actually still increasing spending on Medicaid in
our budget. We are not calling for work requirements and time-
limits on Medicaid, and that is now defined as a savage cut
when it is actually an increase that is not as big of an
increase as the president is proposing. Mr. Garrett.
Mr. Garrett. Thank you. Mr. Rector, according to your work
as we have heard already, there are 79 means-tested welfare
anti-poverty programs that the federal government runs. It
costs around $927 billion per year. And since the creation of
the modern day welfare state back in the 1960s, the size and
scope of these federal anti programs have skyrocketed. In fact,
according to CRS, taxpayers spent $2.7 billion in today's
dollars back in 1962. Today we spend around $600 billion on the
welfare programs.
All these are well-intentioned or well-motivated and
safety-net programs, but I am concerned that many of these
programs are unconstitutional. You have TRIO, you have Job
Corps, you have energy programs like LIHEAP, they are just a
few of them that have dubious constitutionality, I would think,
and again, are better off, quite honestly, left to the states
to do.
Now this issue of constitutionality is a timely one,
considering what is going on across the street or what has gone
on across the street with regard to health care. But most of
today's so-called welfare state is built on, what I would
suggest, is an unconstitutional foundation that we should begin
to examine closely. So the question to you is, out of these 79
welfare programs are out there, how many do you think, or what
percentage are simply totally unconstitutional or highly
questionable in their constitutionality?
Mr. Rector. I would agree with you that it is very
difficult to find a constitutional basis for much of any of
this, but I am a realist, and these programs are not going
away. And the reality is I think we would have been better
served if the state governments had taken the role here, but
all the way back into the 1920s, the state governments have
been shucking their role. And basically their main function is
to come here and ask you for more money. Honestly, I have been
doing this for 30 years, and that is basically what I see
states do.
I do think that what we have to do is change the nature of
the programs. And one thing that we need to avoid is the idea
that the solution to this is to collect money in Washington and
then hand it over to the states willy-nilly without any goals
or guidelines, and that is a recipe for success. In fact, that
is a recipe for failure.
The word ``block grant'' is frequently used with respect to
TANF. I would say that is a misnomer, with respect to the
Temporary Assistance to Needy Families program, which I helped
to design. I would call that a work activation grant, because
the core of that program was to push people off of welfare and
into employment, and it was, within its own little limited
realm, which is a very small portion of the welfare state, it
was pretty successful in doing that. But we did not say that
the idea was to collect money here in Washington and then hand
it over to the states.
The biggest block grant program of all time was revenue
sharing, created by Richard Nixon. What was the first program
that Ronald Reagan abolished when he got in office? Revenue
sharing. It was a waste of money. I would love it if the states
wanted to take fiscal responsibility for this, but I do not see
that. And so what you have to do is try to deal with this real
world, which is a huge system that is growing very rapidly, a
system that penalizes work and penalizes marriage, and thereby
generates an endless increase in need for aid.
Mr. Garrett. Well let's just follow up on that then to your
left. Mr. Greenstein was just making reference to how some of
that is potentially addressed in the Affordable Health Care
Act, in his argument, that when you get into the situation of
marginal tax rates and that there is a benefit of actually
staying on the system as opposed to actually getting out and
getting to work, do you agree with the assertions that he has
made? He sounded reasonable.
Mr. Rector. I think that that is a fool's errand, and it
will end up costing you more.
Mr. Garrett. Why is that?
Mr. Rector. Try to reduce these marginal tax rates, you
just expend the programs farther and farther up the stream
until you have these programs going up to families making
$80,000 a year. Way back in the ancient days we had something
called the Seattle Denver Income Maintenance Experiment, which
was in the 1970s and 1980s. And what that experiment showed was
that the marginal tax rates on the programs, it created
different experimental programs, marginal tax rate did not
matter that much. What mattered was the core amount of benefits
being given. How do you cut the Gordian knot here? The simplest
thing is when you are giving assistance to an able-bodied
adult, you must require that adult to work, prepare for work or
look for work as a condition of receiving aid. That is what we
did in the AFDC reform, but we only did it in one program, and
that is why that reform was unsuccessful. That does not cost
you more money; that costs you less money. That is the key to
increasing employment.
Mr. Garrett. Thank you, Mr. Rector.
Chairman Ryan. Mr. Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman. I would agree with
what Mr. Rector said about states being AWOL, states
historically have not stepped up. They could have, they did
not, but there is a whole range of areas: pollution, we would
not have a Clean Water Act if states would have stepped up and
done it, and if they had had the capacity to deal with things
that crossed state lines.
That is why, for instance, and I appreciate Mr. Haskins
talking about some of the upside of what happened in 1996 and
some of the downside. The states loved the idea of block
granting then, and you look at what has happened in some
states, Texas is a classic example, where they have back-filled
a whole host of other things. The benefit levels in Texas are
abysmal. Nobody in this room could remotely live on those
levels, but they have used it for other purposes. And you have
got material, all of you have got material that the press has
tracked some of this, where it has not gone to the neediest, it
has gone instead to back-fill problems that they could not
solve in Arizona by selling their state capitol. I am not
certain that that was the best policies to have followed, but
we are dealing with some realities, here.
I am more than a little frustrated that we seem to have an
inability to accept some of the successes. I mean, Richard
Nixon, Daniel Patrick Moynihan wanted a guaranteed annual
income, and we have started to move in, some of the direction
of 1996, to move towards rewarding work. But at the same time,
Congress, in its wisdom, has made these programs much more
complex. Poor people have to navigate all sorts of conflicting
standards, we have tried to streamline it for food stamps. That
has been a struggle. We make it hard for them. We have
different standards for poverty if it is going to be for a
college program under Pell grants it is what happens in terms
of qualifying for some other educational benefits, for food
stamps, for receiving money. They navigate something that would
take the complaints we hear from the business community about
the complexity of rules and regulations, they are simple by
comparison to what families which, and I again agree with Mr.
Haskins, a lot of these people are marginally functional, and
we have them go from pillar to post to try and deal with
different standards for health care, for food stamps, for
educational benefits. It is draining, it is exhausting, it is
not efficient. It wastes money of the system and of their time.
I think it would be better if we tried to take the programs
that work, try and refine them, actually have some standards,
but deal with the realities that these folks live in. I just
chuckle with the notion Mr. Rector talks about, if you just
even this out all across the board, it would be $36,000 for the
100 million poorest Americans. That is not how the system
works, that is not how it is allocated. We are dealing with, as
my colleague, Mr. Van Hollen, pointed out, the bulk of this
medical expense driven to the disabled, the elderly, the most
vulnerable and expensive, and that is not going to change.
I am hopeful that we can come back and be realistic about
the needs. And before we start walking down the path of
seriously entertaining more draconian activities, more block
granting to states that will use it to back-fill and not step
up, for example, like Medicaid, the people that are visiting
your offices are terrified that the Republican approach to
Medicaid will be adopted. Because they are getting hammered
now, even though it, as Mr. Greenstein points out, it saves
money, at least as composed to private health insurance or
Medicare. They are terrified about the cuts that are coming,
and there is nobody that is going to step up and take it.
One of the things I am concerned about, and Mr. Haskins,
while we have you here, part of the law of unintended
consequences, did not we see some rather interesting shift
after 1996 to watching people move from welfare to disability.
Have you looked at that at all?
Mr. Haskins. Yes, there has been some movement like that,
especially among children. And some people think it is not
right, but advocates think it is. This is a very sensitive
subject. We did change SSI for kids in the 1996 legislation,
and as a result of that, about 100,000 little bit more than
that I think, lost their benefits because they were not
disabled, they had things like dyslexia. So the rolls went
down, but then they came back up.
Mr. Blumenauer. I see my time has expired, Mr. Chairman,
but that is one of the areas I think would be kind of fun for
us to focus in on, not for children, but for what has happened
to disability payments altogether, that has been skyrocketing.
Chairman Ryan. Yeah. Ways and Means, we have done some
hearings on this as well. Mr. Stutzman?
Mr. Stutzman. Thank you, Mr. Chairman. Mr. Rector, I would
like to follow up on a comment that you had made, and I know
what you are referencing to as states are coming to the federal
government to ask for money for programs. I come from Indiana
and served in the state legislature there for eight years, and
I am seeing a real shift there that legislators would like to
see more authority and the ability to have authority over
programs like Medicaid. Are you seeing that anywhere else
across the country? Is there a shift that people are frustrated
with the strings that Mr. Haskins referenced? We saw that with
the stimulus package. We saw that with just about every federal
government program. There are always strings attached to it. We
even just avoided unemployment insurance money from the federal
government because of the strings that were attached to it in
Indiana.
Mr. Rector. I think Medicaid is different because, as I
said in my testimony, 75 percent of means-tested spending is
federal, 25 percent is state, but almost all that state
spending is in Medicaid. And when you set Medicaid aside, this
is like a 95 percent federally funded system. It is important
to realize that.
States are serious about Medicaid, because they have a lot
of money on the table, okay, and it is absolutely true that
what Obamacare does is it radically demands that states spend
more money on Medicaid by increasing enrollment. It is not
increased for disabled; disabled are already covered by that
program. All these increases are going to able-bodied people,
okay. And the reality is I think that the states do have a lot
of play in the Medicaid system, and they need to have a very
important role in determining how that system would work.
By contrast, something like food stamps, they have only 10
cents on the dollar in play there. What actually happens with a
program like that is it becomes bureaucratically autonomous
when it hits the state. States will not be serious about work
requirements, for example, they do not have any money in it. It
is not their program, and they do not want it. You want to take
this over? They will not take that program over. They do not
want to spend their money on that; they want you to spend
federal money. But if you are going to spend federal money on a
program like that, you have to make sure that that program
meets the real goals, which should be to promote self-
sufficiency.
When Lyndon Johnson launched the war on poverty, he said he
wanted to reduce dependence, not increase it. He wanted to make
people prosperous and self-sufficient through their own
abilities. And judged by those standards, this $19 trillion has
been an absolute debacle. The poor are far less capable of
self-sufficiency today than they were in 1964 when we started
these programs, because these programs reward non-work, and
they in particular non-marriage. The percentage of births out
of wedlock has grown from 7 percent in 1964 to 42 percent
today. That is the key cause of child poverty today, and it is
a key factor in all this welfare spending.
Mr. Stutzman. Mr. Mulligan, I would like to ask you a
question as well. In relation to the 70 programs, roughly 70
programs, which I am not sure if that even includes Earned
Income Tax Credit.
Mr. Mulligan. It does.
Mr. Stutzman. Does it? Okay. How have you seen these
programs affect the incentive to working for people, because I
can tell you, I hear from constituents back home that are very
frustrated with folks who do take advantage of programs, and
they say, ``You know, if they had worked as hard at finding a
job or getting out and finding work as they do at finding
government programs, they would be successful.'' And so I think
that there is also this shift in our society that there are so
many government programs out there, go out and find it, and you
can make a living off of it.
Mr. Mulligan. In the research field, we have a term called
``take-up.'' It refers to how many people are technically
eligible to receive the benefits from a program actually go and
get the benefits. And the take-up in a lot of programs is less
than 100 percent. There are a lot of people who choose not to
take the benefits, and I account for that in my calculus. Now,
I have not looked a baseline of what happens if we had no
safety net? My baseline has always been what happens if we go
back to 2007? And if we go back to 2007, there would be a small
percentage of people whose employment status would be
different. Now in an economy with 300 million people, a small
percentage, we are talking a couple million people would be
affected, but it is still a small percentage. And the norm is
to continue working, continue to be employed despite rule
changes in the safety net programs.
Mr. Stutzman. Thank you, I yield back.
Chairman Ryan. Thank you. Ms. McCollum.
Ms. McCollum. Thank you, Mr. Chair. Thank you. After being
here an hour and a half, there are so many questions and things
that I would like cleared up, but I am going to have to focus
here tight. One thing I would like to say is, to Mr. Garrett,
the term ``unconstitutional,'' versus not in the Constitution,
directed in the Constitution are two very different ideas, two
very different concepts, because something silent in the
Constitution versus unconstitutional, and we are just kind of
throwing those phrases around here, and the social studies
teacher in me just had to take a second and go back and take
out the dictionary, and we need to mean what we say and say
what we mean here.
I would like to go back and just really look at this chart
here.
The people that we are talking about, seniors, our aunts,
our uncles, great aunts and uncles if you are lucky enough like
I am to have a great aunt who has made it to 104, never thought
that she would live this long, lives independently. She
receives Medicaid support and help. The disabled that I heard
from when I was in the State House and we were going through
and doing the welfare reform, who said, you know, ``I want to
work, but when I work and I make a living wage, I lose my
personal health care attendant. I cannot afford that. I cannot
afford to lose my personal health care attendant.''
The mothers, through no fault of their own, found
themselves all of the sudden with children, say, ``I do not
have any health insurance if I go back to work.'' So some of
the reforms that we made to Medicare to help the elderly, we
also made to Medicaid to help people who had children who
wanted to go back to work. And now we are saying, ``No, we are
going to cut that. You are not going to have access to health
insurance for your children.''
But I want to talk about SNAP for a minute, because I have
been out visiting several schools in St. Paul. And I have to
tell you, two of them that I had been to, 40, 60 percent
poverty in these grade schools, and I have been there in the
morning, and this is the School Lunch Program, but SNAP is also
what is keeping them fed at home. Their parents, after about
two weeks, the food is done from SNAP, they are over to the
food shelves. But these kids who come into the School Lunch
Program that on Monday might have been the first opportunity
for them to have milk or a piece of fresh fruit. They are
quiet, they say thank you and then they have a healthy meal
again at lunch. If kids are hungry, they cannot concentrate in
the classroom. And I know that this would not reflect any one
of my colleagues here, but this is what is upsetting to me
about the discussion, and what I am hearing about how people
are talking about cutting SNAP and ``SNAP is not needed,'' and
``food stamps are a waste.'' And I know this does not reflect
any of my colleagues here, or any of the people on the panel,
but these are the things that are out there, people are talking
about.
Rush Limbaugh, ``Children to eat. Cannot find food, there
is always a neighborhood dumpster.'' June 16, 2010. And I will
just cut to the end of it.
It says, ``There is things in your house. There is a thing
called a refrigerator, you probably know about it. Try looking
there. There is also things that are called in the kitchen in
your house called cupboards. And in those cupboards, you might
go to find a dingdong, a twinkie, potato chips,'' he goes on
and on and on. And then he goes on and says, ``If that does not
work, try a happy meal at McDonald's. You know where a
McDonald's is. There is a dollar menu at McDonald's, and if
they do not have chicken McNuggets, dial 911 and ask for
Obama.'' But here is what really, I think, goes to the heart of
what when we are talking about SNAP and ``those people.''
``There is another place,'' Limbaugh goes on, ``If none of
those options work to find food, there is always the
neighborhood dumpster. Now you might find some competition with
homeless people there, but there are videos that have been
produced to show you how to healthfully dine and how to
dumpster dive and survive until school kicks back up in August.
Can you imagine the benefit we would provide people?''
Folks, we need to, when we are having these discussions,
not talk about ``those people'' or ``welfare people,'' the way
that we are talking about Americans; we are talking about our
children, we are talking about our elderly who, by the way,
access SNAP. And so, just to this chart again, where we are
today with where we talk about cutting entitlement programs, it
is seniors, it is the disabled and it is children.
Chairman Ryan. Thank you. Mr. Lankford.
Mr. Lankford. Thanks you all for being here. Here is a hard
question for us as a nation to struggle with. We have people in
great need, and we are a nation that has determined we are
going to step up and help. We are going to provide a safety
net. Now, how do we determine success of that safety net?
Is it based on the percentage of people that are in
poverty? Is it based on the transition of people that were once
in the safety net, out of the safety net, that they were there;
we helped them successfully navigate out of that safety net? Is
it the length of time in programs? Is it the coverage of every
area of that individual? How do we determine success? So a lot
of questions there, just quick responses, what you have seen
from anyone who would like to respond to that. How do we
determine success?
Mr. Rector. I would go back to Lyndon Johnson's original
goal that success here is not to increase the number of people
receiving handouts. He said I do not want to deal merely with
the symptom of poverty. I want to deal with the causes. I want
to make people prosperous and self-sufficient. He said he
wanted to turn the poor from being tax-eaters into taxpayers.
So one measure of success would be the percentage of the
able-bodied population that is able to sustain itself above the
poverty level without government handouts, and by that
standard, absolute, unmitigated 40 year disaster.
Mr. Lankford. That is the issue. We have this structure
now, if that is a goal, and I would concur that it is a great
option for the goal, to say let's help people transition out of
it, and are we accomplishing that? That is part of the issue
here. Other comments you want to make? Yes, sir.
Mr. Greenstein. Well there is no simple answer, there are
multiple goals: reducing need and great hardship, we do not
expect people who are elderly or disabled to go and work, and I
very much agree with Ron Haskins, the data is crystal clear.
Though I wish it were not the case, but there is a group of
families at the bottom who have physical problems, mental
health problems, depression, little education, little cognitive
skills. I do not know if I would go so far as to use Ron's
word, ``incompetent,'' but these are people, and that has gone
up. And for some of them, I think we could try subsidized
employment programs in the private sector, but they have a very
hard time holding a job on their own.
In terms of transitioning off the safety net, well yes,
but. You know, here we have, I think the Chairman would
probably agree with what I am about to say, I mean, if you
really want to look at the safety net, you have to look at the
tax code as well. I mean, we have a trillion dollars of tax
expenditures. We have people who get things all the way up, so
it is complicated.
One last point though, that is key. Over the last several
decades we have effectively made a decision implicitly in this
country that to compete internationally in the economy we will
let wages erode some at the bottom of the wage scale, and we
provide things like the Earned Income Credit. We let health
insurances erode among employers, but we have broader health
coverage. Surely I would presume, most members, and perhaps all
of the Republican members would agree that the right answer to
lifting working-poor out of poverty is not to have the
government set a minimum wage so high that, that alone, I mean
you would probably lose jobs if you raised the minimum wage
that high. So if you are in this international economy where
wages are eroding at the bottom, you need a larger government
role in making work pay and supplementing low wages.
Mr. Lankford. Let me interrupt because I do have a ton of
questions we are not going to get to now. But I do want to make
a couple mentions of it. One is the comment that you made
earlier Mr. Rector, and that is, as we have seen marriages
collapse, especially among the poor, we have seen a greater
need for government to engage. And the safety net continues to
grow. And it is my concern is that we have shaped a safety net
in such a way that it is created a disincentive for families to
stay together, and that we have, somehow, as we try to create
this safety net, we have also created a system where families
are not needed financially in that. We need to have a system
that does not punish or does not ignore the family, but also
blesses the family in that.
But I would also ask this question. Areas of fraud that we
experience, because there are areas of fraud that are out
there, we need to have a good safety net, but we need also to
be diligent, to make sure that the people that are receiving
benefits are the people that are exactly intended to receive
those benefits as well. Comments about fraud, whether that be
in SNAP or that be in SSI, I cannot tell you the number of
senior adults that catch me that are furious about fraud that
they have seen or experienced around Medicare, individuals that
have come up to me that are receiving SNAP, or that are
receiving Medicaid, that once we probe it, you think okay, this
is probably not legal, and now they are receiving it. Are there
other things that you have seen or comments that anyone want to
make about SNAP or any other program, or how we deal with
deficiencies to make sure the right people receive the right
benefits.
Mr. Rector. There is a massive amount of fraud all the way
through all of these programs. You have to have much greater
controls on identity, particularly in Medicaid. One of the
other things that you can do to reduce fraud, though, one of
the key elements of fraud is people that are working and do not
tell you that they are working, and they get benefits they are
not entitled to. One way to get around that is to have a work
requirement. If you say, ``You have to come down here and do
job search,'' and they already have a secret job they are not
telling you about, they cannot do both of those things. That
was a major factor in the caseload reductions in the early TANF
reform, which were effectively rooting out fraud, caused
substantial reductions in people that should never have been on
that program.
Chairman Ryan. Thank you. Ms. Bass.
Ms. Bass. Yes, thank you. Let me just follow-up on some of
what you were saying, because I do think that there has been a
lot of fraud and misuse of benefits, but I think oftentimes,
especially if you look at the dollar amount, a lot of that
fraud in Medicare, if you look at who is committing that fraud,
the dollar amount does not compare to the individuals versus
some of the fraudulent businesses in the medical appliances and
all, you cannot really make that comparison.
But using the example that you were just giving, though, in
terms of somebody who was working and they hid the fact that
they were working, a lot of times people are caught in a catch-
22, because one of the main reasons why women go on and off
public assistance is because when their children get sick, if
they do not have the type of job that allows them to take sick
days, then they have to stay home with the children, they lose
their jobs. So it is a real catch-22. If people had healthcare,
and if people had childcare, that is one of the biggest
incentives for people to be able to have their job and retain
it.
I wanted to ask a couple of questions. Mr. Haskins, you
described people who were at the lowest income levels as being
incompetent, and I was just wondering if you could maybe
explain that a little more. What you know about this
population, why you would describe them as incompetent and
where you would go with that. You raised the question that you
were not exactly sure what to do with them, so maybe you could
tell me how you have reached the conclusion about competency.
Mr. Haskins. The first characteristic is an inability to
hold down even a moderate job.
Ms. Bass. Right.
Mr. Haskins. And I can tell you that research shows that
families that have more than one problem that interferes with
job, like three or more children, a disabled child or a child
with some kind of even mild disability, a low education, a big
one is depression. So low-income families, usually single
mothers, that have two or more of those problems are much less
likely to be able to stay in the workforce.
Ms. Bass. Right.
Mr. Haskins. So that is what I mean. They have problems, it
is not like they are lazy, they just are not competent to
handle the problems that other people are able to get around.
We all have those kind of problems, so that is what I meant.
Ms. Bass. Okay, and I appreciate you making the distinction
between that and laziness, because actually some of those
problems that you described, and I am sure that you would
agree, a person who is middle class can also have all of those
same problems, or upper middle class, but if you have support
services around you and you can afford to purchase counseling,
or purchase medication, then you do not typically fall through
the cracks if you have those same type of problems.
Mr. Haskins. I think there is some truth in that. If you
want to learn more about this problem, there is a program in
Chicago called Project Match. A woman named Toby Herr who has
been working on this problem, I think, for 20 years, and I
think she would agree with the description I just gave to you,
and she finds that it is very difficult, even with intense
help, to help these people get on their own two feet. She has a
program called Small Steps. So what she does, for example, is
to get the mother to come to the childcare facility or Head
Start facility and be there for, say, 10 hours a week. And then
after she has done that for six months, to come more and to do
something else, eventually to look for and get work. So it is a
series of small steps. I think these problems that the low-
income mothers have that I am describing, they are less able to
handle them than other even single mothers are.
Ms. Bass. Right, and one of the reasons why I was asking
you to explain, and I appreciate your explanation, is because
how you would resolve those problems, what you have described
are a number of programs. Now what I am concerned about, and
again I appreciate your description, because frankly, sometimes
I am saddened when I listen to some of my colleagues who
describe people who are low-income because I think that they do
not have a real view or maybe they do not have the life
exposure or the education to understand that people who are in
the circumstances that you described, and you described them as
not being lazy, but you described them as people who have a
variety of circumstances that when multiplied have people fall
through the cracks.
So to me then, I think about some of what we are proposing
here, would actually make the problems that you are describing
worse. And also, people who might have had a higher level of
competency, education skills, or whatever, could actually be
pushed down. So instead of strengthening the programs that you
are describing, I am concerned that what we are talking about
doing would actually exacerbate the problem in the population
that you have just described.
Mr. Haskins. Can I give a 30 second response to that, Mr.
Chairman? Okay. I agree with much of what you say, but this is
exactly the kind of description that we had back in 1996 when
welfare reform was passed. People on welfare are not going to
be able to support themselves. When we created a system that
demanded they do so, imposed financial penalties on them,
imposed time-limits on them, no matter what your interpretation
of their characteristics is they went to work.
Ms. Bass. Right, however, a couple things. I got to claim
my time, because I am going to run out of it. I got to respond
to this.
Chairman Ryan. I will give you 20 seconds because, we got
other Members here, and we got a vote coming up.
Ms. Bass. That is fine. I would agree with you. During that
time, we were in a better economic situation, and what we
provided was childcare, and we also provided the ability for
those folks to get training and education. Over the years, we
have cut that back. We have cut the childcare. We have cut the
education. I think that we all know, especially in this current
recession, the homelessness amongst women and children has
increased. Thank you.
Chairman Ryan. Thank you. Ms. Black.
Ms. Black. Thank you, Mr. Chairman. I am one of those
people that really can be convinced that something is workable
if you can show me the numbers that it is really managing the
problem that you have. And when we look back at the initiation
of these programs, and we see 6 percent of the population at
that point in time, and now we say 42 percent of the population
is in poverty, something is not working. And for me, I want to
know, what is it that we can do to make it work? Because if our
real incentive here is as President Johnson indicated, that we
want to make people self-sufficient and prosperous, it does not
appear that we are going that way if more people tend to be
taking from the government because they are not able or not
being self-sufficient, there is a real concern for me.
And I will say that, as a nurse, and having worked with a
number of people in the programs that I worked in, that what I
saw was something very disturbing is that people become
trapped. And they become so dependent upon a system where even
when they have the skills, and you give them the opportunities
and they attain the skills, that they are fearful that if they
go to work or if they are not any longer getting that
assistance that they have gotten regularly, that they may not
be successful in the work world, so you know, ``I am fearful
now, I cannot do this, I am going to be trapped.'' And that is
where, I think, that our mistake is being made, is that we have
got so many people being trapped in this program, and they are
not getting out.
So, can any of you, and maybe I will start with Mr. Haskins
and Mr. Rector, talk about how we can do things to keep people
from getting trapped in these programs?
Mr. Haskins. Well, again, I hate to be a one note Johnny
here, but work is the key. We have to have strong work
requirements. We have two work requirements in food stamp
program that are observed in the breach. The states do not
aggressively implement the program. The biggest savings, I
think, is in unemployment insurance. I mean, what kind of
system do we have where unemployment insurance, people that
draw that, have a work history? Compared to welfare we have
very strong work requirements in welfare, but in unemployment
insurance system, we have a requirement in the law but it is
not observed. We should have much stronger requirements in
unemployment insurance. People would get back to work much more
quickly. You are supposed to be the land of entitlement and to
give money to everybody? Several European countries, especially
Germany and something called the Hart's reforms, has greatly
strengthened their unemployment insurance programs and imposed
much stronger requirements and even reduced benefits and
reduced the length of benefits to get people back to work. This
is the future of all the western democracies. More people have
to work. When they get unemployed, they have to go back to work
sooner. That is what we have to do?
Ms. Black. Would you agree, Mr. Rector?
Mr. Rector. Focus on two factors. If you look at the $450
billion of the welfare state that is families with children,
overwhelmingly, about 80 percent of that is single-parent
families. Okay, so there are two causes of child poverty in the
United States and two causes of welfare dependence, and those
are the collapse of marriage and very low levels of work. Even
in the hottest economic boom, the average poor parent has only
about 600 hours of work during the year. If you were able to
raise that to full-time work, you would drop the poverty rate
in those families by about 60 percent, and this is not in a
recession, but in the hottest economic boom.
As Ron said, you clearly have to get the work rate up. You
have to do that in programs like housing and food stamps, able-
bodied people will work or at least look for work. But more
importantly, that is not really going to work if the marriage
continues to collapse. The welfare state has driven fathers out
of the home. That is the predominant cause of child poverty
today. If a mother is married to the father, even if you hold
education and race constant, it drops the probability of child
poverty by 85 percent. There is nothing even remotely like
that. Marriage is more effective, now get this, marriage is
more effective in reducing child poverty than having the parent
graduate from high school. I will probably get a press report
saying he does not want people to graduate from high school.
Graduating from high school is really important, okay? But
actually, amazingly, marriage is more important, and we treat
it with absolute indifference if not disdain within the welfare
system.
Ms. Black. Well thank you. And, Mr. Chairman, I think it is
already said, my second question would have been about the
incredible growth in the SSI program. And I know we have had
some hearings in Ways and Means, but I would encourage that we
would have those very hearing in here as well. Thank you. I
yield back my time.
Chairman Ryan. Thank you. Ms. Bonamici.
Ms. Bonamici. Thank you, Mr. Chairman. So I noticed, Mr.
Rector, in your testimony you talk about some 79, I believe it
is, means-tested programs that you describe as making up the
federal welfare system. And then you have tables attached to
your written testimony that outline those programs. I think it
would be helpful if we run through just a couple of those, so
everyone has a clearer picture when we hear a reference to the
means-tested programs you are describing as part of the federal
welfare system.
You include the refundable child tax credit, the Pell
grant, Job Corps, America Corps VISTA and Head Start, and I am
not sure that those programs in particular come to mind for
most people when we talk about the federal welfare system. But
I just want to take a moment and talk about Head Start.
In October last year, there was a column in the New York
Times by native Oregonian, Nicholas Kristof. And the column is
titled, ``Occupy the Classroom.'' And Mr. Kristof described the
findings of one of his interview subjects, Professor David
Deming of Harvard, who had taken a look at Head Start outcomes.
And here is what he wrote.
``The former Head Start participants are significantly less
likely than siblings,'' so we are talking about the same
socioeconomic group, ``to repeat grades, to be diagnosed with a
learning disability or to suffer the kind of poor health
associated with poverty. Head Start alumni were more likely
than their siblings to graduate from high school and attend
college.''
So I want to ask Mr. Greenstein, this assertion seems to
back up what you said about the long-term gains that these
programs produce. Programs, such as Head Start, such as the
Pell grant and Job Corps, seem to be the kind of things that we
would want to invest in if we truly have an interest in
breaking the cycle of poverty. So, I am sort of setting aside
that these programs are the right thing to do to help those in
need. Let's just look at the economic sense, and these
investments make long-term economic sense, do they not?
Mr. Greenstein. I agree. You have to look at each program
one by one, but if you take something like Pell grants, in the
absence of Pell grants, fewer promising low-income students
would be able to afford to go to college, and the data is very
clear that while there are many factors, that people who
graduate from college have higher earnings and better
employment prospects than people who do not.
With regard to Head Start, it is interesting. For awhile,
there were a lot of data that showed gains for children in the
years following Head Start, but that then when you did
standardized test scores, the gains seemed to fade away in
secondary school. There is now new research that is very
challenging that finds that even though some of the gains, or
many of the gains, fade away in secondary school, they actually
are finding that by the time people get to adulthood, that
there are some increases in earnings.
So I think these things are really important, and I am also
in agreement with Ron Haskins that for the people at the very
bottom, we really need to do more demonstration projects to
find the things that are most effective in helping them and
then replicate them.
One last point, this is really key, some of the most
important emerging research is research is research that finds
for young children that a difference of several thousand
dollars in their income, whether it is from earnings or from
government assistance, is associated with increases in
employment and earnings in adulthood. There is starting to be
some evidence that it is deleterious for children's long-term
earnings prospects to grow up in deep poverty, and we also need
to take that into account.
Ms. Bonamici. Thank you so much. And just briefly, I wanted
to talk also about SNAP, because in 2010 there were proximately
27,000 households in my district receiving SNAP benefits. And
when we talk about the programs and the people who rely on
them, sometimes certain assumptions are made. So I just want to
make clear about the data here. Of those 27,000 households in
my district, the medium income was below $19,000 a year; 50
percent of the families had at least one person working in the
previous year, and 36 percent had two or more people working in
the previous 12 months. So roughly 87 percent of the
participating families in my district had somebody working. So
it is our struggling working families who really need this
help. These are programs we should be supporting and not
cutting. And I yield back the remainder of my time. Thank you,
Mr. Chair.
Chairman Ryan. Thank you. Mr. Flores.
Mr. Flores. Thank you, Mr. Chairman. This has been a
fascinating hearing. And it really exposes the deep differences
in the way we look at economic opportunity in this country. I
have to start by saying let's remember that the best social
program ever designed by man to combat poverty is a private
sector paycheck. This is where you house a family, you feed a
family, you educate a family, you grow a state and local tax
base and you grow and economically secure middle class.
This hearing is about a choice between two futures for this
country, a choice of debt, doubt and decline versus a choice of
restoration of American exceptionalism. It is a choice between
a failed Washington solution versus Main Street solutions. It
is a choice between the reallocation of a shrinking economic
pie versus a growing economic pie that provides more
opportunity for everyone. It is a choice between the
president's Budget, which accelerates our bankruptcy, which no
Member of the Congress voted for, including the ranking Member
that waxes so positively about it versus a budget that grows
our economy and protects our security.
It is a choice between no Senate budget versus a realistic
House budget. It is a choice between food stamps or paychecks.
It is a choice between more government versus more private
sector. It is a choice between Solyndra versus Keystone. It is
a choice between fake energy versus real energy, a choice
between expensive gasoline versus abundant energy. It is a
choice between tax increases versus tax reform. It is a choice
between more poverty or more jobs. It is a choice between
hiring more IRS agents and more UPA regulators, but having
fewer troops and less security versus more private sector jobs
and greater national security.
For example, for the cost of a typical EPA bureaucrat, we
can pay and equip two enlisted persons in our military. It is a
choice between more million dollar vacations and spring break
trips for our first family or more vacations for American
workers. It is a choice between more wars against stay-at-home
moms versus better job opportunities and bigger paychecks for
spouses that work outside the home.
It is a choice between more fast and furious guns for drug
lords or more protection for Americans' Second Amendment
rights. It is a choice between more spending of debt or a
Balanced Budget Amendment. It is a choice between more spending
on GSA bureaucrat parties versus more economic certainty and
opportunities for middle class Americans. It is a choice
between more taxes on job creators versus more jobs from those
same job creators.
It is a choice between more unemployment versus more
employment. In summary, it is a choice between more debt, doubt
and decline for future generations versus restoration of
American promise, prosperity and security for our children and
grandchildren.
In this regard, I have a question for Mr. Rector. What is
the single biggest determinant of poverty among families? I
think you have talked about it, but what is the single biggest
determinant?
Mr. Rector. The single strongest determinant of child
poverty is the absence of an employed father from the home, and
basically as we have seen the non-marital birthrate rise from 7
percent to 42 percent. That has caused a massive rate of
poverty as well as need for assistance. And it is just amazing
that in any academic setting, every liberal and conservative in
the room would agree about this, but once you come out in
public, ``Oh well, we are not going to talk about this,''
Senator Moynihan talked about this almost 40 years ago. And
this is the key factor. This is the key cause of poverty, and
it leads to all sorts of problems for those kids. And if I were
to say there was one thing that the TANF reform failed in 1996
was, the goal of that reform was to at least hold the line and
not allow further erosion of the family, and that did not
happen, it just got worse.
Mr. Flores. Let me ask you this. Does anything that has
been proposed improve the outcome of that single biggest
determinant?
Mr. Rector. I think that we really have made very few
efforts in this. But what I would say is recognizing that if
the research shows that these single mothers who are
predominantly very low educated, the least educated women on
our society, are not hostile to marriage. In fact, they
idealize it. They believe it is a wonderful thing, the way you
and I might think about a trip to Paris, okay. And they are
very serious about being moms. They do not want a baby to have
something to play with. They want to be a successful mom. The
first and foremost thing we could do to help those mothers is,
before they have children, and these are adult women, these are
not teenagers, but to say to them from a very early age, ``You
want to have children. You do not want your children to be
poor. Do you understand that the number one factor in reducing
poverty among children is to be married?'' Because no one tells
them that.
Mr. Flores. Mr. Chairman, I yield back.
Chairman Ryan. Ms. Moore.
Ms. Moore. Thank you so much, Mr. Chairman. It is so hard
to prepare good, copious talking points because I am too busy
listening to what people say, and I have to respond to it.
First of all, I want to associate myself with the comments
of the Chairman early on when he said, ``Let's put aside the
outrageous rhetoric.'' I agree with that. Let's start out with
the rhetoric about the wildly successful TANF program. By the
way, hello, Mr. Greenstein, hello, Ron Haskins, these are good
friends of mine. We have known each other since welfare was
ended. Can you put this chart up? The first one I want is just
the child poverty rates and the loss of benefits.

This is a real straightforward chart that shows that as
benefits have gone down, child poverty has gone up. You do not
have to graduate from the Wharton School of Economics to
understand this chart. And rather than adopt my good friend Joe
Wilson from South Carolina's rhetoric, I will just invite you
to look at that chart.
I am so glad that in the past week, I have watched my
favorite reality program, these news programs, and our
candidates, and the candidate for president has talked about
how being a stay-at-home mom is work. I am glad that we realize
that taking care of children is work. I have three children,
and trust me, it was work, they are all grown, they are still
work.
And so here we are hearing about how women who receive TANF
are not working. You cannot have it both ways. And if they must
go out in the workforce, and parenting is especially hard if
your maid does not show up, or your nanny does not show up on a
particular day. And it is really hard when you are the nanny,
and you are the maid for somebody else's kids, and if you do
not show up for work, you get sanctioned under TANF. Not only
do you get sanctioned under TANF, but you are deemed to be
lazy.
So that is the first myth that I want to put up. And you
can also put up the second chart.
The second wild, outrageous rhetoric I would like to put
aside is I am sorry, this methodology that we have from you
sir, Mr. Rector. I will be 61 tomorrow, and I did have inferior
education all my life, coming from the ghetto and all that, but
I did go to college under one of the welfare programs, Pell
grants. And I turned in a paper where you just sort of look
together all kinds of numbers, benefits that are given on a
community-base level, say AIDS stuff, or community development
block grants, stuff that was not given to individuals, looked
them all together and then claimed that you had given $13,000,
but I could not keep up with these growing numbers that you had
that were giving to all these people. And they gave me my paper
back. They told me, ``No, Gwendolyn, you cannot do that, use
that kind of methodology.''
So I would venture to risk, knowing that you are a genius,
that I reject your methodology in determining that poor people
are indeed receiving all these benefits. You just cannot deem
some 86-year-old woman that is laying up the ICU spending
thousands of dollars a day in the ICU and deem that income to a
2-year-old and say that they are not in poverty. I guess I want
Mr. Greenstein to really respond to this.
Mr. Greenstein. Well, I very much agree with that. As Mr.
Rector acknowledged, half or more of all the dollars in his
chart is health care. That is not money that goes to a family
to spend, it is money that goes to hospitals, doctors, labs,
nursing homes.
Ms. Moore. It goes to elderly.
Mr. Greenstein. Two-thirds of all Medicaid goes to elderly.
I also agree with you that it is pretty difficult to take
programs like the Community Development Block Grant, some of
which goes to developers.
Ms. Moore. Balance the budget.
Mr. Greenstein. And to act as though the CDBG dollars are
the equivalent of purchasing power for low-income people. But
the biggest issue regards health care, and it is consistent
with what I said earlier, what I think Congressman Van Hollen
said in his remarks. There are specific, particular issues with
health care, and we need to look at them somewhat separately.
Ms. Moore. Claiming my time, sir. I was so happy to hear
Mr. Chairman indulge me, and I was so happy to hear that women
are revered in this campaign and in this budget. I just want to
point out that two-thirds of the SNAP benefits and two-thirds
of the Medicaid benefits go to women, and if any of you guys
know a man who wants to marry me so that I do not need
Medicare, bring him on. I mean, I am single, I am open.
Chairman Ryan. Gwen, we've got some mutual friends in
Milwaukee, we'll talk later.
Ms. Moore. Okay, I am serious.
Chairman Ryan. Mr. Rokita.
Mr. Rokita. Thank you, Mr. Chairman, I wanted to give Mr.
Rector some time to respond, not to the marriage proposal, but
to the other things that were said.
Mr. Rector. Well, I think that they are all interesting and
valid points. As I laid out, when you look at this total
expenditure, about half of it is medical care. I made that very
clear. About 10 percent of it is what I called enabling
functions. Now that is money, it is about $100 billion a year
we are spending on behalf of the poor. We are putting that
money out the door, for some analysis, you want to take that
off the table, for some analysis you are trying to describe the
resources that are going in, it is kind of important. But 40
percent of this is cash, food and housing, and the simple fact
is that, just in cash, food and housing alone, we are spending
twice the amount of money needed to raise every single person
out of poverty in the United States. Even if you took all the
enabling programs off the table, took all the Medicaid
expenditures for people in nursing homes, take that off the
table, you still have enough money left over, if you converted
this into cash, to take every family in the United States to
200 percent of the poverty level, $44,000 a year: no Head
Start, no job training, no nursing home care, $44,000 a year.
It is an enormous amount of money, and no one knows where this
money goes.
Mr. Rokita. Let me go into that. Thank you, Mr. Rector.
That was one of the questions that I had for you. You ask and
rightfully so, for a need for an honest counting. Is there a
specific proposal out there that you endorse? A system or
process or procedure that would get us down this road to
accomplish your request?
Mr. Rector. I think you actually have to change the way
that the Census works. The Census has undercounted income
dramatically since 1950. It undercounts all types of income.
The only thing it counts accurately is earnings. You know why
it counts earnings accurately? Because it fixes the numbers. It
adjusts them behind the scenes so they match up. Everything
else is substantially undercounted, and then, for the most
part, all the non-cash assistance, which is now the bulk of
assistance here, is just off the table. So what you have here
is you have close to $1 trillion in spending. And when the
Census goes to count resources available to the poor in the
most normal numbers, they count 4 percent of that. And then
people come back and say, ``Oh my gosh, the poor people have no
resources.'' They do not have any resources because it was all
hidden. It is all not counted. Again, the game here is you
spend, then we in social science do not count it.
Mr. Rokita. Thank you. I understood that from your
testimony, I just wanted you to get as specific as possible in
the procedure.
Mr. Rector. I think that you need, first of all, to ensure
that all things about resources of the poor have to include all
the resources including the non-cash, do not talk about cash-
only. Secondly, I think you need a completely improve the
Census system that begins to use non-survey data, looks at tax
records and things like that, looks at welfare receipt and
things like that, gets to be accurate. The Census is missing $2
trillion in income each year. That is more than the Gross
National Product of England, I believe. It is very inaccurate.
Mr. Rokita. Thank you. Mr. Mulligan, do you have a response
to that, anything to add to my question about how do you get to
an honest accounting, from a procedural perspective? If you do
not, that is fine.
Mr. Mulligan. The account area is really beyond my
expertise.
Mr. Rokita. Thank you. Mr. Haskins, same question.
Mr. Haskins. Yes. I do not think the accounts are that bad
the way they are now. The official Census Bureau measure is
hopelessly flawed. The Census Bureau has a new measure they
have been working on for a long time. It also has flaws, but it
is much better, because it counts all the resources. It does
count the food stamps and so forth. And it may undercount them
some, Robert is right about that, but a guy named Burkhouser,
Professor Burkhouser at Cornell is able to include all those
government benefits, including healthcare and apply it to the
income distribution and show that, unlike what you are likely
to read in the New York Times, that the income all five
quintiles since 1979 has increased. And it has increased
substantially because of government benefits, especially at the
bottom.
So government is already doing a tremendous amount, and I
think we could reduce what government does and still, not
equalize, but bring the bottom up a little.
Mr. Rokita. Thank you. Mr. Greenstein, same question. Did
you have anything to add?
Mr. Greenstein. Yes. We have a CBO series. It currently
goes through 2007; it adjusts, and it counts these other
benefits. And I want to note that the figures I have presented
in my testimony today give a full accounting. How do I do that?
Like in my figures on 650,000 more kids below half the poverty
line? I count non-cash benefits, not health care, I count the
other non-cash benefits and Robert's correct that the Census
undercounts. The Urban Institute, in what is called the trim
model, fully adjusts. We adjusted using the trim model. We
added in all of the additional benefits to get to the full
amount that goes out the door and is shown in the federal
budget, and it was after we counted non-cash benefits and fully
adjusted that we find an increase between 1995 and 2005 of
650,000 kids below half the poverty line. There are ways that
are available to analysts right, left or center to adjust.
Mr. Rokita. Thank you. My time has expired. I thank all the
witnesses.
Chairman Ryan. Mr. Ryan.
Mr. Ryan of Ohio. Thank you, Mr. Chairman. This has been a
pretty interesting debate and discussion, so thank you for all
the various viewpoints here. I think part of this, too, I think
we need to look at the issue of poverty in context. And I do
not think it even breaks down to some of these specific
programs that we are talking about. And I agree that obviously
the family is the number one indicator, and not just single-
parent homes. I come from a single-parent home, but there were
grandparents and family members that are around, so there are
alternative ways to try to deal with those situations.
But the issue of context, and I think part of it is our
education system. I think this drive to say that it is only
about math and science, and it is not about the other skills
that you actually need to live a full life in the United States
of America are not being addressed, the social and emotional
skills and having a level of emotional intelligence. It seems
to me, it does not seem what job you end up at, it is about 10
percent of knowledge, of actual content, and the other 90
percent is how you show up. You are on time. You know how to
deal with other people. You know how to connect to other
people.
And I think that this test-driven mentality that we have in
the country has been a disservice to most of us, including and
especially these young kids who are living in poverty, because
those first set of skills that they need, and this is a bit
off-message for what this debate is supposed to be about, those
essential skills that they need are not being taught to them in
the schools. And they come from broken homes. But we are not
talking about managing poverty. I think everybody here is about
ending it and figuring out a way to end it.
Part of the discussion too saying we want to move people
from tax-eaters to taxpayers is part of this, but that does not
reflect the fact of the matter that 50 percent of this is
Medicaid, and, while it may not be a cut in the definition of
the chairman, it certainly is a cut if health care costs
continue to rise and those costs are going to be pushed off
onto somebody. And those people are in Ohio and Wisconsin and
Maryland and Florida that end up in a nursing home. That is who
uses Medicaid in Ohio. Those are middle class people maybe
making $40,000 a year, and they cannot afford to send someone
to a nursing home, but for the Medicaid program.
It is about the issue of violence in our society and in
those neighborhoods that those kids come from and beefing up
cops programs, so that we have enough cops on the beat, because
the tax base has been eviscerated in some of these communities.
You cannot learn if you live in a violent, abusive
neighborhood. Period, dot, the brain science is in. You cannot
learn. Your medulla destroys your brain, and your prefrontal
cortex does not work.
So we have got to provide safe environments in our schools
and in our neighborhoods. And we have got to invest in after-
school programs, so these kids who do not have a father, who
live in violent neighborhoods, have a place to go, so they can
learn the skills of teamwork and problem-solving and all these
things that we want to teach.
So I think this whole thing has to be taken into context.
And I would argue, as well as probably most people on our side
of the aisle, that the Affordable Care Act helped address a lot
of these problems. I mean, you talked about disincentives to go
to work, well the Affordable Care Act incentivized work because
you would be able to go to work and get health care. So there
was not this choice for the single mom to say I have to quit my
job so I can get on Medicaid and stay home with my kid and go
on the dole. Nobody wants to do that, and the Affordable Care
Act incentivized that. It also provided incentives so that we
can actually deal with people who are costing us a lot of
money, with the medical home and the accountable care
organizations, so that we have those wrap-around services that
will drive health care costs down.
At Summa Healthcare System in Akron, Ohio, they are already
saving $8 million, $9 million, 10$ million a year by making
sure that people do not end up in the emergency room, they end
up getting the preventative medicine that they need. And I
think the Affordable Care Act has done a good a good job, and
will continue to do a good job.
Lastly, you talk about having to go and check in so you do
not have an underground economy job, you got to go and check in
at Department of Job and Family Services. Well, there are cuts
in almost all the states now in programs like that, they are
downsizing and there is more people trying to access, so we
have got to say if we want to end poverty, we maybe have to
make these investments into the workforce that is going to have
to manage these programs.
And then lastly, I really do wish a lot of my friends on
the other side were as concerned about fraud in the tax system
as they were about fraud among poor people in our society. And
Mr. Flores mentioned it. The president is trying to beef up the
Internal Revenue Service, so that we can actually go after
these folks, and there is not support on the other side. So it
seems to me we are having a whole hearing on fraud from our
friends on the welfare state, but when we talk about fraud in
the IRS, there is no hearings or beefing up the IRS agents.
Chairman Ryan. Thank you. Mr. Huelskamp.
Mr. Huelskamp. Thank you, Mr. Chairman. I appreciate the
opportunity to ask questions from our experts here today. I
come from the state of Kansas, and actually last fall our state
department that deals with these programs; I do not think it
was a comprehensive review, anyway, but a pretty superficial
initial start or review, and found at least in our small state,
as much as $30 million in fraud in many of these programs. And
some of the typical cases of folks that are not who they say
they are, 6,400 that were probably from out of state because of
our generous welfare policies in Kansas, 312 folks possibly
dead and still receiving benefits, somehow somebody was picking
up that check, but that is just a small state. By my
calculations, if every state undertook a similar review, they
could save at least $3 billion to $4 billion annually, which is
kind of what we are talking about in some of these farm bill
discussions over on the Agriculture Committee as well.
My question is for the state of Kansas, or any other state,
what particular incentives do we have in the system to actually
ask our state partners to actually help root out the fraud and
abuse that we hear over and over is occurring and occurring
right in our state of Kansas. Mr. Rector, if you would like to
start?
Mr. Rector. Unfortunately, not very much. Again, part of
the reason that TANF reform was taken seriously was that the
states had money on the table in TANF. A lot of these other
programs, SSI, food stamps, they have very little money on the
table, and therefore it is very difficult to get state
legislators or governors to pay attention to them. They
certainly do not have any incentive to put effort into, say,
cleaning up food stamp fraud because they do not pay for it.
And I think that is very important to understand, and if you
are going to clean that fraud up, it would have to be done by
the people who pay for it, which happen to be you right here.
Mr. Huelskamp. Yeah. Actually, I served in the state
legislature, and actually the incentive is probably the other
way around.
Mr. Rector. Yes.
Mr. Huelskamp. Actually, on the Medicaid program, the more
the state spends, at least in our state of Kansas, the feds
will put even more in. The debate over and over on the state
floor is if we spend 40 cents, you will automatically get
another 60 cents whether it is for fraud or otherwise. And, of
course, we spend billions at the federal level trying to force
fraud prevention units to work on the Medicaid and the Medicare
side as well.
But specifically, we have a farm bill discussion hopefully
coming up this year; we will hopefully make some real changes.
But I want to ask each one of you, what could we do at the
state level that would encourage our state partners, and they
are a partner in these programs, we expect them to serve as
partners and actually to find a way to root out fraud and abuse
and actually help improve a program to get the funds, we spend
billions, as they do a great job outlining, to get to the
people that are in need. And I guess I'll start with Mr.
Haskins, if you'd like.
Mr. Haskins. Well, I think there is already considerable
motivation for states. They pay for almost half of Medicaid.
They pay for half of TANF. They pay for half of the child
protection programs. So they could save considerable money, and
they administer all these programs, and they pay at least half
the administrative cost of the programs. So they already have
money in the game. Now, true, it is correct that food stamps is
the one that they would be least likely to be vigilant about.
Mr. Huelskamp. Food stamps though, that is within our
jurisdiction on this farm bill that is coming up. So what can
they do on food stamps? Are we just going to wait on
Washington, or what can they do? So, quick question on that,
just on the food stamps, that we are talking about here.
Mr. Rector. I think the key in food stamps is to turn it
into a work activation grant, not a block grant, which is just
we give you money and you do what you want, but a grant program
that is designed to promote work and marriage, that requires
states to have certain goals in terms of participation, it has
some penalties and rewards if you do not and has some serious
things like fraud reduction. That is what really has to be
done. I mean, this program is basically a dinosaur. It has not
changed for 40 years. It is the same old giveaway program it
always was. I mean certainly it meets needs, I do not want to
suggest that people are not getting this money and are not
getting benefits from it, but in terms of promoting self-
sufficiency and upward progress, it is not good at all, and we
need to change it.
Mr. Greenstein. Exactly the opposite is true. I think I
know a little about this, I used to run the food stamp program
for the federal government in 1979 and 1980. I was credited
with cutting the error and fraud rate more than in half and was
celebrated by an Inspector General who was one of those
junkyard dogs Ronald Reagan promoted when he became president.
The food stamp program today has only a 3 percent
overpayment rate, fraud is a part of that. That is one-fifth
the rate in the internal revenue code. States do have
incentives. They come from several forms. States are required,
as a condition of getting federal funding under food stamps, to
do a very thorough; it is about eight to 12 hours per case
investigation. There are 50,000 cases done nationally. There is
a statistically valid sample for each state. If the state's
error rate is high, they are required to take corrective
action. The federal government can or on occasion does withhold
the portion of the federal share of state administrative costs
if they do not act. And we have gone, over several decades,
from a program that had a 17 percent error rate when I first
came in, to 3 percent today, and the 3 percent overpayment, 2
percent net of underpayments. There is more that can be done,
but one should not think that everything is a failure. I think
in terms of error and fraud reduction in food stamps, we have
made great progress. We have further to go, but we have made
very substantial progress.
Chairman Ryan. Thank you.
Mr. Huelskamp. Thank you, I appreciate that.
Chairman Ryan. Ms. Kaptur.
Ms. Kaptur. Thank you. I want to thank Chairman Ryan and
Ranking Member Van Hollen for holding a hearing this morning on
something very important. I view feeding the hungry, as do the
majority of people I represent, as both a moral as well as
civil imperative. I have a problem with the Republican
proposal, however, and I am glad for the hearing, because I
frankly cannot support a budget that expands tax preferences
for the most wealthy by nearly a trillion dollars, $961
billion, while cutting the Supplemental Nutrition Assistance
Program, our major food program, by $122 billion. For me it
fails on a moral level as well as a civil level.
I am sorry Congressman Garrett is not here. He talked about
the Constitution. Well, I think feeding the hungry is a
constitutional imperative. We talk about forming a more perfect
union, about assuring domestic tranquility, about promoting the
general welfare and securing the blessings of life for our
current population and future population, and it seems to me
this is central to our Constitution.
The tax preferences that are in the proposed budget
outweigh the food cuts by eight to one, eight times more
benefit to the wealthy than what is proposed here in terms of
the $122 billion cut in Supplemental Nutrition Assistance. It
is simply is a nonstarter for me. And we know that two-thirds
of these are people in our country who are gravely struggling.
I can take you to a neighborhood in Toledo where we are
installing community gardens and where women over the age of 85
go and pick every pepper that we raise in the summertime to the
ground because of hunger needs. And there is not a single food
bank in the region that I represent that is not strapped to the
edge. So I think to propose cuts, $122 billion is absolutely
unconscionable.
Now, I asked the staff to put up this chart, because I was
sitting here working on some numbers.

These are raw figures. They show the number of people in
poverty in different years and decades and the number on SNAP.
Well, when I sat here and figured out per million population,
and if you go back to 1990 and you look at how many people were
on SNAP when we had 248 million people in the United States, it
was about 8 percent of the population was registered for our
food programs. You know what it is today with population of 310
million? About 7 percent. And so, it has actually not gone up,
and it has actually gone down as a percent of our people,
despite everything that is happening.
So this chart needs another line, and that is to talk about
the relationship to our population as a whole. So I think we
are doing extraordinarily well as a country. And also, if you
look at the red line at the top, you will see when Republicans
were in power, Mr. Flores talked about jobs, more people went
into poverty because jobs were outsourced. Jobs were not being
created. Those who had wealth took it someplace else, and they
did not invest here.
So you look at the Bush era after the late 1980s, early
1900s, and when Clinton became president, what happened?
Poverty started to go down; it started to go down. And then
what happened when Bush got in there? Back up again. In the
early 2000s, and then we had the horrible crash in 2008 under
Bush's watch. Look what happened. We are still trying to dig
out of that.
I think that we have to be reasonable in putting these
budgets together and do what our people would want us to do,
and that is to take care of those, including many members of
our military, who are eligible for food stamps because they are
not paid enough, and for those who are working. Who can
possibly work in a laundromat, a mother with children, at
minimum wage, owning a clunker of a car, having to pay gas to
get to work, pay the heat bill, live on $1,300 a month, almost
an impossibility in our country.
So, I wanted to ask Mr. Greenstein your thoughts on the
SNAP program. Most of the money in SNAP, and I am a member of
the Subcommittee on Agriculture, goes right into benefits. It
is a very efficient program. Is not the program being run
efficiently something that we should be proud of and not be
cutting at a time of need in our country, when there are not
enough jobs being created because so many of our so-called
corporations decide to go abroad where there are no labor
rights, there are no environmental standards and people live as
bonded labor in so many of these countries. Is it not an
efficient program, we should be proud of this program, maintain
it and not cut it by $122 billion?
Mr. Greenstein. Yes, I think it is one of the most
efficient and best-run programs we have. There has been a lot
of discussion by the chairman, among others, of the big
increases in SNAP costs in recent years. When you look at what
happened, following the 1996 welfare law in an unintended side-
effect, a lot of people that left welfare for work got cut off
food stamps when they went to work for low wages. It was not
intended. Ron Haskins was among those who testified that we
should address that. You should not lose food stamps if you
went to work for low wages. Congress, on a bipartisan basis,
Clinton and particularly the Bush administrations made the
program more accessible to the working poor. We went from about
70 percent of eligibles getting benefits in 1995 down to about
50 percent at the start of, chairman, your 10 year period. It
is back up to 72 percent.
The three major reasons food stamp costs have grown are the
downturn in the economy, the increase, which will expire under
ARRA and the significant increase since 10 years ago in the
percentage of eligibles that get benefits concentrated among
the working poor. We went in the last 10 years from 43 percent
of eligible low-income working families getting food stamps to
60 percent. I had in my testimony, it is somewhere in the
slides, if you look at food stamp costs since 1995 as a share
of GDP, they are way up now, but under the CBO forecast, by the
end of the decade they come all the way back down and then go
below the 1995 level as a share of GDP.
Ms. Kaptur. May I just interrupt and say, Mr. Chairman, the
cost of food has gone up so much. In Ohio, to buy two lamb
chops, which I do not buy, $10.62. Now, who can afford that in
the supermarket? All right, so the cost of food was not
included in these charts either.
Mr. Chairman, I just want to ask for the record if any of
the panelists could submit for the record, how many people in
the state of Ohio in each of the following categories would
become increasingly food-insecure if the $122 billion cut were
adopted: children, seniors, the severely disabled, the
unemployed and families who are working. Does anybody have
those figures?
Chairman Ryan. I do not think they do. Time has expired.
Ms. Wasserman Schultz.
Ms. Wasserman Schultz. Thank you, Mr. Chairman. You know,
it has been interesting to sit through this ironically-titled
hearing, ``Strengthening the Safety Net,'' when the Ryan budget
does just the opposite, because it achieves most of its savings
by pulling the safety net out from under the most vulnerable.
With that preface, Mr. Greenstein, could you help with some
data? What percent of the Ryan budget cuts, in your analysis,
come from programs that serve low-income Americans? And also,
could you talk about your broader analysis of the impact that
the Ryan budget has, in general, and what were your main
findings?
Mr. Greenstein. So there are $5.3 trillion in expenditure
reductions, not counting interest savings over the next 10
years. Our analysis, and it is conservative, the figure is
probably too low, is that at least about 62 percent of that
would come from low-income programs. They way we got that was
for all the programs where there are specific figures,
Medicaid, food stamps, and the like, including the specific
figures, for the areas where there were not: non-defense
discretionary and entitlement programs other than like Social
Security, Medicare and so forth, for which there is not a
specific number, we simply assumed that the percentage
reduction in that part of the budget that you would have the
same percentage reduction in the low-income component. If you
take discretionary, since I do not think there are going to be
those kind of reductions in veterans health or the FBI or
things of that sort, the odds are that the low-income
reductions would be bigger, but we did not assume that. And the
figure ended up being 62 percent, or $3.3 trillion of the $5.3
trillion in budget cuts.
Ms. Wasserman Schultz. And just more specifically about
SNAP caseloads, because obviously during the Great Recession
and its aftermath, SNAP caseloads grew, making sure that people
were not food-deprived, that was incredibly important. But as
the economy recovers, and we have had many more people who, in
order to make ends meet, are dependent upon SNAP. Can you talk
about what we can expect would happen to SNAP caseloads as the
economy improves?
Mr. Greenstein. So I have been following the SNAP program
since 1972, and the caseloads go up in every recession a lot.
In every recession there is a lot of commentary that they will
never come back down after the economy recovers; and after
every recession, they do come back down. And that is the CBO
forecast and, I think, that of most analysts.
Over 90 percent of the funding in food stamps is right for
benefits, and the remaining, a little short of 10 percent, is
to make sure people are eligible, to make sure retailers are
complying with the program, and they administer work
requirements, which the program does have, and the employment
and training program. It is hard to get much savings there. If
you had to take $133 billion out of the program, which the
budget does, you have to cut benefits. You have to cut
eligibility, benefits, or both. It is unclear which states
would do, perhaps a combination, but there is little question
that you would have some numbers of millions of people who
would no longer be able to get food stamps, and for those who
did, most likely they would get smaller amounts, which is a
concern, given the evidence that people do run out of food
before the end of the month.
The Institute of Medicine is currently conducting a study
of whether the level of benefits in SNAP is adequate. I do not
know where they will come up, but enough questions have been
raised in the research that they thought it warranted a study.
I think the results will come out the end of the year.
Ms. Wasserman Schultz. Having gone through an exercise
myself on trying to subsist on what it would be like if I were
on a food stamp budget, I can attest to it being extremely
difficult, if not impossible.
Just lastly, as recently as 2008 and 2009 in my home state
of Florida, nearly 350,000 families with children were living
in poverty. Can you talk about the impact, in the time I have
remaining, of what that would mean for those families if we
changed the SNAP program, the food stamp program, from a safety
net program into a block grant program?
Mr. Greenstein. Well, the effect would be by far the most
severe during economic downturns. The food stamp program
automatically responds in recessions, block grants do not.
Ms. Wasserman Schultz. And that is because a block grant,
you are giving a finite amount of money. You are saying this is
what you have. Do with it what you will.
Mr. Greenstein. And under the TANF block grant, there is no
adjustment even for inflation, and the total amount of federal
money in the program is lower in nominal terms today than it
was when the program started because of the elimination of the
supplemental grants.
I do not know what the specifics would be in food stamps,
but based on prior proposals maybe it would adjust for
inflation, maybe it would not, but that does not necessarily
take into account population growth. It certainly does not take
into account downturns in the recession. And block grants do
very badly in adjusting for changes in need across states. Not
all state economies, poverty rates and so forth move at the
same rate.
My particular concern is about the people both Ron Haskins
and I have been talking about on this panel, at the very
bottom. The people who have difficulty holding a job. The
people who are worse off as a result of the welfare law,
recognizing other people are better off.
In 1995, my distinct recollection is that when the Ways and
Means Committee marked up the welfare law, Democrats on the
committee said this is going to harm poor children and leading
Republicans on the committee said we are maintaining food
stamps as a floor. No children will be hungry. The fact that
TANF is a block grant actually, in my view, makes it all the
more important that food stamps retain its entitlement
structure and be that floor under the poorest families.
Chairman Ryan. Thank you.
Ms. Wasserman Schultz. Thank you very much.
Chairman Ryan. Thank you. In closing, I will make a couple
points of clarification. There is a lot to talk about spending
cuts. The budget we passed increases federal spending from $3.6
trillion a year to about $4.9 trillion a year over the 10-year
period, instead of the $5.8 trillion, which is what the
president proposes. So we are talking about rates of increase
here, not even talking about actual cuts.
With the respect to how to structure block grants to say,
programs like SNAP, when your formula, as ours proposes, is
eligible population plus inflation, then if the eligible
population increases because of a recession, then the formula
reflects that. So you can measure for these things, account for
these things in your block grant formula so long as you write
your block grant formula appropriately, and that is what we are
proposing. But Mr. Van Hollen, I want to yield to you. Do you
have a UC you want to ask for?
Mr. Van Hollen. I do. Thank you, Mr. Chairman. First of
all, I want to thank all the witnesses for their testimony. I
do, Mr. Chairman, think going forward, we should keep in mind
this distinction between means-tested health programs and other
programs. I think as we have seen, the overwhelming amount of
funds are in the health programs, and the growth is in those
programs, and I do not think that the Welfare Reform Act work
incentives apply many lessons to there, as we have heard today.
I would ask you, Mr. Chairman, for unanimous consent to
submit for the record a report from the Saint Camillus Food
Pantry in Silver Spring, Maryland, a food pantry in my
community that serves over 6,000 families, on the issue of food
security.
[The information follows:]

Chairman Ryan. Without objection. Gentlemen, thank you very
much for spending your morning and into the afternoon with us.
We appreciate your time traveling out from Chicago, Dr.
Mulligan and everyone else. This hearing is adjourned.
[Whereupon, at 12:44 p.m., the Committee was adjourned.]