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Spending on Government Anti-Poverty Efforts: Healthcare Expenditures Vastly Outstrip Income Transfers

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By H. Luke Shaefer, Kate Naranjo, and David Harris

Summary

  • A widely cited 2012 study by Michael Tanner of the Cato Institute concluded that government spending on anti-poverty measures in the United States totaled almost $1 trillion, with federal expenditures of $668 billion
  • Excluding expenditures on means-tested healthcare programs—which mirrors the construction of most poverty statistics—leads to an estimate of federal spending that is approximately half of what Tanner’s method yields
  • The federal government spends nearly three times as much on healthcare provision for low-income Americans as it does on means-tested cash transfers
  • Many programs that are assumed to target the poor also serve families well above the poverty line
  • Adjusting for these factors considerably reduces estimates of per-person federal spending on low-income Americans

Introduction

The government social safety net in the United States is complex, with more than one hundred programs spread across many agencies and levels of government. These dynamics make it surprisingly difficult to answer a seemingly simple question: how much does the federal government spend on anti-poverty programs?

A 2012 study by Michael Tanner of the Cato Institute concluded that such spending totaled almost $1 trillion, with federal expenditures of $668 billion, and a roughly-estimated $284 billion by states. This analysis led then-Senator Jeff Sessions to conclude that we spent more than $60,000 annually or $168 per day, per household below the poverty line.

Adapting Tanner’s approach and updating for 2018, we find that federal expenditures reached $857 billion, the increase since 2012 largely driven by increases in the cost of health care provision and expansion of Medicaid through the Affordable Care Act.

A careful examination of the programs included in this estimate raises important questions about what “counts” as spending on poverty. Does the federal work-study program that subsidizes the wages of lower-income college students count? Should spending on low-income working families above the poverty line through the Earned Income Tax Credit (EITC) be included? What about programs to support services on Native American reservations?

The most consequential decision by far is whether to include spending on healthcare programs for low-income Americans in a list of anti-poverty programs. The Census Bureau’s official poverty metrics excludes resources from government healthcare spending, instead focusing on government programs more directly targeting the economic resources of low-income Americans. Adopting this stance in a tally of federal anti-poverty expenditures leads to an estimate of $393 billion in 2018, approximately half of what Tanner’s method yields for the same year. Moreover, a sizable portion of this spending goes to people who are living above the poverty line.

The stark difference between these two estimates brings into sharp relief the divide between what the federal government spends on  healthcare versus what it spends on income support. It also shows that the answers to thorny questions of what does and does not count as anti-poverty spending have major implications for one’s conclusions.

Conclusion

The complexity of the federal social safety net makes it difficult for policymakers to evaluate the aggregate outcomes of anti-poverty spending, or even to agree on a dollar amount of that spending. It also makes it challenging for low-income individuals to navigate a confusing system. Simplifying the safety net is a policy goal that could lead to improvements over the current system. However, implementation of such a goal is fraught with challenges. Such changes could have major impacts on the well-being of poor and low income families—for better or for worse—depending on what the changes are.

At more than $450 billion, Medicaid and CHIP comprise considerably more than the federal government spends on means-tested income support programs. This leads to an important insight, which is that if healthcare spending is included—and policy makers want to curb costs—a focus on curbing the broader costs of our extremely expensive healthcare system is merited.

What the federal government spends relatively little on is direct means-tested cash transfers, and much of this goes to low-income families above the poverty line and not to the poorest. In-kind and cash means-tested income transfers represent 32% of total federal anti-poverty expenditures overall. Cash transfers represent 18% of such federal expenditures. Given recent research on the efficacy of cash transfers, we argue that new aid may be more effective if it takes the form of cash income transfers.

While scholars will continue a vigorous debate about how much we, as a nation, spend on anti-poverty efforts, even asking the question can lead to a deeper understanding of the landscape, and uncover areas of agreement among scholars with very different perspectives.

Download PDF of the full policy brief