The 2005 Index of Dependency

Americans have always expressed concern about becoming dependent on government. This is partly because they worry that such dependency will erode the spirit of independence and self-improve­ment. This concern explains why there was such broad support in the 1990s for welfare reform designed to reduce dependency.

However, this concern is also partly explained by the fear that, as citizens become more dependent on government, the very nature of our democracy begins to change. A citizenry that reaches a certain tipping point in dependency on government runs the risk of evolving into a society that demands an ever-expanding government that caters to group self-interests rather than pursuing the public good.

Today, are we more or less dependent on the gov­ernment's income and social support programs- especially federal programs-than we were 40 years ago? Are we close to a tipping point that endangers the working of our democracy? Or have we passed that point already?

To explore these questions, we need to measure how much federal social programs have grown. We might also look at how such programs have "crowded out" what were once social obligations and services carried out by community groups, family networks, and even local governments. In other words, has the civil society yielded substan­tial ground to the federal public sector?

The Index of Dependency is an attempt to mea­sure these patterns and provide data to help us assess the implications of the trends. Using the Index, Heritage Foundation analysts have found a steady and perhaps alarming growth in depen­dency in recent decades. Specifically:

• Using a benchmark index of 100 for 1980, the Dependency Index for 2004 stands at 212, a 1 percent increase over its 2003 score of 210. This increase marks the first year since 2001 that the Dependency Index has risen by less than 5 percent. Since 1980, the Index has dou­bled, increasing by 112 percent.
• The most significant growth in this year's Index score came in three components: health care and welfare, retirement, and education.

Table 1 contains the Index scores from 1962 to 2004, with 1980 as the base year.

The Index's Purpose and Theoretical Motivation

The Index of Dependency is designed to mea­sure the pace at which federal government services and programs have been growing in areas in which private or community-based services and programs exist or have existed to address the same or nearly the same needs. Thus, it allows patterns to be ana­lyzed. Policy analysts and political scientists can also use the Index to develop forecasts of likely trends and to assess how these trends might affect the politics of the federal budget.

The Index uses data drawn from a carefully selected set of federally funded programs. Pro­grams were selected by their propensity to dupli­cate or substitute for support given by families, local organizations, neighborhoods, and communi­ties to people in need (middle-class as well as poor), such as those without adequate shelter, food, income, education, or health care and those facing calamity, such as unemployment.

Historically, individuals and local entities typi­cally provided more assistance than they do today. Over the course of the 20th century in particular, government came to provide more and more of the services that previously had been provided by self-help and mutual-aid organizations. Lower-cost housing is a good example. Mutual-aid, religious, and educational organizations had long provided limited housing assistance. However, after World War II, the federal and state governments began to provide the bulk of low-cost housing. Today, nearly all housing assistance comes from government.

Health care is another example of the pattern. Before World War II, Americans of modest income typically obtained health care and health insurance through a range of community institutions, some operated by churches and social clubs. That entire health care infrastructure has today been replaced by publicly provided health care coverage, largely through Medicaid and Medicare. Whether or not the medical and financial result is better today, the relationship between the person receiving health care assistance and those who are paying for it has changed, and few would dispute that this change has affected the total cost of health care and the pol­itics of the relationships among patients, doctors, hospitals, and those needing care.

Financial help to those in need has also under­gone a profound change. Again, local, community-based charitable organizations once played the major role, which resulted in a particular relation­ship between the person receiving help and the community. Today, Social Security and other gov­ernment programs provide much or all of the income in indigent and modest households. Unem­ployment insurance payments provide nearly all of the income to temporarily unemployed workers- income that once was provided by unions, friendly societies, and local charities. Indeed, income assis­tance is quickly becoming a government program with little if any connection to the local civil society.

This shift from local, community-based mutual-aid assistance to government assistance has clearly altered the relationship between the person in need and the service provider. In the past, the person in need depended on people and organizations in the community for help. The community knew the person's needs and tailored assistance to meet those needs within the budgetary constraints of the com­munity. Today, housing and other needs are addressed by government employees who typically do not know the person and have no tie to the com­munity where the needy person lives.

Of course, a dependent relationship exists in both cases. However, the first is a dependent rela­tionship with the civil society that includes expec­tations of the person's future civil viability or ability to aid another person. The latter is a dependent relationship with a political system without any reciprocal expectations. The former is based on mutual and reciprocal aid with future aid depen­dent upon returning to civil viability, which in turn is essential to the life of civil society itself. The latter is usually based on unilateral aid in which the return to civil viability is not essential. Indeed, "success" in the latter political system is frequently measured by the growth of the aid program rather than its outcome. While the former leads to a bal­ance between the interests of the person and the community, the latter runs the risk of interest-group political pressure-from provider organiza­tions and local communities as well as from recipi­ents of assistance from distant government-to expand federal support.

The Index of Dependency provides a way of assessing the magnitude and implications of the change in the form of dependency within American society. While the steps that we took in preparing this year's Index are described in the methodology section, it is worth noting that the Index is based principally on data provided annually by the White House when the President submits his budget. The base year for the 2005 Index is federal fiscal year 2004. A simple weighting scheme and inflation adjustment restate these publicly available data into an index. We encourage replication of our work and will provide the data that support this year's Index.

This presentation of the Index of Dependency for 2005 is organized into four sections. Matthew Spalding leads with a discussion of how depen­dency has been viewed in American history. That analysis is followed by brief reviews of major policy changes in six areas important to the Index: hous­ing, health care, welfare, retirement, education, and agriculture. These discussions of important policy changes are followed by a description of how the Index is constructed. The presentation concludes with some thoughts on the number of Americans who received support from the pro­grams contained in the Index.

The Danger of Dependency:
A Historical Perspective[1]

Independence was the theme of the American Revolution. The colonists sought independence not only from Great Britain, but also from military occupation, royal overseers, arbitrary laws, taxa­tion without representation, and-as it says in the Declaration of Independence-all that "evinces a design to reduce them under absolute Despotism."

A better way to understand independence is to recall the classical goal of self-sufficiency. Not exclusively or even primarily material, self-suffi­ciency encompasses more a sense of moral pur­pose and well-being. For America, this meant freely choosing their own leaders, establishing their own laws, and setting up a government to ensure their own safety and happiness, or as the Declaration of Independence says, "to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and Nature's God entitle them" and obtain the full power to do the "Acts and Things which Indepen­dent States may of right do."

The opposite of independence is dependence, which the American Founders deplored following Blackstone's definition: "Dependence is very little else but an obligation to conform to the will or law of that superior person or state upon which the inferior depends."[2] Thomas Jefferson, as usual, was more to the point: "Dependence begets subservi­ence and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition."[3]

In establishing a new nation, the challenge was to create the institutional arrangements for restrict­ing power and securing the rights promised in the Declaration of Independence while preserving a republican form of government that reflected the consent of the governed. The American Founders sought to assure independence and prevent depen­dence in two ways.

The first was to limit the power and scope of government. They did this by creating a strong gov­ernment of adequate but limited powers, all care­fully enumerated in a written constitution. A diversity of opinions would make it nearly impos­sible to form a majority on narrow interests that are contrary to the common good. Thus, the greatest bulwark of our independence as a self-governing people is our limited government.

The obverse of restraining government was to encourage the flourishing of the institutions of civil society-families, churches, schools, voluntary asso­ciations, and charitable organizations-that would not only form the habits of and create the conditions for an independent, self-governing citizenry, but also perform and provide charity and assistance to meet the demands of social responsibility.

The American Founders understood the need for a minimal safety net but believed that the primary method of helping the poor and preventing depen­dence was through the non-governmental sphere of civil society, on the one hand, and the promotion of economic independence, on the other. With eco­nomic independence created through the encour­agement of commerce and the protection of private property, each citizen "possesses a common interest with his fellow citizens," wrote James Wilson, and "is not in such uncomfortable circumstances as to render him necessarily dependent, for his subsis­tence, on the will of others."[4]

Benjamin Franklin wrote that "the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it," and observed that the growing welfare system in England removed "the greatest of all inducements to industry, frugality, and sobriety, by giving [the poor] a dependence on somewhat else than a careful accu­mulation [of wealth] during youth and health."[5] Instead, the Founders-and Franklin is the greatest example of this effort-encouraged and formed pri­vate associations to promote mutual aid and assis­tance and to do precisely what they thought civil society should do to help those in need.

This understanding of independence and depen­dence changed radically toward the end of the 19th century with the rise of modern liberalism. Think­ers such as Herbert Croly and John Dewey argued that the forces of industrialism and urbanization had shattered America's traditional social order and that the conditions of the modern world required a new activist government to better manage political life and human affairs. Beginning with the Progres­sive Movement and continuing with the New Deal and the Great Society, this liberalism set out to transform the old constitutional structure into a "living" governmental system that was progressive, increasingly centralized, and focused on social reform.

President Franklin D. Roosevelt argued that true independence cannot exist without economic security-"Necessitous men are not free,"[6] he said-and proposed a second bill of rights that included a government guarantee to decent hous­ing, a living wage, adequate health care, a good education, and social security, among other things. By this view, dependence means economic want, and the new primary task of government is to alle­viate economic want and protect against economic insecurity.

The Great Society took the argument one step further by asserting that the purpose of govern­ment is no longer the securing of rights as much as it is the creation of the political and economic con­ditions of equality-"not just equality as a right and a theory," as Lyndon Johnson put it, "but equality as a fact and equality as a result."[7]

The consequence is that the idea of an indepen­dent, self-governing citizenry is replaced by indi­viduals and groups who see the federal government as the guarantor of economic security and the pri­mary provider of social services. Rather than basic or temporary programs, benefits come to be under­stood as something to which one is entitled.

At some point, as significant numbers of citizens come to look more and more to government for ben­efits, they come to expect or depend on those bene­fits. In the worst case, some are largely if not completely dependent on the services and benefits provided by government. By the old definition, one is less independent and has less freedom of action. At best, regular economic benefits become a real and substantial interest and bias one's opinion in favor of maintaining, if not expanding, those benefits.

At some point, especially as benefits expand beyond primary needs to middle-class entitle­ments, there could well be a conflict between immediate self-interest and a long-term, common interest that argues against expanded benefits.

What does all of this mean? For one thing, it encourages a politics in which government benefits and programs are seen as payoffs to existing or potential voter groups-a modern-day Tammany Hall method of building political majorities. We might also consider whether, and to what degree, dependence on essentially permanent government programs serves to create a large number of Amer­icans who are "united and actuated by some com­mon impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."[8] That is the definition of what James Madison in Federalist 10 called a faction, and a majority faction is what the American Founders thought to be the greatest threat to republican government.

Widespread dependency also creates the condi­tions for a greater problem. Dependency, when combined with the egalitarian spirit and regula­tory power of the modern state, can lead to what Alexis Tocqueville described as a form of demo­cratic despotism.

In Democracy in America, Tocqueville warned that the American future is "an innumerable multi­tude of men, all equal and alike, incessantly endeavoring to procure the petty and paltry plea­sures with which they glut their lives." Government becomes the parent, he writes, as "it provides for their security, foresees and supplies their necessi­ties, facilitates their pleasures, manages their prin­cipal concerns, directs their industry, regulates the descent of property, and subdivides their inherit­ances: what remains, but to spare them all the care of thinking and all the trouble of living?"[9]

"Such a power," Tocqueville concludes, "does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extin­guishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd."[10]

The American Founders opposed dependency, feared the dominance of a majority faction, and saw the solu­tion in constitutional self-government. They never imagined that a majority faction could be animated by a dependence on big gov­ernment. For his part, Toc­queville vividly describes what might happen when subservience is combined with the modern adminis­trative state and warns of the dangers of the despotism of dependency.

The Index Components

The Index consists of five broad categories of programs:

1. Housing assistance,
2. Health care and welfare assistance,
3. Retirement income,
4. Educational subsidies at the post-secondary level, and
5. Rural and agricultural services.

Federal programs and state activities supported by federal appropriations were selected to fit in each category. To be included in the initial dataset, each program had to meet the standard set up by the definition of dependency: that a reasonable argument could be made that publicly provided goods or services could crowd out or constrain pri­vate or local government alternatives and that the immediate beneficiary had to be an individual. This standard ruled out any expenditure by the states on programs that would otherwise meet the definition of dependency. However, federally funded pro­grams, in which the state acted as an intermediary, were included.

Elementary and secondary education is the prin­cipal state-based program excluded under this stip­ulation. Post-secondary education is the only part of government-provided education that is included in the Index.

Military and federal employees are also excluded because national defense is viewed as a primary function of the government and thus does not pro­mote dependency in the sense used in this research.

The following six sections discuss how these program areas have changed in the past few years, particularly since publication of the most recent Index of Dependency.

Housing Assistance.[11] The Department of Hous­ing and Urban Development (HUD) was created in 1965 by consolidating several independent federal housing agencies into a single Cabinet department. The purpose of the consolidation was to elevate the importance of government housing assistance within the constellation of federal spending programs. At that time, it was believed that the destructive urban riots that broke out in many cities in the early 1960s were a consequence of poor housing conditions and that such poor housing conditions were contributing to urban decay. To this end, the two initiatives- housing assistance and urban revitalization-were combined in a single federal department.

Today, HUD spending patterns still largely reflect that dual mission. Broadly speaking, in any given year, about 80 percent of HUD's budget is targeted toward housing assistance while the other 20 per­cent is focused on urban issues by way of the Com­munity Development Block Grant (CDBG) program. Given the nature of these programmatic allocations, HUD's budgetary and staff resources are concentrated on low-income households to an extent unmatched by any other federal department.

Within the 80 percent are a series of means-tested housing programs, some dating back to the Great Depression. Typically, these programs pro­vide low-income households, including the elderly and disabled, with an apartment at a monthly rent scaled to their income: the lower the income, the lower the rent.

Traditionally, HUD and the local housing agen­cies with which it works provide eligible low-income households with an apartment unit owned and operated by the government. This type of hous­ing assistance is referred to as "project-based." Pub­lic housing projects have been the most common form of such assistance, but they began to fall out of favor in the 1960s because of the rampant decay and deterioration that followed from concentrating too many troubled, low-income families in a single complex or neighborhood. Periodically, a new form of project-based program is adopted as a "reform," but it too tends to fall out of favor after several years of disappointing results. The most recently created form of project-based assistance is called HOPE VI, but high costs relative to benefits have led the Administration to terminate the program in 2006.

The other form of HUD housing assistance for low-income households is provided in the form of rent vouchers and certificates. Referred to as "ten­ant-based" assistance, these certificates help low-income households to rent apartments from pri­vate-sector providers by covering a portion of the rent charged by the landlord. The lower the house­hold's income, the greater will be the share of rent covered by the voucher/certificate. Implemented in the early 1970s as a cost-effective replacement for public housing and other forms of expensive project-based assistance, vouchers, because of industry resistance to terminating the lucrative project-based programs, still account for only a portion of the assistance provided.

Rounding out the total for HUD is the CDBG pro­gram, which provides block grants to cities and communities according to a needs-based formula. Grant money can be spent at a community's discre­tion among a series of permissible options. Among the allowable spending options is additional housing assistance, which many communities choose in order to provide assistance to a greater number of eligible low-income households. In 2005, President Bush proposed transferring the CDBG program from HUD to the Department of Commerce and reducing the amount of money available to the program.

Although HUD programs are means-tested to determine eligibility, they are not entitlements. As a consequence, because of funding limitations, many eligible households do not receive any housing assistance, and the waiting list for housing assis­tance in many communities is extensive.

Recognizing that HUD's housing assistance can create dependency among those who receive its benefits, some Members of Congress have attempted to extend to HUD programs the work requirements that have been implemented so suc­cessfully in welfare reform. Regrettably, advocates for the poor have succeeded in thwarting these efforts, and to date the most that can be required of HUD program beneficiaries is that they provide eight hours per month of volunteer effort to the community or housing project.

The complexity of HUD's changing mix of project-based housing assistance can make it diffi­cult to measure degrees of dependency unambigu­ously over time. For example, trends in real HUD spending suggest that dependency has been rising for many years. However, alternative measures, such as periodic census tabulations of the share of renters receiving some form of housing assistance, indicate no change over some of the period. For example, while inflation-adjusted HUD spending increased by 11.6 percent from 1993 to 1999, the U.S Census estimates that the share of renters receiving some form of rent subsidy fell from 18.4 percent in 1993 to 17.8 percent in 1999.

Unfortunately, such Census estimates are available for only those two years, so it is difficult to determine the extent to which such trends may have character­ized the entire period under investigation. The shift of HUD's assistance to the relatively more costly HOPE VI program over that period of time may account for the difference. By shifting resources to programs with higher costs per household assisted, HUD could spend more but assist fewer eligible households.

Health Care Assis­tance.[12] Public health pro­grams, particularly Medi-care and Medicaid, are con­tributing to the growing dependence on govern­ment programs. These pro­grams were enacted in 1965 to provide health care coverage for the elderly, poor, and disabled. Com­bined, they provided cover­age for close to 90 million individuals in 2004 and spent approximately $441 billion in federal dollars alone,[13] consuming 20 per­cent of federal spending in 2004.[14]

Medicare provides health care coverage for those age 65 and older and for certain disabled individuals. Medicare enrollment has increased steadily since the program's enactment, increasing the number of indi­viduals dependent on the program for their health care. In 1970, an estimated 20 million individuals were enrolled in Medicare. By 2003, the number of enrollees more than doubled, reaching over 41 mil­lion.[15] Moreover, in less than 10 years, there will be an unprecedented flood of new Medicare enrollees as 77 million baby boomers begin to retiree.

Larger enrollment also means increased pressure on the program to expand benefits and services, not only to keep up with medical technology, but also to counteract changes in supplemental cover­age. While Medicare is the primary source of health care coverage for these populations, many enrollees have additional, supplemental sources of coverage, such as employer-based retiree coverage for bene­fits and services not covered by Medicare-most notably for private prescription drug coverage. However, more employers are deciding not to pro­vide retiree coverage and/or are imposing addi­tional cost-sharing requirements on these populations. For example, 66 percent of firms with 200 or more employees offered coverage in 1988, compared to 34 percent in 2002.[16]

These trends place additional pressure on Medi­care to fill in these gaps and thereby create greater dependence on Medicare as the sole provider of coverage to this population. In fact, recent efforts to "reform" the Medicare program were overwhelmed by the demand for more services, specifically pre­scription drug coverage-even though almost half of all seniors had existing private prescription drug coverage. Thus, efforts to control future depen­dence on the program were thwarted.[17]

Medicaid, the joint federal-state government health care program for the poor, including the dis­abled and elderly, is also struggling to cope with growing dependency, especially in recent years. In 2003, Medicaid had approximately 42 million indi­viduals enrolled.[18] Somewhat different from Medi­care, Medicaid serves a diverse population of the poor that includes children, adults, the disabled, and the elderly. There is also diversity among states. Each state is able to establish its own eligibility lev­els provided that they meet a minimum standard. The majority of Medicaid enrollees are children, followed by adults, the disabled, and the elderly.

In most if not all cases, the states are the sole pro­vider of care and service to these populations. This sole source of coverage creates tremendous pressure on the state to ensure that needs are met. Because of the diversity of the populations, the benefits and services needed are also far-ranging. As with enroll­ment, states are able to establish their own level of benefits provided that they meet a minimum stan­dard, and most states have adjusted their benefit package beyond the minimum. While the majority of enrollees is made up of children and adults, the majority of spending on services is concentrated on the disabled and the elderly. Medicaid accounted for 43 percent of all long-term care spending, and these services consumed 36 percent of Medicaid spend­ing in 2003.[19] In recent years, states have begun to feel the consequences of the growing dependence on the program as maintaining enrollment and ben­efit levels has proven difficult.

One of the consequences of greater dependency is its effect on spending. Spending on both pro­grams is skyrocketing and is projected to get even worse. Over the next 10 years, Medicaid is expected to cost close to $5 trillion in combined federal and state spending.[20] Medicare spending is expected to reach $766 billion by 2015.[21] Recent Congressional Budget Office estimates anticipate that the two programs will consume between 5.7 percent and 11.5 percent of gross domestic product (GDP) by 2030 and between 6.4 percent and 21.3 percent of GDP by 2050.[22]

Government-run health care for the poor, eld­erly, and disabled is unsustainable without real reform. Without change, there will be far greater dependence on these public health programs and less demand for private-sector solutions. This is clearly evident in regard to long-term care services. Analysts have found that Medicaid long-term care services essentially "crowd-out" the demand for private long-term care insurance.[23]

These programs will continue to face more enroll­ees, increased demand for new benefits and technol­ogy, and higher levels of health care spending. To manage this growing dependency, policymakers will be forced to make dif­ficult decisions, such as whether to limit enroll­ment, reduce and/or ration benefits, or simply raise taxes. Only through reform can these public health programs be trans­formed from programs of dependency into programs of independence in which individuals, not the gov­ernment, are empowered to improve their lives and health.

Welfare Assistance.[24] Even with the historic reform of welfare in 1996, the welfare system is expensive and growing. In the 40 years since Pres­ident Lyndon Johnson launched the War on Pov­erty, the nation has spent over $8.5 trillion on means-tested assistance: food, housing, medical care, and social services for poor and low-income Americans. Welfare spending dwarfs many other government expenditures. In recent years, for example, the nation has spent $1.45 on means-tested welfare for every $1.00 spent on national defense. Despite such prolific spending, throughout most of the period since the beginning of the War on Poverty, most social prob­lems have grown worse, not better.

In 1996, Congress successfully reformed part of the welfare system to build self-sufficiency. The con­ventional welfare system rewarded non-work and non-marriage. By promoting dependence and ille­gitimacy, it increased poverty, crime, and a host of social ills. In 1996, Congress partially changed the direction of welfare assistance by replacing the failed Aid to Families with Dependent Children (AFDC) with Temporary Assistance to Needy Fam­ilies (TANF). Under TANF, many recipients are required to work or engage in constructive activities that lead to self-sufficiency as a condition of getting aid. Consequently, the child poverty and welfare dependence rates have plummeted, and employ­ment among single mothers has skyrocketed.

However, welfare reform remains incomplete. Despite the success of the reform, many the work-related aspects of welfare reform are quite limited. Half of the 2 million adults on TANF rolls are idle, collecting welfare without engaging in work or other constructive activities. Moreover, closely related pro­grams, such as food stamps and public housing, do not include any meaningful work requirements.

Welfare continues to subsidize illegitimacy and penalize marriage. Today, one child in three is born out of wedlock. Not surprisingly, the welfare sys­tem for families is overwhelmingly a subsidy sys­tem for single parents. Roughly three-quarters of the aid to children through programs such as pub­lic housing, food stamps, TANF, and the Earned Income Tax Credit (EITC) goes to single-parent homes. In 2003, the nation spent over $150 billion in means-tested aid to single-parent families. Over­all, the government spends $1,000 subsidizing sin­gle parents for every $1 it spends trying to reduce illegitimacy and increase marriage.

The erosion of marriage is the predominant cause of child poverty and welfare dependence and a major factor in most of America's social problems. The absence of marriage and fathers in the home has a strong negative impact on almost all aspects of child development. More than 80 percent of long-term child poverty occurs in broken or never-married homes.

Recognizing these facts, Congress wrote two basic national goals into the 1996 welfare reform act: reducing illegitimacy and restoring marriage. State governments were expected to use TANF funds to promote these goals. They have received nearly $100 billion in federal TANF dollars over the past seven years, but only about $20 million-a minus­cule 0.02 percent-has been spent on promoting marriage. Despite the existence of many promising experimental pro-marriage programs (mainly in the private sector), state welfare bureaucracies have failed to implement any significant pro-marriage agenda. As a consequence, the nation continues to run a welfare system that actively penalizes rather than promotes marriage, with devastating social consequences and continuing welfare dependence.

Congress is expected to reauthorize TANF this year, and this is a crucial opportunity for Members to expand and deepen the original reforms. Reau­thorization efforts should strengthen existing work requirements by not continuing to reward idleness and dependence through one-way handouts. The creation of federal work requirements in TANF was a successful revolution in welfare, but it is far from complete. When TANF is reauthorized, the states should increase the percentage of adult recipients who are engaged in community service work or supervised job search and increase the numbers of hours of work required each week. Likewise, work requirements should be established in food stamps and public housing. Able-bodied non-elderly adult recipients should be required to perform commu­nity service work, supervised job search, or train­ing as a condition of receiving aid.

A portion of TANF funds should also be directed specifically at programs that strengthen marriage and reduce illegitimacy. Congress should uphold the Administration's efforts to have $300 million in TANF funds allocated to voluntary programs that promote healthy marriages, particularly among low-income couples. Such programs should include education on the value of marriage for high-school students in at-risk communities, pub­lic advertising campaigns, pro-marriage counseling and relationship skills training for unmarried par­ents at the time of a child's birth, and premarital counseling for engaged couples. All participation in marriage programs would be voluntary and would utilize existing marriage-skills education programs that have proven effective in decreasing conflict and increasing happiness and stability among cou­ples. These programs have also been shown to be effective in reducing domestic violence.

The pro-marriage initiative would not merely seek to increase marriage rates among target cou­ples; it would also provide ongoing support to help at-risk couples maintain healthy marriages over time. The plan would not create government bureaucracies to provide marriage training. Instead, the government would contract with pri­vate organizations that have successful track records in providing marriage-skills education.

The marriage penalties inherent in all means-tested welfare programs should also be reversed. While it is not possible to eliminate fully the anti-marriage bias in the welfare system, it is possible to reduce it through programs such as the Earned Income Tax Credit for married couples with children.

Retirement Income.[25] Since the time of Presi­dent Franklin D. Roosevelt, the American retire­ment system has been described as a three-legged stool consisting of government-paid Social Secu­rity, employment-based pensions, and personal savings. Regrettably, for about half of the work­force, the reality of their retirement is closer to a pogo stick consisting almost totally of Social Secu­rity. In large part due to government policies, pen­sion coverage is mainly limited to employees of large companies, while few workers are able to save enough for retirement.

Since 1935, Social Security has served as the basis for most Americans' retirement income. The program pays both a monthly check to retired workers and benefits to surviving spouses and chil­dren under the age of 18. (It also has a separately financed disability program that is outside of the scope of this discussion.) Monthly benefits are based on the indexed average of a worker's monthly income over a 35-year period, with lower-income workers getting proportionately higher payments and higher-income workers proportionately less. As a result, lowest-income workers receive up to about 70 percent of their pre-retirement income while average-income workers receive about 40 percent-45 percent and upper-income workers average about 23 percent.

However, the demographic forces that once made Social Security affordable have reversed, and the program is facing a fiscal crisis. In order to break even, Social Security needs to have at least 2.9 work­ers paying taxes for each retiree receiving benefits. In 1950, 16 workers paid the benefits of one retiree, but the current ratio is 3.3 workers per retiree and dropping. Because the baby boomers produced fewer children and are now nearing retirement, that ratio will drop below 2.9 workers per retiree in 2017 and continue to drop until it reaches close to 2.0 workers per retiree in the 2030s.

This is a problem because current retirees' bene­fits are paid from the payroll taxes paid by today's workers. Since 1983, workers have been paying more in payroll taxes than the program needed in benefits. These additional taxes were supposed to build up and to help finance retirement benefits for baby boomers. However, those excess taxes were not saved or invested for the future. Instead, they were spent to finance the government, and in return, the Social Security "trust fund" received special-issue U.S. Treasury bonds. When it comes time to repay those bonds, the money will have to come from either higher taxes or massive borrow­ing. Although the additional money that Social Security will need to pay full benefits will be fairly low at first, by about 2027, the program will need $200 billion per year (in 2005 dollars) more than it will receive from its payroll taxes.

To make matters worse, about half of the Ameri­can workforce has no retirement program other than Social Security. These workers are not covered by an occupa­tional pension, and few have any significant sav­ings. To a large extent, they are dependent on the government to provide their retirement income.

This dependency is largely due to government policies. Social Security's high tax rate, by soaking up money that could oth­erwise be invested for the future, makes it much harder for lower-income and moderate-income workers to accumulate any significant savings. Taxes on interest and investment income further reduce the incentive to save.

Government policies also discourage the growth of occupational pensions to cover a higher propor­tion of the workforce. A host of confusing and changing tax policies, including the Employee Retirement Income Security Act (ERISA), imposes a regulatory burden that especially discourages smaller employers from offering pension plans. Over the past few decades, costs imposed by the ERISA and a changing workforce have resulted in the clo­sure of thousands of traditional defined-benefit pen­sion plans.

While many larger employers have substituted defined-contribution plans, such as 401(k) plans, these plans are also subject to burdensome provi­sions designed to ensure that workers of all income levels receive fair retirement benefits. Many smaller employers either lack the resources to hire a good funds manager or, knowing of ERISA's complex requirements, hesitate to offer their workers a retirement plan for fear of accidentally violating one of the requirements.

Post-Secondary Educational Subsidies.[26] In 2005, a record number of students and families will depend on the federal government for financial aid for higher education. Programs under the Higher Education Act of 1965 provide guaranteed loans, grants, and support services to students and their families. In 2000, over half of full-time undergrad­uates attending four-year public universities and 67 percent of those at private four-year institutions received aid under one of these programs. While participation was higher among the poor, a quarter of undergraduates from families with incomes over $100,000 received financial aid.[27]

In 2005, the federal government will make over $116 billion available to students in the form of loans, grants, and institutional aid under the Higher Education Act: over $13 billion for voucher-like Pell Grants and Supplemental Educa­tional Opportunity Grants to poor students; $1 bil­lion in employment (work-study) subsidies; $101 billion in Perkins Loans; $166 million in state matching grants; $41 billion in guaranteed loans (the Federal Family Education Loan Program); $13 billion in direct loans; and $43 billion in consolida­tion loans.[28] Taxpayers will provide an additional $2 billion for TRIO programs, fellowships, aca­demic scholarships, grants to universities for teacher education and foreign language acquisi­tion, and funds to institutions serving large num­bers of minority students.[29]

Nor is the HEA the only source of government funding. Higher education institutions receive bil­lions of federal dollars for research and contracts. At the state level, taxpayers gave $63 billion in subsidies to higher education.[30] Additionally, various tax cred­its and deductions provide over $9 billion to mostly middle-income and upper-income students.[31]

"Unsubsidized Stafford loans" is a misnomer. All guaranteed loans are subsidized to one degree or another. Taxpayers may not pay the interest on "unsubsidized loans" as they do on the "subsidized loans," but they do pay subsidies to banks to keep the interest rate artificially low and to cover bank admin­istrative costs. This year, Americans will pay billions in federal tax money to subsidize students, banks, and institutions of higher education. Ironically, these subsidies are borne in large part by those who do not have a college degree. Two-thirds of Americans do not hold a bachelor's degree or higher. Those with such a degree earn an average of $21,800 more per year, which tranlates to almost $1 million of addi­tional income in a lifetime.[34]

The increase in the number of Americans dependent on government higher education pro­grams has its disadvantages. While the research is inconclusive, there is evidence that federal loans and tax credits have contributed to the rise of tuition. Tuition and fees at public and private four-year institutions have risen 38 percent in the past 10 years. In the past 23 years, the cost of a public four-year college education has increased by 202 percent.[35]

Dependency affects students and their families. Such programs encourage borrowing rather than saving. A Hart Research Associates poll found that half of parents surveyed had saved less than $1,000 for college.[36] High loan limits-$23,000 for dependent undergraduates, $46,000 for indepen­dent students, and $138,500 for professional stu­dents-encourage students to take on large amounts of debt and discourage smart shopping. The National Commission on the Cost of Higher Education acknowledged that high loan limits and an increasing preference for borrowing rather than saving had contributed to the sharp increase in stu­dent borrowing.[37]

Programs can promote a sense of entitlement among students and special-interest groups who continuously push Congress to increase loan limits and enact new programs. Forbes writer Ira Carna­han puts it this way:

Over the past three decades the Federal Government has poured three-quarters of a trillion dollars into financial aid for college students.… So why is college getting less- not more-affordable? One answer seems to be that all those federal dollars have given colleges more room to jack up tuition.… The more cash the government pumps into parents' pockets, the more the schools siphon from them.[38]

Rural and Agricultural Services.[39] Much of the rapid increase in "rural and agricultural assistance" dependency is rooted in farm subsidy programs. A multitude of farm subsidy programs-such as direct payments, countercyclical payments, market assistance loans, and non-recourse loans-gener­ally work together to compensate farmers for low crop prices. Conservation payments pay farmers to initiate conservation projects or simply to stop farming their land. Export subsidies effectively lower the price of American products so they can undercut international competitors.[40]

Supporters of farm subsidies often describe farmers as impoverished-as victims of unpre­dictable weather and large global economic forces. In reality, farmers are doing quite well. The average farm has a net worth of $564,000 (double the national average household net worth) and an annual income of $64,347 (17 per­cent above the national average household income), despite being located in a rural area with significantly lower costs of living. By no means a teetering industry, the failure rate for farms is just one-sixth of the rate for non-farm businesses.

Yet farm subsidies have become America's largest corporate welfare program. Two-thirds of farm subsi­dies are distributed to just 10 per­cent of farms, most of which have annual household incomes over $130,000. In contrast, the bottom 80 percent of farmers receive just one-fifth of the subsidies. If farm policy were truly designed to help poor farmers, Congress could guar­antee every full-time farmer in America an income of at least 185 percent of the federal poverty line ($34,873 for a family of four in 2004) for just $4 billion per year.

Instead of need, farm subsidies are based on two factors. The first factor is which crops are grown. Approximately 90 percent of all farm subsidies goes to growers of just five crops: wheat, corn, cotton, soy­beans, and rice. Growers of most other crops are ineligible for most sub­sidy programs, regardless of need.

The second factor is the amount of crops grown, with those who plant more crops receiving larger subsidies. This is where the economic logic of farm subsidies falls apart. Subsidies are intended to compensate farmers for low prices that result from an oversupply of crops, but granting larger subsidies to those planting the most crops only encourages farmers to plant more crops, lead­ing to even lower prices and calls for larger subsi­dies. Then, while paying some farmers to plant more crops, the Conserva­tion Reserve Program pays other farmers to plant fewer crops. One analyst accurately describes U.S. farm policy as "one foot on the brake, one foot on the accelerator."[41]

Eventually, Congress acknowledged the failures of centrally planned agriculture. The 1996 Fed­eral Agricultural Improvement and Reform Act (known as the Freedom to Farm Act) was designed to phase out farm subsidies by 2002 and bring a free market back to agriculture. After spending just $6 billion on farm subsidies in 1996, Congress overreacted in 1998 to a tempo­rary dip in crop prices (resulting from the Asian economic slowdown) by passing the first in a series of annual emergency bailouts for farmers. By 2000, farm subsidies hit a record $30 billion. Farmers quickly grew accustomed to massive gov­ernment subsidies, and competition for the farmer vote induced a bipartisan bidding war on the eve of the 2002 elections. Lawmakers gave up on reform and enacted the largest farm bill in American history, projected to cost at least $180 billion over the following decade. Despite escalat­ing costs and negative economic effects, farm sub­sidy programs are now the overwhelming preference of Congress and the White House.

Signs point to farm dependency continuing. Policymakers see farm subsidies as the solution to-rather than a significant cause of-low crop prices. Expensive disaster payments are doled out if the weather is bad (crops are destroyed) or good (crop oversupply lowers prices). Finally, farm subsidies have created an entitlement mentality among a class of farmers who will likely punish any elected officials who pursue reform. As a result, there are no plans to move farmers toward self-sufficiency.

How the Dependency Index Is Constructed

After this initial analysis, the data were examined further to identify the components that contributed to variability. Short-term programs were elimi­nated, as well as relatively small programs that required little funding. The remaining expendi­tures were summed on an annual basis and divided into the five major categories.

Table 1 lists the individual components of each category.[42] The program titles in this table are those used by the Office of Management and Budget for budget function and subfunction in the budget accounting system.

Data were collected for federal fiscal years 1962 through 2004. Deflators centered on 2000 were employed to adjust for changes in the general price level, thus producing a series for each program in Table 1 of real or infla­tion-adjusted values.

Indexes are intended to provide insight into phenomena that are so detailed or so compli­cated that simplification through arbitrary but reasonable rules is required for obtaining anything other than a rudimentary under­standing. Thus, the Con­sumer Price Index (CPI) of the Bureau of Labor Statistics is a series based on an arbitrarily selected "basket of goods" that the Bureau surveys peri­odically for changes in price. The components of this basket are weighted to reflect their relative importance to overall price change, which results, for example, in energy prices being more important than clothing prices. Multiplying the weight times the price produces a weighted price for each element of the CPI, and summing up all of the weighted prices produces (roughly) the CPI score.

The Index of Dependency generally works the same way. The raw (or unweighted) value for each program (i.e., the yearly expenditures on that pro­gram) is multiplied by its weight. Summing up these weighted values produces the Index value for that year. (See Table 3.)

The weights, which sum to 100 percent, are "cen­tered" on the year 1980. This means that the weighted values for the Index components will sum to 100 for 1980, giving the Index a reference year from which all other Index values will be evaluated.

The year 1980 was chosen because of its appar­ent significance in the history of American political philosophy. Many students of American politics believe that historians will view 1980 as a water­shed year in U.S. history. It may mark the begin­ning of the decline of left-of-center public policy, which is based on the belief that social systems fail without the guiding hand of government, and the emergence of right-of-center challenges to these policies.

The Index certainly reflects such a watershed. Chart 7 plots the Index over the period 1962 through 2004. The drift of the scores is clearly upward over the entire period.

There are two plateaus in the Index: the first eight years of the 1980s and the period 1994 through 2000. This drift of the data suggests that policy change may have significantly influenced the growth rate of the Index. The early 1980s saw the rate of growth of some domestic programs slowed to pay for increased defense spending, and the 1990s saw significant policy changes in welfare and public housing, all of which reduced the growth rate of the Index.

Table 3 connects the Index to major public policy changes. It is hardly surprising that the largest jump in the Index occurred during the Johnson Administration following passage of the President's Great Society programs. Not only did the Johnson Administration launch Medicare and other health programs, but it vastly expanded the federal role in providing and financing low-income housing. It is somewhat more surprising that the Index jumped 127 per­cent (from 33 to 75) under President Richard Nixon and President Gerald Ford. However, dur­ing these years, Congress was funding and implementing substantial portions of Johnson's Great Society programs.

The two periods of more conservative public policy with respect to the Index components stand out clearly in Table 3. The slowdowns in spending increases during the Reagan years and after the 1994 elections produced two periods of slightly negative change in the Index. These periods saw significant retreats from Great Society goals, partic­ularly in the nation's approach to welfare. The return of budget surpluses during the last years of the Clinton Administration led to significant increases in spending for all of the components, particularly education and health care. Thus, the Index has resumed growing at roughly the average pace of the past 25 years.

Calculation of Covered Population

The Index reflects the growth of federal govern­ment programs that arguably crowd out or substi­tute for similar initiatives at lower levels of government or within the organizations of civil society. While Index values do not depend on the number of people who receive support through these programs, that number nevertheless sheds additional light on what the Index shows.

Data on the number of people enrolled or ben­efiting from the programs listed in Table 1 between 1962 and 2004 were drawn from a vari­ety of public sources. A significant effort was made to eliminate duplicate enrollments. For example, many people who receive food stamps also receive their medical services through Medic­aid. Despite this effort, duplicates undoubtedly remained, and an arbitrary reduction of 5 percent in each year was imposed to account for this undetected double counting.

Chart 8 shows the annual number of program participants from 1962 through 2004. On the eve of the Great Society programs, some 18 million people received assistance through the programs listed in Table 1 that existed at the time. Today, 52.6 million people (18 percent of the total U.S. popu­lation) receive some level of assistance through the programs covered by the Index.

Growth in income and non-financial support among program participants has accompanied the expansion of the numbers of people receiving assis­tance. As Chart 9 shows, per capita support (both financial and non-financial) stood at about $7,400 in 1966. By 2004, this support had grown to nearly $27,000.

Data in the Index and complementary estimates of program populations raise concerns about the ability of local governments and civil society orga­nizations to provide aid and other assistance. They also raise a traditional republican concern about the long-term viability of political institutions when a significant portion of the population becomes dependent on government for most or all of its income.[43]

One out of six Americans (18 percent) may or may not be a sufficiently high number to trigger this concern. However, this percentage grows to 25 percent when the number of federal and state employees is added to the population of Americans receiving aid through Index programs. In 1962, the sum of these two categories (Index program partic­ipants and government employees) stood at 26.9 million. As Chart 10 shows, the estimate had grown to 75.6 million by the end of 2004, an increase of 181 percent since the early 1960s. This percentage growth is three times the U.S. popula­tion growth rate over the same period and twice the growth rate of the population age 65 and above.

As Chart 11 shows, the annual growth rates of federal and state government employment have generally subsided since the 1960s and 1970s. However, the growth rate of state government employment has been positive for all but three years out of the past 39. Federal employment grew during the military buildup of the 1980s, and the military downsizing following the breakup of the Soviet Union and its empire led to declining federal employment throughout the 1990s.

Conclusion

Public policies appear to matter in the growth of the Index of Dependency. Its rapid increase in the 1960s and 1970s marked a commitment by the federal government to solve local social and eco­nomic problems that had previously been the responsibility of local governments, civil society organizations, and families. As Chart 12 shows, the annual growth rate in the sum of government employees and the population covered by Index programs grew dramatically, even if one accounts for the military buildup during the Vietnam War.

As Charts 7 and 12 both show, the 1980s and 1990s generally witnessed much slower growth in the Index. Indeed, if the period 1989 through 1993 reflected the policies of the periods 1981 through 1988 and 1994 through 1999, the Index would have decreased in value. However, rather than fall, the Index appears to have regained the growth rates it maintained in the Carter and Bush years.

While this reinvigorated Index appears to owe its newly found vitality mostly to the spending oppor­tunities provided by budget surpluses rather than to dramatic reversals in conservative public policy, it is likely that several key policy debates of the next few years (e.g., welfare reform, federal support for higher education, and health care reform) will determine the Index's rate of change for the next decade, if not well beyond.

William W. Beach is John M. Olin Fellow in Eco­nomics and Director of the Center for Data Analysis at The Heritage Foundation. A number of policy person­nel at The Heritage Foundation contributed signifi­cantly to this year's Index of Dependency. Margaret Hamlin managed the numerical components. Spencer Anderson coordinated the process of updating the policy sections. Stuart Butler set the tone and focus of this year's effort.