The recently passed U.S. House of Representatives stimulus bill
contains $816 billion in new spending and tax cuts. Of this sum,
$264 billion (32 percent) is new means-tested welfare spending.
This represents about $6,700 in new welfare spending for every poor
person in the U.S.
But this welfare spending is only the tip of the iceberg. The
bill sets in motion another $523 billion in new welfare spending
that is hidden by budgetary gimmicks. If the bill is enacted, the
total 10-year extra welfare cost is likely to be $787 billion.
The claim that Congress is temporarily increasing welfare
spending for Keynesian purposes (to spark the economy by boosting
consumer spending) is a red herring. The real goal is to get "the
camel's nose under the tent" for a massive permanent expansion of
the welfare state.
In the first year after enactment of the stimulus bill, federal
welfare spending will explode upward by more than 20 percent,
rising from $491 billion in FY 2008 to $601 billion in FY 2009.
This one-year explosion in welfare spending is, by far, the largest
in U.S. history. But spending will continue to rise even further in
future years. The stimulus bill is a welfare spendathon, a massive
down payment on Obama's promise to "spread the wealth."
Once the hidden welfare spending in the bill is counted, the
total 10-year fiscal burden (added to the national debt) will not
be $816 billion, as claimed, but $1.34 trillion. This amounts to
$17,400 for each household paying income tax in the U.S.
Even without the extra spending in the stimulus bill,
means-tested welfare spending is already at a historic high and
growing rapidly. In 2008, federal, state, and local means-tested
spending hit $679 billion per year. Without any legislative
expansions, given historic rates of growth in welfare programs,
federal, state, and local means-tested welfare spending over the
next decade will total $8.97 trillion. The House stimulus bill adds
another $787 billion to this total, yielding a 10-year total of
$9.8 trillion. The total 10-year cost of means-tested welfare will
then amount to $127,000 for each household paying federal income
The Current Welfare System
Means-tested welfare spending programs give cash, food, housing,
medical care, and targeted social services to poor and low income
persons. In a means-tested program, benefits are limited to persons
below a specified income level. The cutoff income level varies from
program to program but is typically less than 150 percent of
poverty, or around $33,000 per year for a family of four.
For example, food stamps and public housing are means-tested (or
limited to lower-income persons) while Social Security and postal
service are not. Means-tested welfare also includes "refundable"
tax credits. With a refundable credit program, the government gives
cash grants to persons who owe no income tax. Like conventional
means-tested programs, refundable credits give aid to poor and
lower income persons. Federal welfare spending also includes
targeted grants to schools with large numbers of poor students.
(This is a relatively small portion of overall federal welfare
The federal government runs over 50 means-tested welfare
programs, including Temporary Assistance to Needy Families;
Medicaid, food stamps; the Earned Income Tax credit (EITC); the
Women, Infants, and Children food program; public housing; Section
8 housing; the Community Development Block Grant; the Social
Services Block Grant; and Head Start.
New Welfare in the Stimulus Bill
The House stimulus bill overtly increases federal welfare
spending by $264 billion. Most of this spending will occur in the
first two years after passage. For example, if enacted, the House
stimulus bill will spend an additional $88 billion in means-tested
welfare aid in FY 2009, an increase of more than 20 percent above
prior spending levels. Federal welfare spending (including small
increases built into existing law) will rise from $491 billion in
FY 2008 to $601 billion in FY 2009. This one-year spending
explosion (by far the largest in U.S. history) will not be a
byproduct of unemployment generated by the recession but the result
of a deliberate expansion of welfare eligibility and benefits by
President Obama and Congress.
Camel's Nose in the Tent
While $264 billion in new welfare spending may seem like a lot,
it is only the tip of the iceberg. If the stimulus bill is enacted,
the real long-term increase will be far higher. This is because the
stimulus bill pretends that most of its welfare benefit increases
will lapse after two years. In fact, both Congress and President
Obama intend for most of these increases to become permanent. The
claim that Congress is temporarily increasing welfare spending for
Keynesian purposes (to spark the economy by boosting consumer
spending) is a red herring. The real goal is a permanent expansion
of the welfare system.
The notion that Congress intends to temporarily increase Pell
grants and EITC benefit levels for just two years and then allow
benefits to fall back to their original status is out of touch with
Washington reality. Any Congressman who, two years from now,
suggests that the new welfare spending be allowed to lapse to
pre-stimulus levels would be pilloried for slashing welfare.
"Spread the Wealth" Tax credit
A major new welfare program in the stimulus bill is Obama's
"Make Work Pay" refundable tax credit. This credit represents a
fundamental shift in welfare policy. At a cost of around $23
billion per year, this credit will provide up to $500 in cash to
low income adults who pay no income taxes. For the first time, the
government will give significant cash to able-bodied adults without
dependent children. Since most of these individuals have little
apparent need for assistance, the new credit represents "spreading
the wealth" for its own sake.
The lack of connection between this credit and "economic
stimulus" is evident in the fact that the first payments under the
program will not be made until April 2010. This refundable credit is not
included in the stimulus bill because of its "stimulus" effect.
Instead, the inclusion of this new welfare program makes good on an
Obama presidential campaign promise. While the stimulus bill claims
this new credit will terminate after two years, President Obama and
the congressional leadership clearly intend it to be a permanent
part of a new, much larger welfare state.
Hidden Welfare Spending
There are another six welfare expansions in the stimulus bill
that will almost certainly become permanent if the bill is enacted.
These include expansions to food stamps, the EITC, the refundable
child credit, Medicaid eligibility standards, Pell grants, and
Title I education grants. Added to the "Make Work Pay" refundable
credit, the aggregate annual cost of these welfare expansions will
be nearly $60 billion per year.
The claim that these welfare expansions in the stimulus bill
will lapse after two years is a political gimmick designed to hide
their true cost from the taxpayer. If these welfare expansions are
made permanent--as history indicates they will--the welfare cost of
the stimulus will rise another $523 billion over 10 years. The
total 10-year cost of welfare increases in the bill will not be
$264 billion but $787 billion. The overall 10-year fiscal burden of
the bill (added to the national debt) will not be $814 billion but
Welfare Spending Already at Historic
Even without the stimulus bill, means-tested welfare spending in
the U.S. is already at a historic high and growing rapidly. In
2008, federal, state, and local means-tested spending hit $679
billion per year. This vast outlay was the result of a fairly
steady growth in welfare spending over the last two decades and is
not a temporary surge due to the recession. Without any
legislative expansions, given historic rates of growth in welfare
programs, federal, state, and local means-tested welfare spending
over the next decade will total $8.97 trillion. The House stimulus
bill will add another $787 billion to this total, yielding a
10-year total of $9.8 trillion. The total 10-year cost of
means-tested welfare will amount to $127,000 for each household
paying federal income tax.
A Trojan Horse
The welfare provisions in the Senate stimulus bill are very
similar to those in the House bill. Both bills use the idea of
economic stimulus as a Trojan horse to conceal massive, permanent
increases in the U.S. welfare system. The goal of the bills is
"spreading the wealth," not reviving the economy.
Robert E. Rector is Senior
Research Fellow in the Domestic Policy Studies Department and
Katherine Bradley is a Research Fellow in the DeVos Center for
Religion and Civil Society, at The Heritage Foundation.
one exception is the increase Federal Medical Assistance Percentage
(FMAP) in the Medicaid. The House bill temporarily increases the
FMAP which determines the share of Medicaid spending paid by the
federal government, resulting in a cost of $88 billion to the
federal government over two years. This expenditure represents a
massive financial bailout of state governments. It is likely to
result in some increase in aggregate Medicaid spending and some
displacement of state Medicaid spending; the increase in FMAP is
unlikely to become permanent.
other refundable credits in the bill will also have little spending
effect before 2010.
Assumes a 4 percent annual increase in the
outlays of these provisions.
conservatives have fooled themselves into thinking that the growth
of the welfare state was ended by the "welfare reform" of 1996. In
fact, welfare reform affected only one federal welfare program out
of 50; the rest of the welfare state was unaffected.
Assumes a 5 percent annual growth in current outlays; this is less
than the historic average.