Since the beginning of the War on Poverty, government has spent
vast sums on welfare or aid to the poor; however, the aggregate
cost of this assistance is largely unknown because the spending is
fragmented into myriad programs.
As this report shows, means-tested welfare or aid to poor and
low-income persons is now the third most expensive government
function. Its cost ranks below support for the elderly through
Social Security and Medicare and below government expenditures on
education, but above spending on national defense. Prior to the
current recession, one dollar in seven in total federal,
state, and local government spending went to means-tested
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. By contrast,
non-welfare programs provide benefits and services for the general
population. For example, food stamps, public housing, Medicaid, and
Temporary Assistance for 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
In fiscal year (FY) 2008, total government spending on
means-tested welfare or aid to the poor amounted to $714 billion.
This high level of welfare spending was the result of steady
permanent growth in welfare spending over several decades rather
than a short-term response to temporary economic conditions.
Of the $714 billion in welfare spending, $522 billion (73
percent) was federal expenditures, and $192 billion (27 percent)
was state government funds. Nearly all state government welfare
expenditures are required matching contributions to federal welfare
programs. These contributions could be considered a "welfare tax"
that the federal government imposes on the states. Ignoring these
matching state payments into the federal welfare system results in
a serious underestimation of spending on behalf of the poor.
Of total means-tested spending in FY 2008, 52 percent was spent
on medical care for poor and lower-income persons, and 37 percent
was spent on cash, food, and housing aid. The remaining 11 percent
was spent on social services, training, child development,
targeted federal education aid, and community development for
lower-income persons and communities. Roughly half of means-tested
spending goes to disabled or elderly persons. The other half goes
to lower-income families with children, most of which are headed by
Total means-tested welfare spending in FY 2008 amounted to
around $16,800 for each poor person in the U.S.; however, some
welfare spending goes to individuals who have low incomes but are
not below the official poverty line (about $22,200 per year for a
family of four). Typically, welfare benefits are received not just
by the poor, but also by persons who have incomes below 200 percent
of the federal poverty level ($44,400 per year for a family of
four). Around one-third of the U.S. population falls within this
lower income range. On average, welfare spending amounts to around
$7,000 per year for each individual who is poor or who has an
income below 200 percent of the poverty level. This comes to
$28,000 per year for each lower-income family of four.
Welfare spending has grown enormously since President Lyndon B.
Johnson launched the War on Poverty. Welfare spending was 13
times greater in FY 2008, after adjusting for inflation, than it
was when the War on Poverty started in 1964. Means-tested welfare
spending was 1.2 percent of the gross domestic product (GDP) when
President Johnson began the War on Poverty. In 2008, it
reached 5 percent of GDP.
Annual means-tested welfare spending is more than sufficient to
eliminate poverty in the United States. The U.S. Census Bureau,
which is in charge of measuring poverty and inequality in the
nation, defines a family as poor if its annual income falls below
official poverty income thresholds. If total means-tested welfare
spending were simply converted into cash benefits, the sum would be
nearly four times the amount needed to raise the income of all poor
families above the official poverty line.
One may reasonably ask how government can spend so much on
welfare and still have great inequality and so many people living
in apparent poverty. The answer is that the Census ignores nearly
the entire welfare system in its measurements. In its conventional
reports, the Census counts only 4 percent of total welfare spending
as income. Most government discussions of poverty and inequality do
not account for the massive transfers of the welfare state.
Since the beginning of the War on Poverty, government has spent
$15.9 trillion (in inflation-adjusted 2008 dollars) on
means-tested welfare. In comparison, the cost of all other wars in
U.S. history was $6.4 trillion (in inflation-adjusted 2008
In his first two years in office, President Barack Obama will
increase annual federal welfare spending by one-third from $522
billion to $697 billion. The combined two-year increase will equal
almost $263 billion ($88.2 billion in FY 2009 plus $174.6
billion in FY 2010). After adjusting for inflation, this increase
is two and a half times greater than any previous increase in
federal welfare spending in U.S. history. As a share of the
economy, annual federal welfare spending will rise by roughly
1.2 percent of GDP.
Under President Obama, government will spend more on welfare in
a single year than President George W. Bush spent on the war in
Iraq during his entire presidency. According to the Congressional
Research Service, the cost of the Iraq war through the end of the
Bush Administration was around $622 billion. By contrast, annual
federal and state means-tested welfare spending will reach $888
billion in FY 2010. Federal welfare spending alone will equal $697
billion in that year.
While campaigning for the presidency, Obama lamented that "the
war in Iraq is costing each household about $100 per month."
Applying the same standard to means-tested welfare spending reveals
that welfare will cost each household $560 per month in 2009 and
$638 per month in 2010.
Most of Obama's increases in welfare spending are permanent
expansions of the welfare state, not temporary increases in
response to the current recession. According to the long-term
spending plans set forth in Obama's FY 2010 budget, combined
federal and state spending will not drop significantly after the
recession ends. In fact, by 2014, welfare spending is likely to
equal $1 trillion per year.
According to President Obama's budget projections, federal and
state welfare spending will total $10.3 trillion over the next 10
years (FY 2009 to FY 2018). This spending will equal $250,000 for
each person currently living in poverty in the U.S., or $1 million
for a poor family of four.
Over the next decade, federal spending will equal $7.5 trillion,
while state spending will reach $2.8 trillion. These figures do not
include any of the increases in health care expenditure currently
being debated in Congress.
In the years ahead, average annual welfare spending will be
roughly twice the spending levels under President Bill Clinton
after adjusting for inflation. Total means-tested spending is
likely to average roughly 6 percent of GDP for the next decade.
Rector is Senior Research Fellow in the Domestic Policy Studies
Department at The Heritage Foundation. Katherine
Bradley is Visiting Fellow and Rachel Sheffield is Visiting
Fellow in Welfare Studies in the Richard and Helen DeVos Center for
Religion and Civil Society at The Heritage Foundation.
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