By James Kwak
In general, I think Binyamin Appelbaum and Robert Gebeloff’s article on how the same people oppose government handouts and take government handouts is very good. But I think their framing buys into a piece of conventional wisdom that just isn’t true.
Here it is, without any shortening (but emphasis is mine):
“The problem by now is familiar to most. Politicians have expanded the safety net without a commensurate increase in revenues, a primary reason for the government’s annual deficits and mushrooming debt. In 2000, federal and state governments spent about 37 cents on the safety net from every dollar they collected in revenue, according to a New York Times analysis. A decade later, after one Medicare expansion, two recessions and three rounds of tax cuts, spending on the safety net consumed nearly 66 cents of every dollar of revenue.
“The recent recession increased dependence on government, and stronger economic growth would reduce demand for programs like unemployment benefits. But the long-term trend is clear. Over the next 25 years, as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.”
The idea that politicians have expanded the safety net is just not true, with the exception of the Medicare prescription drug benefit and an expansion in Medicaid that hasn’t taken effect yet. Spending on social programs has increased for a few obvious reasons: the baby boomers have started taking Social Security benefits, increasing that program’s expenditures; the recession boosted unemployment benefits, disability claims, and eligibility for poverty programs; and most importantly, health care has gotten much more expensive.
But those programs themselves haven’t gotten more generous (except, again, for Medicare Part C), nor have they expanded to cover more people. Instead, as Mike Konczal shows in detail, the federal government took an axe to the safety net back in the 1990s (remember welfare reform?). Remaining programs such as TANF have declined in real value. What has happened is not that the safety net has gotten more robust, but that the same real benefits have gotten more expensive because of demographic shifts and excess health care cost growth.
In short, the middle class is getting a larger proportion of “safety net” payments not because that net is expanding from the poor to the middle class, but for two other reasons: one is that we’ve cut the programs for the poor; the other is that health care is getting more expensive.
As Appelbaum and Gebeloff say, safety net programs (if you count Social Security and Medicare as part of the safety net, as they do) will cost more and more over the next twenty-five years. But again, that’s not because those programs are becoming more generous. It’s because more people will be using them and health care will become more expensive.
The earned income tax credit was expanded in the 2001 tax cut. But I wouldn’t call that part of the “safety net.” The point of the EITC is to encourage people to work. As your income moves from zero to a low level—say, up to $30,000 for a family—you lose important benefits, most notably Medicaid; you also have to pay a flat 15.3 percent of your income in payroll taxes (counting both the employee and employer shares). Together, this means that your marginal tax rate could be extremely high (because of those lost benefits). The EITC is designed to reduce that marginal tax rate to create the incentive to work instead of relying on benefit programs. It’s not part of the safety net; it’s a provision of the tax code designed to reduce the distorting influence of the safety net.