Consolidate Most Safety Net Programs.

http://federalsafetynet.com/index.html

A pretty interesting site that offers some worthwhile numbers. According to the site federal and local governments spend about 350 billion dollars a year on various safety net programs, 13 in all which are listed by the site. When one considers the cost of these programs including their administration cost one has to wonder what sort of savings could be achieved by consolidating them and going to a straight benefit payment scheme.

(I have excluded the big health programs and SSI, I believe one needs to exclude these from safety net programs, Medicaid and Medicare in dealing with the health care industry is a very unique animal and shouldn’t have to have it’s mission muddled by being lumped in with far different programs. SSI has really come to be more of a retirement account system than a true “safety net” program, this is evidenced by the amount of people who receive the benefit despite not being in poverty).

Another point the site makes is that while safety net spending has increased what has increased just as fast are various subsidies to the middle class, things like the mortgage interest deduction, for instance. While this a worthy axe to grind I think that it isn’t quite right to lump the two together. For instance since many subsidies to the middle and upper class occur in tax breaks it is more reasonable to lump that problem in with the deficit problem, creating shortfalls in revenue increases debt, than it is to lump it in with shortfalls in safety net spending. If those revenues were coming in the most likely thing to do with them would be relieve debt not pay out the funds elsewhere.

So, in any rate, if we take 350 billion dollars of spending and divide it up amongst 40 million people living in poverty as a direct payment benefit it gives you $8,750.00 dollars a year. Not a great windfall by any measure. Now it must be remembered that when we count those 40 million people we are including members of families. So if those dollars were spent on a per person basis a family of four would be bringing in $35,000.00 a year. Which interestingly enough is quite close to the number conservative groups have given for the value of welfare programs received by the poor. (Which we know is a flawed number, since very few people apply for and receive that many benefits). So there is room within these totals to give individuals more and families less.

This scenario leads to an argument that without proper oversight this would lead to a lot of abuse within in the system. I find this to be a poor argument and here is the reason, if oversight results in savings far beyond the entirety of administrative costs then this may be a worthwhile argument, however if it does not then you are essentially just punishing people, which we shouldn’t be doing to poor people.

I would have a greater concern, which is that by axing all the administrative jobs you are axing a serious amount of good jobs out of the economy. Yes consumption should remain flat since you are moving that consumptive power to other people, but you are in essence destroying an industry. Even a grossly inefficient industry employs people. This for me is the greatest argument against the direct benefit scheme.

It is a good site that provides much food for thought.

 

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6 Responses to “Consolidate Most Safety Net Programs.”

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  1. diogene says:

    Hi, Eric.
    Haven’t had the opportunity to check in with you and Run in quite a while.
    I agree that $35K per year for a family of four is not exactly poor, and much administrative cost could be trimmed by consolidating these programs. It reminds me of our inefficient healthcare and education systems, where paperwork eats up about half as much as the actual delivery of medicine or education (more with the latter in the case of our bloated university administrations).
    Many families of four actually manage to get by on $35K.
    I estimate the amount of welfare to the affluent and rich is about the same as these safety net programs. About 4/5 of all tax expenditures go to the top 10% of incomes. These include loopholes like the mortgage int. deduction, capital gains tax exclusion, IRA deductions (which are tax shelters), and preferential treatment for cap gains and dividends over ordinary income. It would have been nice if this site had also linked to those programs, showing us how much tax revenue was forgone.
    Whether tax monies are doled out in safety net programs or forgone because we foolishly think we need to coddle the rich, I don’t see much of a difference, and I don’t understand the distinction you made in your post. Accounting-wise, they both add to the deficit. At least the safety net programs are humane and the money is all spent–unlike the welfare for the rich.
    Then there is the welfare for the superrich: things like the TARP and the other banker bailouts and Bernanke’s five years of ZIRP and QE. We are talking many trillions of benefits here, so the annual amount is more than the $350B going to the needy and the affluent.
    Then there is the military keynsianism where at least $350B/year is going to defense/security contractors. You could just as easily term this as “welfare” as the safety net programs. It doesn’t make Americans safer.
    Then there is all the money going to the health insurance companies (say conservatively 1/4 of 1/2 of healthcare spending). That’s 1/8 of 18% of GPD, or again about $350 billion. This money doesn’t make Americans healthier.
    Many, many different welfare programs out there…
     
     
     

    • erhoades says:

      Hello, Diogene,

      Well it is nice to see you back even though it has been awhile. I wasn’t around for about a month myself. I can tell you one thing though, even if activity here slows I have no intention of pulling the site again. I feel I have found a comfortable mix of being able to present my own views in a consolidated form without just making it my site, and so it will be around for awhile.

      I am very glad you saw that post, I was thinking of you as I read the site and put the post together since it makes such a prominent focus on welfare for the better off and that has been one of your favorite topics. The distinction I make in my post about safety net programs versus gifts to the better off was mainly with the tax breaks for the more affluent in mind. Here the distinction is pretty clear cut since spending is a far different tool than tax cuts which cut revenue. You cast the net far wider including things like QE, since something like QE, or TARP, could also be considered “spending” programs the distinction would certainly be less clear. Perhaps it is a result of the time I spent doing accounting but I like having the credits and debits separated.

      E.

  2. diogene says:

    I spent 20 years doing accounting for various firms before I relocated.
    From the standpoint of the government’s P&L (profit & loss), a tax expenditure, which diminishes revenue, is equivalent to government spending, which increases outlays (cost). We have been in deficit since Reagan mainly because we cut tax revenues in a hare-brained attempt to actually increase them as the economy expanded (this only works temporarily). Also, of course we stepped up defense spending even after the end of the Cold War (we have substituted the War on Terror, which is theoretically endless). And we have spnt oodles on more welfare for the financial sector, as I pointed out.
    My conclusion is that the poor and near-poor get about $350B a year. The rich and near-rich get the same. The big banks get the same; the defense/security firms get the same, and Wall Street gets the same. Only one of these five groups could really be termed the truly needy. If you must have welfare for the rich, pretty soon you will no longer be able to afford welfare for the poor…or even middle class. This is profoundly unjust and also hurts our competitiveness, and the populace is less prepared for the global economy. It becomes a race to the bottom in terms of wages and benefits. We still have a long way down.

  3. diogene says:

    I spent 20 years doing accounting for various firms before I relocated.
    From the standpoint of the government’s P&L (profit & loss), a tax expenditure, which diminishes revenue, is equivalent to government spending, which increases outlays (cost). We have been in deficit since Reagan mainly because we cut tax revenues in a hare-brained attempt to actually increase them as the economy expanded (this only works temporarily). Also, of course we stepped up defense spending even after the end of the Cold War (we have substituted the War on Terror, which is theoretically endless). And we have spnt oodles on more welfare for the financial sector, as I pointed out.
    My conclusion is that the poor and near-poor get about $350B a year. The rich and near-rich get the same. The big banks get the same–via the zero percent interest subsidy (paid for by savers’ lost interest income, thanks to the Fed); the defense/security firms get the same, and Wall Street gets the same– thanks to the various bailouts and mortgage security purchases. Only one of these five groups could really be termed the truly needy; the other four are wealth vested interests or affluent tax payers making over $100K. If you must have welfare for the rich, pretty soon you will no longer be able to afford welfare for the poor…or even middle class. The poor and near-poor are getting $350 billion, and the rest are getting $1.4 trillion by my estimate. This is profoundly unjust and also hurts our competitiveness, and the populace is less prepared for the global economy. It becomes a race to the bottom in terms of wages and benefits. We still have a long way down. Of course the corporations can just outsource, so they don’t really care if Americans are pushed out of the job market or don’t make a liveable wage. 

    • erhoades says:

      Your viewing of things in quarters provides an interestingly clear way of looking at the fiscal priorities.

      I would have viewed the tax rate achieved through taking deductions as simply the adjusted or final tax rate. For any taxpayer with the same inputs the rate would remain the same, it is the “rate” for that given set of circumstances, and so on accounting statements there is no entry for the cost of tax breaks since they are not viewed as a cost, they are merely part of the calculation used in figuring out what the revenue would be from what amounts to an account receivable. If an accounting entry would exist for such a circumstance I would have found it more likely to appear on the balance sheet as a discount, or write down, for an asset, the account receivable. If the tax break were temporary, like let’s say the cash for clunkers program, that might be a different story, amounting to a short lived discount of the regular rate, however, things like the mortgage interest deduction are an integral part of the tax code.

      I have a problem viewing government programs as trade offs for one another, I think that tends to take a blind eye toward revenues. For me the best thing we can do is first determine what is the optimal amount of revenue the government can pull from the economy and then figure out what our priorities are for how to spend it. By saying, for instance, that the defense department gets so much and if we didn’t spend the money on that then we could spend it elsewhere sort of ignores whether or not revenues were optimal in the first place, maybe they were too high, maybe too low. When one considers what the spending priorities are of course trade offs are involved, but we are so far removed from an optimal tax rate is that, in my mind, is what needs to be addressed before one can properly discuss what can be spent on what. Maybe a program does need more funding, a lot do, but just because you are spending money on something else doesn’t mean that you can shift it there, maybe spending that money in the first place is a mistake, maybe it makes more sense to increase revenue. In the real world what this means is the pretty widely accepted idea that we need to increase revenue and all spending needs to be trimmed, there may be programs that need to be trimmed more, there may be some that are considered too vital to rim at all, but if this idea hold merit then taking funds and simply shifting them around accomplishes little.

      Maybe the idea that this can actually happen is such fantasy that it is pointless to entertain and the only real difference we can make is to fight here and there over where this ten billion or that ten billion dollars go. More likely the difference is simply between short and mid range goals, looking at it that way one shouldn’t abandon the mid range goals for the sake of short term gain.

       

  4. diogene says:

    Didn’t want to spam the board–I tried to edit the previous reply, and it seems I just added another reply. Sorry!
    Reinforcing my idea that today’s welfare socialism is inverted–providing 80% of the tax benefits to the well off instead of the needy, there is also the example of Obamacare’s Medicaid clawbacks. If you make enough income that you aren’t placed in Medicaid, you’ll get the subsidy (of course if you make > 4 times the poverty level you won’t). But if you are over age 55 and placed in Medicaid, the state can go after whatever assets you leave to your heirs–assuming you have a home or some savings. Here the low income (or no income) Americans are treated worse than everybody else.
    It also is grist for the mill for the right wing nut jobs who make a profession by bashing Obama and everything he does. Unfortunately, there is a grain of truth to their criticisms.

What do you think?