Spend­ing on so­cial wel­fare rose as econ­omy tanked

Job­less surge fu­eled re­ces­sion deficits

The Washington Times Daily - - Business - BY PA­TRICE HILL THE WASH­ING­TON TIMES

Spend­ing on so­cial wel­fare pro­grams soared by $500 bil­lion to $2.1 tril­lion dur­ing the Great Re­ces­sion, but the in­crease was al­most en­tirely due to the his­toric surge in un­em­ploy­ment to 10 per­cent rather than a lib­er­al­iza­tion of ben­e­fits by the gov­ern­ment, ac­cord­ing to two stud­ies out this month.

The rise in spend­ing on pro­grams in­clud­ing food stamps, un­em­ploy­ment ben­e­fits, So­cial Se­cu­rity and Med­i­caid con­trib­uted to record bud­get deficits that hit as high as $1.5 tril­lion a year dur­ing and af­ter the re­ces­sion, set­ting off alarms in Wash­ing­ton and on Wall Street. But as oc­curred af­ter pre­vi­ous down­turns in the U.S., the econ­omy slowly re­cov­ered and 7.8 mil­lion jobs opened up in the pri­vate sec­tor in the past 4 1⁄2 caus­ing so­cial spend­ing to sub­side, in­come tax rev­enues to rise and deficits to fall by half.

A Johns Hop­kins Univer­sity study ear­lier this month is the first to put an over­all price tag of $500 bil­lion on the cost be­tween 2007 and 2010 of the so­called “safety net,” which helped peo­ple put out of work by the re­ces­sion to pay their mort­gage, food, heat­ing and health care bills while they were un­em­ployed and look­ing for jobs.

The re­ces­sion caused a dou­bling of the un­em­ploy­ment rate from 4.6 per­cent to 9.3 per­cent from 2007 to 2009, cut­ting the in­comes of U.S. fam­i­lies by 8.3 per­cent on av­er­age. That led to the surge in spend­ing on un­em­ploy­ment ben­e­fits and other pro­grams that in more nor­mal eco­nomic times pri­mar­ily ben­e­fit a smaller num­ber of peo­ple who are el­derly, dis­abled or liv­ing around the poverty level.

“The pro­grams did their job and made a dif­fer­ence, there’s no ques­tion about it,” said Robert A. Mof­fitt, and eco­nom­ics pro­fes­sor and au­thor of the Johns Hop­kins study. “Our re­sults show that there was a ma­jor re­sponse from the safety net to the Great Re­ces­sion.”

Mr. Mof­fitt found that caseloads in the safety-net pro­grams rose to 310 mil­lion in 2010 from 276 mil­lion in 2007, be­fore the re­ces­sion. Spend­ing on the Sup­ple­men­tal Nu­tri­tion Aid Pro­gram (SNAP), or food stamps, more than dou­bled to $65 bil­lion. The pro­gram not only helped more peo­ple, but the ben­e­fits were some­what higher than be­fore the re­ces­sion be­cause of more lib­eral poli­cies en­acted by the states and in Pres­i­dent Obama’s $800 bil­lion stim­u­lus bill in 2009. The last of the stim­u­lus-re­lated in­crease in ben­e­fits ex­pired this month.

Spend­ing on un­em­ploy­ment insurance also sky­rock­eted to $142 bil­lion from $34 bil­lion be­fore the re­ces­sion, mostly be­cause of the surge in job­less­ness but also be­cause of more gen­er­ous ben­e­fits en­acted in the stim­u­lus bill. The ex­tended un­em­ploy­ment ben­e­fits orig­i­nally en­acted by Pres­i­dent Obama and a Demo­crat-led Congress in Fe­bru­ary 2009 pro­vided up to two years of un­em­ploy­ment checks to peo­ple who lost their jobs. Be­cause of a record level of long-term un­em­ploy­ment, those en­hance­ments were re­newed sev­eral times af­ter Repub­li­cans took con­trol of the House a year later, but are due to ex­pire this year.

Safety-net spend­ing surge

De­spite the move by Congress to make ben­e­fits more gen­er­ous, a sec­ond study by the Na­tional Bureau of Eco­nomic Re­search found that the jump in spend­ing on ben­e­fits af­ter 2007 was nearly en­tirely be­cause of the surge in un­em­ploy­ment and sever­ity of the re­ces­sion, not the eas­ing of stan­dards for wel­fare pro­grams en­acted by Congress or the states.

“Much at­ten­tion has been given to the large in­crease in safety-net spend­ing, par­tic­u­larly in un­em­ploy­ment insurance and food stamps, dur­ing the Great Re­ces­sion,” said Mar­i­anne Bitler, co-au­thor of the bureau’s study. But she said the in­crease was “con­sis­tent with his­toric pat­terns” dur­ing pre­vi­ous re­ces­sions in the U.S., and vir­tu­ally all of the in­crease in spend­ing was be­cause of the sever­ity of the re­ces­sion rather than the gen­eros­ity of the stim­u­lus law.

The most com­pa­ra­ble pe­riod to the Great Re­ces­sion was the dou­ble-dip re­ces­sion of the early 1980s, when un­em­ploy­ment peaked at a some­what lower 9.7 per­cent, as com­pared with 10 per­cent dur­ing the Great Re­ces­sion. The Johns Hop­kins study found that spend­ing on un­em­ploy­ment and other ben­e­fits grew by 14 per­cent from 1979 to 1982, com­pared with an 18 per­cent in­crease in the 2007 to 2010 pe­riod.

The stud­ies found that one wel­fare pro­gram that in­creased sig­nif­i­cantly in the 1980s re­ces­sion — cash wel­fare ben­e­fits — did not in­crease in the most re­cent down­turn, ap­par­ently be­cause of tight­ened el­i­gi­bil­ity re­quire­ments en­acted in the 1996 wel­fare re­form law. Cash wel­fare spend­ing in­creased by 3 per­cent in 2010, for ex­am­ple, as com­pared with a 7 per­cent rise in 1982 when Pres­i­dent Rea­gan was pre­sid­ing in the af­ter­math of a pre­vi­ous deep re­ces­sion.

Ap­petite for food stamps

In the most re­cent re­ces­sion, un­em­ployed peo­ple ap­pear to have sought out food stamps, Med­i­caid and other ben­e­fits rather than tap­ping into the cash wel­fare sys­tem. The Johns Hop­kins study found that spend­ing on Med­i­caid surged from $327 bil­lion to $401 bil­lion from 2007 to 2010, while spend­ing on the Earned In­come Tax Credit, a fed­eral in­come tax re­fund for low-in­come work­ing fam­i­lies, rose from $49 bil­lion to $59 bil­lion. Spend­ing on other pro­grams such as So­cial Se­cu­rity and Sup­ple­men­tal Se­cu­rity In­come also in­creased as peo­ple close to re­tire­ment or el­i­gi­ble for dis­abil­ity ben­e­fits en­rolled in the pro­grams af­ter los­ing their jobs.

“There have been many com­plaints that the U.S. safety net has been shred­ded and is in­ad­e­quate to serve those who are in need. And there have been other voices say­ing that gov­ern­ment is in­ef­fec­tual and that much of the money is wasted,” Mr. Mof­fitt said. “Nei­ther of th­ese is cor­rect. The U.S. safety net is very healthy and was ex­tremely re­spon­sive to the Great Re­ces­sion, help­ing fam­i­lies of all dif­fer­ent types and at all dif­fer­ent in­come lev­els.”

While the un­em­ploy­ment insurance pro­gram, Med­i­caid and some other ben­e­fits pro­grams were de­signed to be “coun­ter­cycli­cal” — pro­vid­ing aid in times of re­ces­sion when in­comes and jobs are drop­ping — the surge in ben­e­fits in 2009 nev­er­the­less was jar­ring enough to raise alarm in many quar­ters. Repub­li­cans in Congress made re­duc­ing out­sized bud­get deficits their top pri­or­ity in the wake of the re­ces­sion, and con­tinue to tar­get what they say are bloated ben­e­fits to this day.

“Less than 60 per­cent of U.S. adults are work­ing, a record 11 mil­lion are on dis­abil­ity, another record 47 mil­lion are on food stamps, me­dian house­hold net worth has dropped 60 per­cent since 2007, and in­fla­tion-ad­justed wages are lower than in 1999,” said Sen. Jeff Ses­sions, Alabama Repub­li­can. “We must fo­cus on get­ting Amer­i­cans off of wel­fare and into well-pay­ing jobs that can sup­port a fam­ily.”

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