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STRENGTHENING THE 

SAFETY NET 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, APRIL 17, 2012 

Serial No. 112–24 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=budget 
(II) 

COMMITTEE ON THE BUDGET 

PAUL RYAN, Wisconsin, Chairman 

SCOTT GARRETT, New Jersey 

MICHAEL K. SIMPSON, Idaho 

JOHN CAMPBELL, California 

KEN CALVERT, California 

W. TODD AKIN, Missouri 

TOM COLE, Oklahoma 

TOM PRICE, Georgia 

TOM MCCLINTOCK, California 

JASON CHAFFETZ, Utah 

MARLIN A. STUTZMAN, Indiana 

JAMES LANKFORD, Oklahoma 

DIANE BLACK, Tennessee 

REID J. RIBBLE, Wisconsin 

BILL FLORES, Texas 

MICK MULVANEY, South Carolina 

TIM HUELSKAMP, Kansas 

TODD C. YOUNG, Indiana 

JUSTIN AMASH, Michigan 

TODD ROKITA, Indiana 

FRANK C. GUINTA, New Hampshire 

ROB WOODALL, Georgia 

CHRIS VAN HOLLEN, Maryland, 

Ranking Minority Member 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

BETTY MCCOLLUM, Minnesota 

JOHN A. YARMUTH, Kentucky 

BILL PASCRELL, JR., New Jersey 

MICHAEL M. HONDA, California 

TIM RYAN, Ohio 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

KATHY CASTOR, Florida 

HEATH SHULER, North Carolina 

KAREN BASS, California 

SUZANNE BONAMICI, Oregon 

PROFESSIONAL STAFF

AUSTIN SMYTHE, Staff Director 

THOMAS S. KAHN, Minority Staff Director 
(III) 

C O N T E N T S 

Page 

Hearing held in Washington, DC, April 17, 2012 ................................................. 1 

Hon. Paul Ryan, Chairman, Committee on the Budget ................................ 1 

Prepared statement of ............................................................................... 3 

Hon. Chris Van Hollen, ranking minority member, Committee on the 

Budget ............................................................................................................ 4 

Prepared statement of ............................................................................... 6 

Submission for the record: Saint Camilius Food Pantry Report ........... 93 

Casey B. Mulligan, professor of economics, University of Chicago .............. 7 

Prepared statement of ............................................................................... 9 

Ron Haskins, co-director, Center on Children and Families, Brookings 

Institution; senior consultant, Annie E. Casey Foundation ...................... 16 

Prepared statement of ............................................................................... 19 

Robert Rector, senior research fellow, family & welfare studies, the Heritage Foundation .............................................................................................. 26 

Prepared statement of ............................................................................... 31 

Robert Greenstein, president, Center on Budget and Policy Priorities ....... 36 

Prepared statement of ............................................................................... 41 

(1) 

STRENGTHENING THE SAFETY NET 

TUESDAY, APRIL 17, 2012 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The committee met, pursuant to call, at 10:00 a.m., in room 210, 

Cannon House Office Building, Hon. Paul Ryan, [Chairman of the 

Committee] presiding. 

Present: Representatives Ryan, Garrett, Cole, McClintock, 

Stutzman, Lankford, Black, Ribble, Flores, Mulvaney, Huelskamp, 

Young, Rokita, Van Hollen, Kaptur, Blumenauer, McCollum, Ryan 

of Ohio, Moore, Castor, Bass, Bonamici. 

Chairman RYAN. Before I start with my opening statement, I 

want to outline our plan for a hearing next week. As part of the 

House Budget, we propose to replace the sequester with reforms to 

ensure that we get the deficit reduction we all want without the 

huge reductions on top of reductions that the Obama administration is already planning in the defense program. 

So, pursuant to the budget, we are going to consider reconciliation and other legislation to fix this sequester as we discussed in 

our markup. As a result, I think we need to learn more about the 

sequester, how OMB would implement the sequester, and what the 

impact would be, and to learn about the specific proposal for replacing the sequester. 

To that end, we plan on holding a hearing on the Budget Control 

Act on April 25th. For the past couple of weeks, we tried to get 

OMB to agree to testify. They have refused so far. We sent a letter 

to OMB yesterday to the acting director, asking that they testify. 

My hope is that we can have a hearing next week. It’s critical we 

fix this sequester and secure the deficit reduction called for in the 

Budget Control Act, and I just want to have members know this 

to mark their calendars for the hearing we’re planning on having. 

You want to speak on this? 

Mr. VAN HOLLEN. Just very briefly, Mr. Chairman. I just want 

to make the point, and I think the CBO has been clear on this, as 

has the White House, they have a plan for replacing the sequester. 

They have a budget that they presented to the United States Congress that would replace the $1.2 trillion in deficit reduction mandated by the sequester with a balanced approach. So, they have 

been very clear and on the record through their budget as to how 

they would avoid the sequester in a way that maintains deficit reductions. 
2 

Chairman RYAN. Right, but the question is if no plan is passed 

to replace it, then how is it to be implemented? That’s what we 

want to get at. 

Before we start, let me note today that millions of workers and 

businesses are filing their taxes today. I view the core mission of 

this committee as ensuring that every dollar the government takes 

from hard-working citizens is spent as efficiently and as effectively 

as possible and only on programs where the federal government 

has a critical role to play. 

To that end, the focus of today’s hearing is on reforming the federal government’s role in public assistance programs, so that taxpayer dollars are carefully targeted to those in need, the disabled, 

the sick, and those who, through no fault of their own, have fallen 

on hard times. As we seek to end wasteful practices, promote independence, and protect the safety net from the threat of a debt crisis, we should learn the extraordinary successes of the 1996 Welfare Reform Act. There is a lot to be learned there. 

The hearing will come to order. On the eve of the 1996 Welfare 

Reform, democratic senator Frank Lautenberg voiced his concern 

that the bill would transform America into a third world nation, 

leaving quote, ‘‘children hungry and homeless, begging for money, 

begging for food, and even at eight and nine years old engaging in 

prostitution,’’ closed quote. 

Senator Lautenberg was not alone in making these kinds of apocalyptic predictions about this historic law. But, what happened in 

reality? Transforming welfare, among other things, instituting 

meaningful work requirements, setting time limits, and empowering states to design more effective programs, just like we did in 

Wisconsin, cut case loads in half against a backdrop of falling poverty rates. 

There was the single greatest reduction in poverty among children since the 1960s. Poverty among children in female-headed 

households fell from 55.4 percent in 1991 to 39.3 percent in 2001. 

The Congressional Research Service said this past December that 

quote, ‘‘Since 1996 welfare reform, progress appears to have been 

largely sustained in both reducing welfare dependency and poverty 

among children and female-headed families in spite of the recent 

recession.’’ Today, over 15 years later, we are hearing the same 

kinds of hysterical predictions from critics of our budget. Last 

week, President Obama accused republicans of being ‘‘social Darwinists.’’ I did not think that Senator Lautenberg’s outlandish accusation could be topped, but I think it has been now. 

Let’s put aside the outrageous rhetoric. Let’s look at the facts. 

Let’s look at what works and what does not work. Let’s look at 

where we are headed. Let us look at what a debt crisis would do 

to us. Let’s look at what the House Budget actually does. This 

budget treats all Americans with respect and dignity. It recognizes 

that the federal government’s attempts to help can often do more 

harm than good. One honest observer of government could not 

agree, disagree with that. 

It is in our national interest to create a class of people permanently dependent on the government? No, it is not. More to the 

point, is it in the best interest of these individuals to become dependent upon government? No. We must also ask what happens to 
3 

those who are most in need of government assistance when the 

government can no longer pay its bills if we have a debt crisis? We 

face the most predictable debt crisis in history, and if this crisis 

hits those who rely on the safety net the most will be hurt the first 

and the worst. Just turn on the TV. Look what is going on across 

the Atlantic. 

In contrast to the gradual reforms that our budget faces in, reforms that protect those most in need of help, a debt crisis would 

force sharp, immediate cuts in spending, hurting those who cannot 

help themselves. Meanwhile, sharp, immediate tax increases would 

stunt job growth and opportunity for those who can. We saw the 

success of welfare reform. Our budget follows the tradition of this 

success. Opponents of reform were wrong in 1996, as we believe 

they are today. As we act to prevent a debt crisis that truly would 

devastate the poor, they are even more wrong. 

I want to thank all the witnesses for coming today. I appreciate 

you taking time out of your busy schedule to provide us with your 

testimony. We have people who have been involved in this issue for 

years and decades, who have done great, scholarly work, and I welcome the insights that you are going to bring to this committee. 

And, with that, I would like to turn to the ranking member, Mr. 

Van Hollen. 

[The prepared statement of Paul Ryan follows:] 

PREPARED STATEMENT OF HON. PAUL RYAN, CHAIRMAN, COMMITTEE ON THE BUDGET

Before we start, I just want to note that today, millions of workers and businesses 

will file their taxes. 

I view the core mission of this committee as ensuring that every dollar the government takes from a hardworking citizen is spent as efficiently and effectively as 

possible, and only on programs where the federal government has a critical role to 

play. 

To that end, the focus of today’s hearing is on reforming the federal government’s 

role in public-assistance programs, so that taxpayer dollars are carefully targeted 

to those in need—the disabled, the sick, and those who, through no fault of their 

own, have fallen on hard times. 

As we seek to end wasteful practices, promote independence, and protect the safety net from the threat of a debt crisis, we should learn from the extraordinary success of the 1996 Welfare Reform Act. 

On the eve of the 1996 welfare reform, Democratic senator Frank Lautenberg 

voiced his concern that the bill would transform America into a Third World nation, 

leaving ‘‘children hungry and homeless * * * begging for money, begging for food, 

and even at eight and nine years old engaging in prostitution.’’ 

Senator Lautenberg was not alone in making these kinds of apocalyptic predictions about that historic law. But what happened in reality? 

Transforming welfare—by, among other things, instituting meaningful work requirements, setting time limits, and empowering states to design more effective programs—cut caseloads in half against a backdrop of falling poverty rates. 

There was the single greatest reduction in poverty among children since the 

1960s. Poverty among children in female-headed households fell from 55.4 percent 

in 1991, to 39.3 percent by 2001. 

The Congressional Research Service said this past December that, ‘‘Since 1996 

welfare reform, progress appears to have been largely sustained in both reducing 

welfare dependency and poverty among children in female-headed families, in spite 

of the recent recession.’’ 

Today, over 15 years later, we are hearing the same kinds of hysterical predictions from critics of our budget. 

Last week, President Obama accused Republicans of being ‘social Darwinists.’ 

I didn’t think that Senator Lautenberg’s outlandish accusation could be topped, 

but I think it has been. 

Let’s put aside the outrageous rhetoric. Let’s look at what the House-passed budget actually does. 
4 

This budget treats all Americans with respect and dignity. It recognizes that the 

federal government’s attempts to help can often do more harm than good. What honest observer of government could disagree? 

Is it in our national interest to create a class of people permanently dependent 

on the government? More to the point, is it in the best interest of these individuals 

to become dependent on government? 

We must also ask: What happens to those who are most in need of government 

assistance when the government can no longer pay its bills? 

We face the most predictable debt crisis in history—and if this crisis hits, those 

who rely on the safety net the most will be hurt the first and the worst. 

In contrast to the gradual reforms our budget phases in—reforms that protect 

those most in need of help—a debt crisis would force sharp, immediate cuts in 

spending, hurting those who cannot help themselves. Meanwhile, sharp, immediate 

increases in taxes would stunt job growth and opportunity for those who can. 

We saw the success of welfare reform. The Republican budget follows in the tradition of this success. 

Opponents of reform were wrong in 1996, and today—as we act to prevent a debt 

crisis that truly would devastate the poor—they are even more wrong. 

I want to thank all of witnesses for coming today. I appreciate all of you taking 

time out of your busy schedules to provide us with your testimony. 

Mr. VAN HOLLEN. Thank you, Mr. Chairman. I join the chairman 

in welcoming all of our witnesses today to a very important hearing. I think there is universal agreement that we should spend taxpayer money wisely. I also think there is agreement that we should 

learn from a successful reforms. I think, as we will find out in this 

hearing, some of the successes that apply to the welfare reform provision simply do not apply in this case, and we will also hear some 

of the consequences of certain aspects of that reform. 

Mr. Chairman, there is a difference between reform and just taking a hatchet to important social safety net programs. We obviously 

have deep differences of opinion on this issue. I happen to think 

that the president’s characterization of this budget is correct, and 

I think it is Orwellian to present a budget that tears a huge hole 

in the safety net as one that is, in fact, designed to strengthen support for vulnerable Americans. This week brings a very strong contrast to the different approaches that would be taken in this body 

and in the senate. 

We saw in the senate yesterday a vote on the Buffet Rule, asking 

millionaires to pay more to help reduce our deficit. Meanwhile, 

here in the House, we are having a vote this week on a bill that 

would add billions of dollars to the deficit by providing tax breaks 

to hedge fund owners, to Washington law firms, all under the guise 

of a small business bill. And, here in the Budget Committee, we are 

talking about quote; ‘‘strengthening the social safety net’’ when in 

fact this budget tears big holes in it. 

Let’s put this hearing in context and why we are here today, and 

it is because the budget that has been presented by our Republican 

colleagues takes a lopsided approach. It ignores the advice of bipartisan commissions that say that any credible, responsible approach 

to reducing the deficit combines cuts, and we need to make cuts 

and difficult decisions, but it combines those cuts with an end to 

special interest tax loopholes and asking the folks at the very top 

to pay a little bit more to help reduce our deficit. And because it 

refuses to ask wealthier Americans to pay one penny toward deficit 

reduction, because it takes that whole revenue stream out of the 

equation, it means that their budget hits everyone and everything 

else harder. That is simple math. 
5 

We have talked in this committee about the impact the Republican budget would have on the Medicare guarantee and ending the 

Medicare guarantee. We have talked about how it would cut very 

important investments necessary to keep our economy strong, in 

our infrastructure, in transportation, education. Today, we will 

focus on its impact in the social safety net. 

I have to say that the storyline, at least part of the storyline that 

accompanies this Republican budget is, in my view, a cynical one. 

It is one designed to tell Americans that these social safety nets 

are not necessary because people choose these safety nets over getting a job, that people who are out of work choose to be out of 

work, that people who need the support of food and nutrition and 

health programs choose to be in that position, and that by cutting 

these essential supports, by making people who are on the economic edge even more desperate, that we will give them renewed 

willpower to pull themselves up by their bootstraps, that, in fact, 

we are doing a favor to the people who will be most harmed. 

As we consider how we can strengthen the social safety net, we 

should be clear about what our goals are and how we define success. Is our goal, in fact, to strengthen that social safety net? If 

that is the goal, Mr. Chairman, we join you in an effort to find essential reforms. But, if our goal simply is to take a hatchet to part 

of the budget in order to meet certain targets while refusing to 

take a balanced approach, we cannot join in that effort. 

What this does is cut Medicaid by $810 billion. By the year 2020, 

the Medicaid program would be reduced by a full third. By 2050, 

and these numbers are according to the Congressional Budget Office, it would cut Medicaid by a whopping 75 percent. It does this 

by converting Medicaid into a block grant program that provides 

inadequate funding that fails to keep pace with the need. It does 

this under the name of flexibility, refusing to recognize that Medicaid already has a lot of flexibility. More than 30 states already 

operate under the Medicaid waiver. 

CBO has concluded that this will mean states either have to pay 

a lot more, which means increased taxes on their citizens, or cut 

back significantly. An Urban Institute study recently explained 

what the consequences are. 

We will have a conversation about to what extent the work incentives under welfare reform, actually apply to a program like 

Medicaid. I think we will find that the comparison stops very early 

on. 

We will also have a conversation about SNAP, the Food Assistance And Nutrition Program. It was decided back during welfare 

reform not to block grant that because it did provide an essential, 

absolute safety net for people in need and provided an economic 

stabilizer. 

So, Mr. Chairman, again, I think that people are willing to explore ways that really reform the process for the better. What we 

are not willing to do is simply blindly cut programs that are absolutely necessary to provide help to people in need, including lots of 

seniors, simply to meet one half a budget equation that refuses to 

look at the revenue half of that equation, while cutting provides additional tax breaks to people who are the best off in this country. 

We do not think that is shared responsibility. We look forward to 
6 

working with you on a budget plan, a deficit reduction plan that 

truly meets that goal. Thank you. 

[The prepared statement of Chris Van Hollen follows:] 

PREPARED STATEMENT OF HON. CHRIS VAN HOLLEN, RANKING MEMBER, 

COMMITTEE ON THE BUDGET

While today’s hearing is titled ‘‘Strengthening the Safety Net,’’ it is mostly an effort to sugarcoat a Republican budget that shreds the social safety net while providing gold-plated tax breaks to the wealthiest Americans. It’s truly Orwellian to 

present a budget that tears apart the social safety net as one designed to strengthen 

support for vulnerable Americans. 

This week presents a very clear contrast in the priorities between Republicans 

and the Democrats in Congress. Yesterday, the Senate voted on the Buffett Rule to 

make sure that millionaires take greater responsibility for reducing the deficit. All 

but one Republican voted no and all but one Democrat voted yes. 

Meanwhile, this week in the House, we’re going to be doing two things. We’re taking up legislation that will add billions to the deficit by providing big tax breaks 

to hedge fund owners, big Washington law firms, and others under the guise of a 

small business bill. And here in the Budget Committee, we are holding a hearing 

attempting to put a compassionate face on the shredding of the social safety net. 

Let’s put this hearing in context. The Republican budget takes a lopsided approach to addressing our deficit. Rather than taking the balanced approach that has 

been recommended by bipartisan groups—an approach that requires deficit reduction through a combination of spending cuts and additional revenue—the Republican budget refuses to eliminate one single tax break for the purpose of deficit reduction. It refuses to ask the wealthiest Americans to pay one penny more for the 

purpose of deficit reduction. Simple math tells you that, because that revenue is 

taken off the table, the Republican budget hits everyone and everything else much 

harder. 

We’ve talked about the impact of the Republican budget in terms of ending the 

Medicare guarantee. We’ve talked about the fact that it would slash important investments necessary to keep our economy strong, like investments in education, infrastructure, science, and research. And today we will focus on what it does to the 

social safety net. 

The storyline that accompanies the Republican budget is a particularly cynical 

one. It is one designed to tell Americans that these social safety nets are not necessary because people choose those safety nets over getting a job; that most people 

who are out of work choose to be out of work; that most people who need the support of food and nutrition programs choose to be in that position; and that by cutting these essential supports—by making people on the economic edge even more 

desperate—they will be giving people the willpower to pull themselves up by their 

bootstraps; that they are in fact doing a favor to the people who will be most 

harmed. 

As we consider how we can ‘‘strengthen the safety net,’’ we should be clear about 

what our goals are and how we define success. Are we focused first on helping vulnerable Americans and what success means for their lives? Or is our first goal to 

cut deficits by dismantling programs that preserve the economic well-being of the 

vulnerable while expanding tax breaks to the wealthiest people and corporations in 

America? The answers to these questions lead to very different approaches. 

If one starts with the goal of simply cutting these programs, then the Republican 

budget is one way to get there. It attempts to balance the federal budget on the 

backs of the poor, by gutting federal spending on safety net programs and replacing 

it with the failed philosophy of ‘‘trickle-down’’ economics—arguing that somehow, if 

we shower the richest among us with hundreds of billions of dollars more in tax 

breaks, they will pass on the benefits to those at the lowest economic rungs. The 

Republican budget cuts $810 billion from Medicaid. It will be cut by 30 percent by 

2022, and by an astounding 75 percent by the year 2050. 

The Republican budget converts Medicaid into a block grant to states and provides inadequate funding that fails to keep pace with need. It speaks vaguely of providing more flexibility to states, missing the point that states already have significant flexibility. For example, 30 states operate Medicaid under one or more waivers 

of federal rules. 

CBO concluded that the Republican budget would mean that states will need to 

increase their spending on these health programs, cut back services, or both. Cutbacks could involve reduced eligibility, coverage of fewer services, lower payments 

to providers, or increased cost-sharing by beneficiaries—all of which would reduce 
7 

access to care. An Urban Institute study of the same Medicaid plan in last year’s 

Republican budget found that 14 million to 27 million people could lose Medicaid 

coverage. Millions of poor people losing health care coverage—in a program where 

half of all beneficiaries are children and another quarter are either senior citizens 

or people with significant disabilities that make them unable to work. 

I also note that concerns about work incentives that drove welfare reform in 1996 

have no relevance to Medicaid. First, it is a program that provides health care coverage to those left behind by the private insurance market. Second, two-thirds, or 

66 percent, of Medicaid spending is for senior citizens and people too disabled to 

work, while another 20 percent is for children. Medicaid costs reflect underlying 

health sector trends and population aging, as more people need help paying for longterm care. Spending also reflects the economy—more people rely on Medicaid when 

jobs are scarce. 

As for SNAP, it already has strong work incentives built in. Moreover, in 1996, 

rejecting proposals to block-grant SNAP (known then as food stamps) was critical 

to building bipartisan support for welfare reform. SNAP continues to serve the most 

critical of roles in society—providing food security for families who have fallen on 

hard times. It is a major stabilizer that allows the federal government to respond 

quickly to changes in economic conditions. SNAP spending will decline as the economy recovers. Attempting to force further cuts will leave millions of children without 

adequate diets. 

The idea that the approach in the Republican budget strengthens or repairs the 

social safety net is the kind of doublespeak that aggravates Americans. The plain 

meaning of ‘‘strengthen’’ is to make something stronger and more vigorous. The Republican budget does the direct opposite: it shreds that safety net; it weakens it. 

To make matters worse, it does so while expanding tax breaks for millionaires and 

corporations that have done exceedingly well not only by their own efforts, but because of their workers, customers, and fellow citizens. 

Chairman RYAN. Thank you. Gentlemen, obviously our goal is to 

bring spending that’s sustainable and to include reforms that actually work to serve the purpose of these programs, which we think 

we have missed on that by virtue of just the results and the fact 

that poverty is at an all-time high. 

With that, we will start with Dr. Casey Mulligan, professor of economics at the University of Chicago. Welcome, and I think it is 

your first time coming to the Hill. Then we will go with Ron 

Haskins, co-director of the Center on Children and Families at the 

Brookings Institution. Ron is no stranger to this body, nor is Dr. 

Robert Rector, senior research fellow at the Heritage Foundation, 

and, Bob, we kept your seat warm. I think that is where you always sit. It is good to see you again. Bob Greenstein, president of 

the Center on Budget and Policy Priorities. Why do we not go with 

Casey, then Ron, then Robert, and then Bob. Dr. Mulligan. 

STATEMENTS OF CASEY MULLIGAN, PROFESSOR OF ECONOMICS, UNIVERSITY OF CHICAGO; RON HASKINS, CO–DIRECTOR, CENTER ON CHILDREN AND FAMILIES, BROOKINGS INSTITUTION; ROBERT RECTOR, SENIOR RESEARCH FELLOW, 

HERITAGE FOUNDATION; ROBERT GREENSTEIN, PRESIDENT, CENTER ON BUDGET AND POLICY PRIORITIES 

STATEMENT OF CASEY MULLIGAN 

Mr. MULLIGAN. Chairman Ryan, Ranking Member Van Hollen, 

and members of the committee, thank you for the opportunity and 

honor to discuss with you today. Our new safety net program rules 

over the past couple of years have changed the reward to work. A 

multitude of public policies effect that reward and thereby effect 

who is employed. 

A basic economic principle is that the monetary reward to working has important effects on how many people are employed and 
8 

how much they work. By definition, the monetary reward to working is the difference between the resources a person has available 

to use or save if she works and what she has available when she 

does not work. 

The effect of taxes and subsidies on the reward to working can 

be summarized as a marginal tax rate, and by that I mean the difference between taxes paid and that of subsidies received when 

working, and that taxes paid when not working, sometimes expressed as a fraction of the amount produced when working. 

Now, people without jobs or otherwise with low incomes sometimes receive benefits from social safety net programs. The benefits 

are rarely called taxes by layman, but economists understand the 

benefits to have many of the characteristics of marginal tax rates 

because a program beneficiary loses some or all of her benefits as 

a consequence of working. The more income that a person receives 

when not working, the less is the reward to working. 

A multitude of public polices affect the reward to working, to 

name just a few: federal, state, and local income taxes, payroll 

taxes, unemployment insurance benefits, and nutrition assistance 

programs. 

Thanks to a labyrinth of relevant programs the marginal tax rate 

can equal or exceed 100 percent in some cases, which means that 

the reward to working is zero or negative. In such cases a person 

might have more resources available to use or save as a consequence of working less. Legislation that supposedly cuts or credits taxes can nonetheless reduce the reward to working and increase the marginal tax rate appropriate for labor market analysis. 

If it cuts taxes more for those who work less, then it cuts taxes for 

those who work more. Even private sector transactions, such as the 

settlement of mortgage, consumer, and child support debts sometimes may have many of the characteristics of taxes paid to the 

public treasury, especially in terms of their propensity to reduce 

the reward to working. 

The reward to working, and, therefore, the marginal tax rates, 

affects what people do. High marginal tax rates mean small incentives to seek, create, and retain jobs. The consequences of high 

marginal tax rates are found all over the economy, even by persons 

whose individual marginal tax rates might not be all that high. 

Now, America absolutely must have taxes and must have safety 

net programs, even though they reduce the reward to working, but 

if this Congress wants to understand or shape what is happening 

in labor market or to the budgets of social programs, it would be 

counterproductive to approximate marginal tax rates as zero or to 

assume them to be eternally constant, regardless of what incentives are embodied in new legislation. 

In reality, at least a dozen new and important federal and state 

safety net benefit rules have collectively changed the reward to 

working, especially for groups whose employment rates are particularly sensitive to safety net benefits. Of course, unemployment insurance program benefits are now available longer into unemployment spells up to 99 weeks than they were five years ago; but also 

do not forget that new modernization provisions now provide unemployment benefits in a variety of circumstances when benefits were 

formerly unavailable. 
9 

While it lasted, the 2009 American Recovery and Reinvestment 

Act also added a bonus to weekly unemployment checks and helped 

unemployed people pay for their health insurance. The food stamp 

program expanded in a variety of dimensions. All of these policy 

changes, and more, serve to increase marginal tax rates over the 

past couple of years. By my calculations, the net effect of all of 

these changes through 2012 was to increase marginal tax rates for 

the median household head or spouse at least 4 percentage points 

above what they were in 2007, and this was on top of the 40 plus 

percent marginal tax rate already in place back then. Marginal tax 

rates have increased even more for less skilled people. 

It is sometimes claimed by non-economists, at least, that the 

safety net does not prevent anyone from working because supposedly everyone strives to have more income rather than less, and 

we gladly take any job that paid them more than the safety net 

did. This income maximization claim is contradicted by the most 

basic labor market observations, not to mention decades of labor 

market research. A presumably unintended consequence of the recent safety net expansions has been to reduce the reward to working, and, thereby, keep employment rates low, keep unemployment 

rates high, and keep national spending low longer than they would 

have if safety net program rules had remained unchanged. 

The bottom line is that helping the poor and economically vulnerable has a price in terms of labor market inefficiency. Since 2007, 

we have been paying more of that price. American public policies 

have moved significantly in the direction of less labor market efficiency and, perhaps, more than was necessary for providing the assistance to those who need it. Thank you. 

[The prepared statement of Casey Mulligan follows:] 

PREPARED STATEMENT OF CASEY B. MULLIGAN, PROFESSOR OF ECONOMICS, 

UNIVERSITY OF CHICAGO

Chairman Ryan, Ranking Member Van Hollen, members of the committee: thank 

you for the opportunity and honor to discuss with you today how new safety net 

program rules over the past couple of years have changed the reward to work. A 

multitude of public policies affect that reward, and thereby affect who is employed. 

In some cases, the monetary reward to work is zero, or worse. 

OVERVIEW

A basic economic principle is that the monetary reward to working has important 

effects on how many people are employed, and how much they work. By definition, 

the monetary reward to working is the difference between the resources a person 

has available to use or save if she works and what she has available when she does 

not work. 

The effect of taxes and subsidies on the reward to working can be summarized 

as a marginal tax rate: that is, the difference between taxes paid net of subsidies 

received when working and net taxes paid when not working, sometimes expressed 

as a fraction of the amount produced when working. 

People without jobs or otherwise with low incomes sometimes receive benefits 

from social safety net programs. The benefits are rarely called taxes by laymen, but 

economists understand the benefits to have many of the characteristics of marginal 

tax rates because a program beneficiary loses some or all of her benefits as a consequence of working. The more income that a person receives when not working, the 

less is the reward to working. 

A multitude of public policies affect the reward to working. To name just a few: 

federal, state and local income taxes, payroll taxes, unemployment insurance benefits, and nutrition assistance programs. 

Thanks to a labyrinth of relevant programs, the marginal tax rate can equal or 

exceed 100 percent in some cases, which means that the reward to working is zero 
10 

or negative. In such cases, a person might have more resources available to use or 

save as a consequence of working less. 

Legislation that ‘‘cuts’’ or ‘‘credits’’ taxes can nonetheless reduce the reward to 

working, and increase the marginal tax rate appropriate for labor market analysis, 

if it cuts taxes more for those who work less than it cuts taxes for those who work 

more. 

Even private sector transactions such as the settlement of mortgage, consumer, 

and child support debts sometimes have many of the characteristics of taxes paid 

to the public treasury, especially in terms of their propensity to reduce the reward 

to working. 

The reward to working, and therefore the marginal tax rate, affects behavior. 

High marginal tax rates mean small incentives to seek, create, and retain jobs. The 

consequences of high marginal tax rates are felt all over the economy, even by persons whose individual marginal tax rates might not be all that high. 

America absolutely must have taxes and safety net programs, even though they 

reduce the reward to working. But if this Congress wants to understand or shape 

what is happening in the labor market or to the budgets of social programs, it would 

be counter-productive to approximate marginal tax rates as zero, or to assume them 

to be eternally constant regardless of what incentives are embodied in new legislation. 

In reality, at least a dozen new and important federal and state safety net benefit 

rules have collectively changed the reward to working, especially for groups whose 

employment rates are particularly sensitive to safety net benefits. 

Of course, unemployment insurance program benefits are now available longer 

into unemployment spells—up to 99 weeks—than they were five years ago. But also 

don’t forget that new modernization provisions now provide unemployment benefits 

in a variety of circumstances when benefits were formerly unavailable. While it 

lasted, the 2009 American Recovery and Reinvestment Act (hereafter, ARRA) also 

added a bonus to weekly unemployment checks, and helped unemployed people pay 

for their health insurance. The food stamp program expanded in a variety of dimensions. All of these policy changes, and more, served to increase marginal tax rates 

over the past couple of years. 

By my calculations, the net effect of all of these changes through 2012 was to increase marginal tax rates for the median household head or spouse at least four percentage points above what they were in 2007 (Mulligan 2012), on top of the fortyplus percent marginal tax rate already in place. Marginal tax rates have increased 

even more for less-skilled people. 

It is sometimes claimed, by non-economists at least, that the safety net does not 

prevent anyone from working because supposedly everyone strives to have more income rather than less, and would gladly take any available job that paid them more 

than the safety net did. This ‘‘income maximization’’ claim is contradicted by the 

most basic labor market observations, not to mention decades of labor market research. A presumably unintended consequence of the recent safety net expansions 

has been to reduce the reward to working and thereby keep employment rates low, 

keep unemployment rates high, and keep national spending low, longer than they 

would have been if safety net program rules had remained unchanged. 

The remainder of my testimony offers more detail as to marginal tax rate changes 

in recent years, and how they relate to the government safety net. 

A LABYRINTH OF PUBLIC POLICIES AFFECT THE REWARD TO WORKING

The marginal tax rate is the difference between taxes paid net of subsidies received when working and taxes paid net of subsidies received when not working, 

sometimes expressed as a fraction of the amount produced when working. Among 

the variety of measures that economists use to study the reward to working, this 

concept of the marginal tax rate has the advantage that it readily captures important combined incentive effects of a multitude of tax and subsidy programs (Gruber 

and Wise 1999). 

The marginal tax rate appropriate for labor market analysis includes not only the 

combined sum of the extra taxes owed when working, but also adds the combined 

sum of all safety net benefits foregone, because taxes generally take away from the 

resources available to people who work while safety net benefits generally add to 

the resources available to people who do not work. 

Many of us worked on our federal individual income tax Form 1040 over the 

weekend and may be familiar with our tax rate on that form. But the marginal tax 

rate as defined above is significantly different from the Form 1040 rate because, 

among other things, the federal individual income tax is only one of many taxes. 

As a consequence of working, and the additional spending and saving that wage in-
11 

come permits, American workers (and employers on behalf of employees) pay income, payroll, sales, excise, property, and other taxes to federal, state and local governments. 

Federal, state, and local governments deal in massive amounts of resources, and 

affect the reward to working both in the process of obtaining revenue and in the 

process of distributing revenue to beneficiaries. The Bureau of Economic Analysis 

estimates that income, payroll, sales, and excise taxes amounted to about 23 percent 

of national income and over 30 percent of the nation’s labor income, on average between 2000 and 2010. Even if none of that revenue had been spent on safety net 

programs, the tax collections by themselves would have reduced the reward to working. 

Safety net program spending is also significant, especially during the last several 

years. I estimate that federal, state, and local spending on non-elderly beneficiaries 

of unemployment insurance, nutrition assistance, Medicaid, and other means-tested 

subsidies occurred at a combined rate of more than $400 billion per year in 2009 

and 2010, measured in fiscal year 2010 dollars (Mulligan 2011). Even if governments had somehow been able to fund these programs without any taxes, the process of distributing the program benefits would have reduced the reward to working. 

Legislation that ‘‘cuts taxes’’ can nonetheless reduce the reward to working, and 

increase the marginal tax rate appropriate for labor market analysis, if it cuts taxes 

more for those who work less than it cuts taxes for those who work more because 

the reward to working is the difference between taxes (net of subsidies) paid when 

working and taxes (net of subsidies) paid when not working. 

Thanks to the labyrinth of relevant programs moving large amounts of resources, 

the marginal tax rate can equal or exceed 100 percent in some cases (Romich, 

Simmelink and Holt 2007), which means that the reward to working is zero or negative. In such cases, a person might have more resources available to use or save as 

a consequence of working less. 

The reward to working, and therefore the marginal tax rate, affects behavior. 

High marginal tax rates mean small incentives to seek, create, and retain jobs, and 

to make the sacrifices of time, hassle, etc., naturally required by employers, customers, and clients in exchange for a paycheck. The consequences of high marginal 

tax rates are felt all over the economy, even by persons whose individual marginal 

tax rates might not be all that high. 

The economic distortions created by marginal tax rates are not linear: an increase 

from 90 percent to 100 percent has a greater effect on incentives than an increase 

from 40 percent to 50 percent, which itself has a greater effect on incentives than 

an increase from 0 percent to 10 percent. A rate increase from 0 to 10, for example, 

still leaves a worker with 90 percent of her reward from working, whereas a rate 

increase from 90 to 100 leaves her with no reward. 

MARGINAL TAX RATE AND GOVERNMENT SAFETY NET CHANGES IN AND AROUND THE

GREAT RECESSION

At least a dozen new and important federal and state safety net benefit rules have 

collectively changed the reward to working, especially for groups whose employment 

rates are particularly sensitive to safety net benefits. 

The unemployment insurance (hereafter, UI) program offers weekly cash benefits 

to people who have lost their jobs and have as yet been unable to find and start 

a new one. On average they receive about $300 a week until they start working 

again, until they stop looking for work, or until their benefits are exhausted. Before 

the recession, an unemployed person in a typical state without high unemployment 

would often have his benefits limited to a maximum of twenty-six weeks (United 

States Department of Labor 2007). The federal law in place before the recession included some local labor market ‘‘Extended Benefit’’ triggers that, based on the statewide unemployment rate, would automatically lengthen the maximum benefit period. These automatic triggers began to extend the duration of benefits around the 

nation in the middle of 2008 (United States Department of Labor 2011a). At about 

the same time, the Supplemental Appropriations Act of 2008 included new ‘‘Emergency Unemployment Compensation’’ (EUC) legislation that extended maximum 

benefit periods for the entire nation. The Worker, Homeownership, and Business Assistance Act of 2009 further extended the EUC periods, so that unemployment insurance benefits could be paid up to 99 weeks (United States Department of Labor 

2011b). 

It is widely recognized that the UI benefit duration rules changed over the past 

couple of years (see Elsby, Hobijn and Sahin (2010), Shimer (2010), Daly, et al. 

(2012) and the studies cited in Council of Economic Advisers (December 2010)). Nor 

is it a surprise that a person unemployed more than 26 weeks saw her marginal 
12 

tax rates increase as a result of the rule changes, because they provided benefits 

that would terminate if and when she went back to work before the benefits were 

exhausted. More surprising is that other safety net expansions collectively served 

to increase marginal tax rates significantly more than the new UI benefit duration 

rules did, not to mention reinforce the labor market impacts of the latter (Mulligan 

2012). 

The February 2009 American Recovery and Reinvestment Act (hereafter, ARRA) 

expanded eligibility by encouraging states to ‘‘modernize’’ (and relax) their UI eligibility requirements by processing earnings histories through an ‘‘alternative base 

period,’’ including persons who quit their job for compelling family reasons, adding 

26 weeks of eligibility for persons enrolled in training programs, and/or paying benefits to persons who search only for part-time work (United States Department of 

Labor 2009). The modernization provisions raised marginal tax rates for people who 

would have found it difficult or impossible to qualify for UI under the previous 

rules. 

The ARRA also raised marginal tax rates by exempting the first $2,400 of unemployment benefits received by an unemployed person from 2009 federal income tax 

(United States Department of Labor 2011b). This provision is an example of a ‘‘tax 

cut’’ that nevertheless reduced the reward to working because it reduced taxes for 

people who experienced unemployment sometime during 2009 and did not reduce 

taxes for people who worked throughout the year. 

The ARRA’s Federal Additional Compensation (FAC) provision also raised mar- ginal tax rates by adding $25 per week to unemployment compensation checks. This 

$25 per week was not available to people who were working, because unemployment 

compensation checks are reserved for people who are unemployed. 

For laid off workers who wanted to remain on their former employer’s health 

plan, the ARRA’s COBRA subsidy offered to pay 65 percent of the cost. For a 

$13,027 annual family health insurance premium (Crimmel 2010), that subsidy was 

worth more than $700 per month. Many of the unemployed did not receive the 

COBRA subsidy, but the subsidy increased marginal tax rates for people who did 

receive it, or would have received it had they not been working. 

The Department of Agriculture’s food stamp program, now known as Supplemental Nutrition Assistance (SNAP), provides funds to low income households for 

the purpose of buying food (Social Security Administration 2008), often in conjunction with cash assistance programs. The rules for SNAP eligibility were relaxed in 

and around the 2008-9 recession as states were eliminating the ‘‘asset test,’’ as the 

2002 Farm Bill permitted them to do. The asset test elimination increased marginal 

tax rates appropriate for labor market analysis because households could receive 

SNAP benefits based solely on their net income, and not based on the value of their 

assets. For persons in the few states that retained asset tests, new federal asset eligibility rules were relaxed by the 2008 Farm Bill (Eslami, Filion and Strayer 2011, 

6). 

Both the 2008 Farm Bill and the 2009 ARRA increased the amount of the SNAP 

benefits paid to eligible households, and thereby increased marginal tax rates. 

The Housing and Economic Recovery Act of 2008 created a first-time home buyers’ 

tax credit of up to $8000, but it phased out as annual family income varied beyond 

the income limitation. This provision is another example of a ‘‘tax cut’’ that nevertheless reduced the reward to working because it reduced taxes for people below the 

annual income limit more than it reduced taxes for people earning above it (people 

who work fewer weeks during the year are more likely to earn below the annual 

income limit required to obtain the full credit). 

The 2009 ARRA created a refundable personal income tax credit for calendar 

years 2009 and 2010 called the ‘‘Making Work Pay Tax Credit’’ (hereafter, MWPTC). 

For most people, the MWPTC had no effect on the reward to working because they 

or their household would have received the same amount of the credit regardless 

of an individual’s work decision. A few persons saw their reward to working increase, a few others saw it reduced. 

In contrast to the many provisions cited above, the employer portion of the federal 

payroll tax has been reduced since January 2011 and thereby reduced marginal tax 

rates appropriate for labor market analysis since that date. By my calculations, the 

net effect of all of these changes through 2012 is still to leave marginal tax rates 

for the median household head or spouse at least four percentage points higher now 

than they were in 2007 (Mulligan 2012), on top of the forty-plus percent marginal 

tax rate already in place. Marginal tax rates have increased even more for lessskilled people. 

Of the several safety net expansions cited above, three of them from the ARRA 

have expired and thereby no longer elevate marginal tax rates as they did when the 

expansions were active: the COBRA subsidy, the FAC, and the federal income tax 
13 

exemption for UI. MWPTC has also expired. The other marginal-tax-rate-elevating 

provisions remain in place today. 

The Patient Protection and Affordable Care Act was passed in March 2010. As 

a result of this legislation, Medicaid enrollment and spending are expected to increase significantly in 2014, when the program is made ‘‘available to able-bodied 

adults with incomes up to 133 percent of the federal poverty level’’ (Sack 2010). By 

increasing the resources that part of the population can have when their incomes 

are low, this provision of the Act will increase their marginal tax rates. Other provisions of the Act, such as means-tested health insurance premium assistance, will 

also increase marginal tax rates when they go into effect. 

WAGE GARNISHMENT AND RELATED PRIVATE SECTOR ACTIVITIES AFFECTING THE

REWARD TO WORK

The Internal Revenue Service, Department of Agriculture, and state unemployment agencies are not the only institutions looking at a person’s employment status 

and federal individual income tax return to determine how much she should pay or 

receive. My own employer, the University of Chicago, and thousands of other universities, colleges, and schools look at federal income tax returns through their financial aid programs to determine how much a parent should pay for her child’s education. While we welcome the opportunity to help students from disadvantaged families, economists have long recognized that financial aid practices affect incentives 

for students’ parents to work and save (Dick and Edlin 1997). 

Workers sometimes have their wages garnished by creditors and/or child support 

agencies. Garnishments may be a necessary part of a well-functioning credit market 

and necessary to properly support children, but they also serve to reduce the reward 

to working by the person whose wages would be garnished (Holzer, Offner and 

Sorensen 2005). 

Even if these private sector actions affecting the reward to work had been constant over time, they still interact with the safety net expansions cited above because the economic distortions resulting from marginal tax rates depend on the sum 

total of all taxes, subsidies and garnishments that derive from a person’s wages. 

Moreover, it does not appear that the private sector’s influence on marginal tax 

rates has been constant over time. A new federal bankruptcy law went into effect 

in late 2005. The 2009 ARRA stepped up enforcement of child support debts (National Conference of State Legislatures 2009). 

Perhaps the most dramatic single increase in marginal tax rates has been associated with the federal guidelines for the settlement of ‘‘under-water’’ home mortgages. Mortgage modification initiatives have been the one of the main ways the 

federal government has sought to reduce home mortgage foreclosures, especially 

when those foreclosures are motivated by negative home equity (Congressional 

Oversight Panel 2009, 4). In 2008, the Federal Deposit Insurance Corporation 

(FDIC), Federal National Mortgage Association (Fannie), and the Federal Home 

Loan Mortgage Corporation (Freddie) all announced debt forgiveness or ‘‘loan modification’’ formulas. The Treasury Department continued this work under President 

Obama’s administration with its ‘‘Home Affordable Modification Program’’ (HAMP) 

as part of its ‘‘Making Home Affordable Initiative,’’ which replaced the Fannie and 

Freddie programs. 

These programs often recommend a new mortgage payment amount that is lower 

than the payment specified in the original mortgage contract. More important in 

terms of marginal tax rates, the new payment is set in proportion to the borrower’s 

income at the time of the modification. The more the borrower is earning at the 

time of the modification, the more she will be required to pay her lender over the 

next five to seven years, or more. The marginal tax rate on income earned at the 

time of modification can easily exceed one hundred percent and sometimes exceed 

two hundred percent as a result of the federal modification guidelines, not to mention the many other taxes and subsidies that also reduce the reward to working 

(Mulligan 2009; Herkenhoff and Ohanian 2011). 

THE INCOME MAXIMIZATION FALLACY

It is sometimes claimed, by non-economists at least, that the safety net does not 

prevent anyone from working because everyone strives to have more income rather 

than less, and would gladly take any available job that paid them more than the 

safety net did. This ‘‘income maximization’’ hypothesis is contradicted by the most 

basic labor market observations, not to mention decades of labor market research. 

Before the recession began, well over 100 million Americans were not working. 

To be sure, some of them could find no reward in the labor market and would be 

stuck without gainful employment no matter how lean the safety net got. But many 
14 

others were not working by choice. You probably know skilled stay-at-home mothers 

or fathers who could readily find a job but believe that the net pay from that job 

would not justify the personal sacrifices required. They are examples of people who 

deliberately do not maximize their income. Other examples are people who turn 

down an out-of-town promotion in order to avoid relocating their families, and workers who eschew higher paying but less safe occupations. Earning income requires 

sacrifices, and people evaluate whether the net income earned is enough to justify 

the sacrifices. 

When the food stamp or unemployment programs pay more, the sacrifices that 

jobs require do not disappear. The commuting hassle is still there, the possibility 

for injury on the job is still there, and jobs still take time away from family, hobbies, 

and sleep. But the reward to working declines, because some of the money earned 

on the job is now available even when not working. 

Decades of empirical economic research show that the reward to working, as determined by the safety net and other factors, affects how many people work and how 

many hours they work. To name a small fraction of the many studies: Hoynes and 

Schanzenbach (2012) show how potential participants stopped working or reduced 

their work hours when the food stamp program was introduced. Studies of unemployment insurance find that program rules have a statistically significant effect on 

how many people are employed, and how long unemployment lasts. Yelowitz’ (2000) 

research shows how a number of single mothers found employment exactly when, 

and where, state-level Medicaid reforms increased their reward from working. 

Gruber and Wise (1999) and collaborators show how the safety net for the elderly 

results in less employment among elderly people. Autor and Duggan (2006) and the 

Congressional Budget Office (2010) explain how the number of disabled people who 

switch from work to employment-tested disability subsidies depends on the amount 

of the subsidy relative to the earnings from work. Murphy and Topel (1997) show 

how poor wage growth among less-skilled men helps explain their declining employment rates during the 1970s and 1980s. 

Because economists have identified many other cases in which means-tested and 

employment-tested subsidies caused people to work less (Krueger and Meyer 2002), 

it should be no surprise that the same kinds of behavioral responses occurred since 

2007: a larger safety net reduced aggregate employment and hours worked. 

OTHER MISCONCEPTIONS ABOUT MARGINAL TAX RATES

I previously cited at least a dozen changes in subsidy rules that served to raise 

marginal tax rates. Any one of them may appear insignificant by itself, especially 

for the purpose of aggregate labor market analysis. But that doesn’t mean that the 

combination of a dozen or more potentially small marginal tax rate increases is 

itself small. 

Focusing on just one of any of the safety net expansions is also misleading as to 

the magnitude of the overall increase in marginal tax rates and therefore potentially 

misleading as to the sources of the major changes in the labor market since 2007. 

It is even possible that attention to one program in isolation of the wider safety net 

could motivate backwards public policy responses. 

To see this, imagine that UI rules became more generous, and that added to the 

number of households who were unemployed and with less income than they have 

when working. A number of the added unemployed people apply for food stamps, 

which from the food stamp program’s point of view makes it look like ‘‘the economy 

is getting worse,’’ so food stamp officials recommend enhancing food stamp benefits, 

which further increases the marginal tax rate. But, in this example, the added food 

stamp applications come from higher marginal tax rates created by UI, and the 

right food stamp policy response may be to reduce benefits in order to stabilize the 

overall marginal tax rate. My point here is not that the actual safety net expansions 

were excessive but rather that the economics of the safety net can be different when 

the safety net is viewed as a whole rather than on a program-by-program basis. The 

distinction is more than academic: recent events involved expansions of the safety 

net in many dimensions, and all of that occurred on top of a labyrinth of other safety net programs. 

Another misconception is that most of the growth of federal income security program spending came from the recession, and not from more generous program rules 

(Krugman 2011). My estimates suggest the 2007 to 2010 rate of increase of inflation-adjusted per capita government spending on Unemployment Insurance and 

SNAP was at least triple of what it would have been if the real benefit and eligibility rules had remained what they were in 2007 (Mulligan 2012). 

It is sometimes thought that safety net transactions only impact the people who 

participate in the programs. To the contrary, the safety net is funded by taxpayers, 
15 

lenders, owners of government debt, beneficiaries of government programs other 

than the safety net, or some combination thereof. As a portion of the beneficiaries 

opt to earn less, they also opt to spend and save less, as their household budget 

constraint requires. They lawfully pay less taxes. Businesses anticipate having 

fewer employees and invest less. These behavioral changes are bad news for employers in general, for people who produce the consumer and investment goods that 

beneficiaries would be buying if they were back at work (and goods the program 

funders would be buying if they were not funding the expansions), and for people 

who live in places like Michigan whose economies are especially intensive in the 

production of such goods (Gali, Gertler and Lopez-Salido 2007). 

CONCLUSIONS

The bottom line is that helping the poor and economically vulnerable has a price 

in terms of labor market inefficiency. Since 2007, we have been paying more of that 

price: American public policies moved significantly in the direction of less labor market efficiency, and perhaps more than was necessary for providing assistance to 

those who need it. 

First of all, 100 percent marginal tax rates are difficult to justify as a reasonable 

balance between equity and efficiency, yet even in 2005 some demographic groups 

were subject to 100 percent marginal tax rates (Romich, Simmelink and Holt 2007), 

and the recent safety net expansions documented here added to the number of people facing such rates. 

Second, rather than making people feel safer, a number of the safety net expansions may themselves be a source of uncertainty via the political process because, 

among other things, they must be repeatedly renewed by Congress, and taxpayers 

are still unsure of exactly who will pay for them (Baker, Bloom and Davis 2011). 

Third, my testimony explains how multiple parties—governments, lenders, and 

courts—have claims on the income that appears on a person’s tax return. Multiple 

tax collectors can lead to excessive marginal tax rates, as each individual collector 

might not value the effect of his extraction on the revenues received by the other 

collectors (Olson 2000). For these reasons, it is likely possible to reduce marginal 

tax rates and enhance labor market efficiency without giving up much or any of the 

benefits that come from safety net programs. 

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Chairman RYAN. Thank you. Mr. Haskins. 

STATEMENT OF RON HASKINS 

Mr. HASKINS. Chairman Ryan, Ranking Member Van Hollen, 

members of the committee, thank you for inviting me. It is a great 

honor to be here to testify. I think this is the only place in the 

country where American people can come and see a budget that 
17 

will actually seriously address our long-term deficit and bring it 

into acceptable range in the foreseeable future. I think that is a 

great achievement; of course, it does not mean that it has to happen exactly the way Chairman Ryan lays it out, but I assume that 

this committee will have a full argument about how the Democrats 

would like to change it, and, in the end, we are going to have to 

change a lot that we do, including, I think, with taxes and spending. And, so, have at it. I am glad to participate in it. 

I am going to, was asked by the committee to talk about three 

things: spending, phase-out rates, or benefit reduction rates that 

Casey just talked about, and block grants. Let me just say a few 

words about each. 

First, on spending, Robert Rector has laid out the spending in 

great detail. I am going to defer mostly to him, but I do want to 

make a few points. First, if you look at Figure 1 in my testimony, 

here you see that there has been a huge increase in spending on 

means-tested programs. These are the 10 biggest means-tested programs taken from a CRS document, so this is not the entire safety 

net; it is the 10 biggest programs, and it has increased almost 

every year both in constant dollars, total spending, and per person 

in poverty. So we are spending more and more and more. 

To give you an example, if you take 1980, we spent about $126 

billion on these 10 programs. In 2011, we spent $626 billion on 

these programs, and if you translate that to spending per person 

in poverty, it goes from about $4,300 to $13,000. So no matter how 

you look at this, we have very substantially increased spending. By 

the way, it has also increased about 31 percent in the three years 

of the Obama administration, even though in one year and, perhaps, two years spending per person in poverty actually fell. That 

shows you how much the poverty rate increased. 

We have a lot of spending. I was on the staff of the Ways and 

Means Committee in 1996, and we thought we had a pretty good 

safety net, and we were spending about a third of what we spend 

now. So the point of this is that I think there ought to be savings 

in here, and it is a matter of looking to how to get it. 

So spending: big increases, no matter how you measure it some 

of the money is spent by people above the poverty line, and the big 

question is what are the programs that we are getting the most 

benefit from, and what are the programs we are not because we 

need to change something. Some of the savings are going to have 

to come out of low-income programs, I believe. 

Second, phase-out rates: This is a huge problem. Casey’s testimony is the best short treatment of this issue that I have ever 

seen. It is really complete. If you read the references, it will drive 

you nuts, because it is a very complex area. If you show the third 

figure here, this shows a chart. 
18 

I am not going to explain the chart, but I just wanted you to see 

what you could nicely call a spaghetti chart. It is from the Congressional Research Service in 1995, and what it does is trace out what 

happens to various taxes and benefit programs as a person’s earnings increase. This is exactly the topic that Casey was addressing. 

And, as you can see, you never get as much as you earn. That is 

the disincentive effect; and at some point in the distribution you 

lose almost everything you earn; and at one point you actually lose 

more than 100 percent of what you earn. It does not pay to earn 

that extra dollar. So, these are a big issue in our programs, and 

they stem especially from the fact that we have so many programs 

in both the tax code and in spending programs, and some are going 

down and up. They are not coordinated at all. We could create one 

big program, but that would create all kinds of headaches, administrative and otherwise, that I outline in the testimony. So, this is 

definitely a problem. 

But, I want to point something out. In the welfare reform legislation of 1996, we basically cut through this problem by saying you 

have to work. Work requirements and time limits, seeing also a 

time limit on welfare, they trump phase-out rates. Why? Because 

you have to work, and that is what the welfare reform bill did, and 

people went to work in droves. 

And, secondly, we have created, over the years, what I would call 

a work support system. It has the earned income tax credit, 

childcare, and other benefits, that help low income working families. Back in the old days if people took a job they lost all their welfare benefits. So we have reduced those benefit reduction rates, but 

they are still very substantial, as Casey points out. But in a program where you are required to work and lose your benefits if you 

do not, then I state the benefit reduction rate makes much less difference than under other circumstances. 
19 

Finally, I want to say just a few words about block grants. Block 

grants have two huge advantages. One is from the state perspective they give a lot of flexibility; now not every block grant does 

that. You could write a block grant so it is full of all kinds of details and requirements, what governors used to call strings, in 

which case it does not give states the flexibility. 

The other advantage is from the federal perspective that it is a 

way to control spending. An open-end entitlement like Medicare, 

Social Security, Medicaid, and so forth, you are subject to the 

whims of the population and what changes people make in benefits 

and so forth, and those programs do not come up for review very 

often. So a way to control the spending is to give a block grant with 

a fixed amount of money and give the states flexibility. I would 

make at least one exception to that, and that is I think we still 

have to have accountability. We have to have financial accountability, which I think we would have almost no matter what you 

did because of the Single Audit Act, but we also have to find out 

if these programs actually have impacts; so I would require data 

reporting from the states to see if these programs are having their 

intended effects. 

Another thing I want to say about block grants is that when we 

passed two big block grants in 1996, both the TANF Program, 

which ended about three welfare programs and put them in a block 

grant, and a daycare program block grant, which ended about five 

programs, and when we did that we consulted carefully with the 

states. We had one consultation session that I remember that had 

30 or 40 people from state governments in there, and we went 

through the changes that we were making and the strings that 

were on the block grants. Since the states have to implement them, 

I think it is a very good idea to consult carefully with the states 

in the construction of the block grant. 

So, Chairman Ryan, thank you again for asking me to testify. We 

simply have to do something about our deficit. Our children and 

grandchildren are paying a price, and it is going to involve some 

changes in low income programs for sure. Thank you. 

[The prepared statement of Ron Haskins follows:] 

PREPARED STATEMENT OF RON HASKINS, CO-DIRECTOR OF THE CENTER ON CHILDREN

AND FAMILIES, BROOKINGS INSTITUTION; SENIOR CONSULTANT, ANNIE E. CASEY

FOUNDATION

CHAIRMAN RYAN, RANKING MEMBER VAN HOLLEN, AND MEMBERS OF THE COM- MITTEE: Thanks for inviting me to testify today. I consider it a privilege to have the 

opportunity to talk to members of the House Budget Committee. 

In response to instructions from the Committee, I’m going to talk about three topics: trends in spending on means-tested programs; work incentives and phase out 

rates for means-tested programs; and block grants. 

TRENDS IN MEANS-TESTED SPENDING

The lower line in Figure 1, based on a Brookings analysis of federal budget data 

published by the Office of Management and Budget, shows federal spending since 

1962 in the ten biggest means-tested federal programs. In 2011, we estimate that 

about 87 percent of the spending was on entitlement programs.1 Federal spending 

on poor and low-income Americans has increased enormously. Since 1980, by which 

time all but two of the ten programs that spent the most money in 2011 were in 

place, spending has increased by about $500 billion, from $126 billion to $626 billion 

after adjusting for inflation. 

One cause of the increase in spending is that both the population and the number 

of poor people in the U.S. have increased over time. Thus, even if the federal gov-
20 

ernment spent the same amount of money in 2011 on means-tested programs per 

person in poverty as we spent in 1962, spending would have increased. The solid 

line in Figure 1 expresses the increase in federal means-tested spending as spending 

per person in poverty. Expressed in this way, over the past five decades, federal 

spending on major means-tested programs has increased from about $516 to a little 

more than $13,034 per person in poverty. If we use the figure on spending per person in poverty in 1980, when most of the major means-tested programs were in 

place, the increase is from about $4,300 to $13,000 per person or more than $3 spent 

in 2011 for every dollar spent in 1980.2 More recently, means-tested spending increased from about $477 billion to $626 billion in the three years of the Obama administration, an increase of about 31 percent. However, the recession that began in 

December 2007 and the increase in poverty during and following the recession is 

an important part of the explanation for increased means-tested spending during 

the Obama administration. Spending per person in poverty increased by about 9 

percent as compared with the 31 percent increase in total spending during the first 

three years of the Obama administration. A portion of the rise in means-tested 

spending, which was authorized as part of the American Recovery and Reinvestment Act of 2009, began to expire in 2010. 

Figure 2 shows how means-tested spending is distributed among eight broad categories of programs.3 The categories include health, cash, food, housing, education, 

social services, energy, and employment and training. The figures are for 2009, the 

last year for which the Congressional Research Service has calculated means-tested 

spending within these eight categories. Not surprisingly, the figure shows that 

health is by far the biggest category of spending at $319 billion in 2009, about 2.5 

times as much as cash programs, the second biggest category. Employment and 

training at $9 billion is the smallest of the eight categories. Figure 2 shows that 

means-tested spending, like total spending in the federal budget, is driven in large 

part by the rising cost of health care. In this respect, figuring out ways to control 

the growth of health care spending would reduce the rate of increase in both total 

federal spending (and debt) as well as federal means-tested spending. 
21 

A few additional points about these figures are in order. First, keep in mind that 

these spending data are for only the ten largest means-tested programs. The Congressional Research Service estimates that in 2009, spending on these ten programs 

represented about 75 percent of total federal means-tested spending.4 If that percentage remained roughly the same for 2011, total federal means-tested spending 

in that year was closer to $835 billion than the $626 billion spent on the ten biggest 

programs. 

Second, state and local governments spend their own money on many of these programs. The Congressional Research Service has estimated that state and local governments supplemented federal spending on means-tested programs by around 27 

percent in 2004.5 If we assume that the 27 percent has remained roughly constant, 

we can estimate that total federal, state, and local government spending on meanstested programs was probably around $1,143 billion in 2011. 

On a per-person in poverty basis, that figure represents about $23,731 in spending by federal, state, and local governments. But this estimate should be considered 

in light of several caveats. The first is that not all of the spending on means-tested 

programs goes directly to individuals and families. Some of the money is spent on 

programs, such as the $14.5 billion spent on Title I of the No Child Left Behind 

Act and the $9 billion in spending on employment and training programs, that provide services rather than direct cash or in-kind benefits. Second, some of the money 

in programs that provide cash or in-kind benefits directly to households goes to individuals and families that are not below the poverty level. Children in families of 

up to 200 percent of the poverty level, for example, are eligible for Medicaid or the 

Child Health Insurance Program (CHIP) in almost every state.6 Similarly, people 

in households with incomes up to 130 percent of poverty are eligible for SNAP benefits (Supplemental Nutrition Assistance Program, previously food stamps). In the 

case of the Earned Income Tax Credit (EITC), in 2010 a single mother with two children could receive benefits if the mother’s income was below $40,964, about 225 percent of the poverty level for this family. Professor David Armor of the School of Public Policy at George Mason University is in the process of using Census Bureau data 

and data from other sources to estimate the percentage of benefits in health, nutrition, housing, and cash means-tested programs that go to individuals or households 

with income above the poverty line. Although Armor’s work has not yet been published, he is finding substantial fractions of the benefits in all these programs going 

to individuals and families with income above the poverty level and some of it even 

going to those with incomes above 200 percent of the poverty level. 

Means-tested spending has increased enormously, no matter how it is measured. 

Although there have been some periods of comparatively rapid growth, such as during the recession of 2007 to 2009, Figure 1 shows that spending has grown almost 

every year for the last five decades. The increase in spending has been the most 

rapid in health programs, but cash, nutrition, and several other types of spending 

have also increased rapidly. Similarly, spending per person in poverty has also increased substantially, although not quite as rapidly as total spending. 
22 

WORK INCENTIVES AND BENEFIT PHASE OUTS

The impact of welfare benefits on work incentive has always been a contentious 

issue. Common sense tells us that if able-bodied people get welfare benefits without 

doing anything in return, their incentive to work and achieve self-sufficiency will 

be diminished. This common sense view is also supported by a host of research studies. Reviews of the empirical evidence on this issue have consistently shown that 

welfare reduces work effort.7 To reduce such work disincentive, most means-tested 

programs have phase out rates because program designers want to maintain a financial incentive for benefit recipients to work. The hope is that by reducing welfare 

benefits by less than a dollar for each dollar of earnings, recipients will have at 

least some incentive to work or work more. The ideal outcome would be to design 

benefits so that an extra dollar of earnings would always produce a net income increase that is as close to the amount of earnings as possible. The lower the phase 

out rate, the greater the increase in net income and therefore work incentive. However, lower phase out rates make means-tested programs more expensive. There is 

a clear tradeoff between program cost, benefit phase out rates, and work incentive. 

The difficult problems posed by phase out rates and work disincentives is greatly 

complicated by the fact that all families with earnings are subject to taxation of 

their earnings and some families receive more than one means-tested benefit. Consider some of the possibilities: workers are subject to the roughly 15.3 percent FICA 

tax8 from their first dollar of earnings; they could face an EITC phase out of up 

to 21 percent; families with housing benefits face a marginal tax rate of 30 percent 

on their earnings; and so forth. Considering all of the effects on net income and 

work incentives simultaneously strains the ability to understand just how much net 

income would change at a particular point in a person’s earnings curve. Figure 3 

is taken from a 1995 report from the Congressional Research Service. Although the 

specific phase out rates portrayed in the figure are somewhat out of date, a mere 

glance at the figure conveys the immense complexity of trying to figure out the net 

impact of so many different phase out and phase in rates operating simultaneously. 

The Congressional Budget Office is now completing a similar report on marginal tax 

rates in the tax and transfer system which goes into great detail in showing the 

actual marginal tax rates faced by individuals and families with various characteristics. Some of the rates are very high and under some circumstances an extra dollar 

of earnings can result in net income increases of 50 cents or less. 
23 

Problems maintaining work incentives are an inevitable consequence of meanstested programs. It would be possible to reduce, but not eliminate, the work disincentive effect of the current system if all benefits could be combined and then 

phased out at a single phase out rate. However, there are many problems with creating such a system. For one thing, the current benefits system is a combination 

of cash (the EITC, the Child Tax Credit, TANF, and Supplemental Security Income) 

and in-kind benefits (primarily SNAP and other nutrition programs, housing, Medicaid and SCHIP, and home heating). Perhaps the in-kind benefits could be paid as 

cash, but that would cause problems with various interest groups such as the National Grocers Association that would fight against cashing out SNAP benefits. 

Democrats might oppose converting benefits to cash because providing a lump sum 

cash payment would make the high level of benefits paid to some families more 
24 

transparent than under a system when some of the benefits are paid in kind, thereby raising objections from Republicans who would likely argue that the system is 

too generous and should be cut. Moreover, the administrative complexity of such a 

system might make it very difficult to operate. Yet another problem is that an allcash system could greatly increase the number of means-tested benefits families receive (although they would be combined into one benefit). As surprising as it might 

seem, under the current system few families actually receive all the means-tested 

benefits for which they qualify. A recent study sponsored by the Department of Agriculture showed that only 72 percent of people qualified for SNAP benefits actually 

receive them and that in some states the rate is below 60 percent.9 Both the Current Population Survey and the Survey of Income and Program Participation show 

that random samples of Americans receive relatively few of the benefits for which 

they are qualified.10

Given the difficulty of phasing out means-tested benefits and maintaining work 

incentives, an approach to this issue taken in the TANF program established by the 

1996 welfare reform legislation is important to consider. Regardless of benefit phase 

out rates, a matter that was left up to states by the 1996 law, the federal statute 

requires state programs to have two features that directly address work incentive. 

The first is that all state programs are required to have strong work requirements. 

Specifically, at any given moment 50 percent of TANF recipients must be involved 

in work activities that are tightly defined in the legislation. States that do not comply are fined. As part of the work requirement, states are required to impose financial sanctions on recipients who do not comply with the work requirement. The combination of work requirements imposed on both states and individuals backed up by 

financial sanctions serve to motivate states to adopt demanding programs and recipients to prepare for and look for work, usually in the private sector. In addition, 

the TANF legislation imposes a five-year limit on benefit receipt, sending a strong 

signal that benefits are not permanent, as they had been under the Aid to Families 

with Dependent Children program that TANF replaced. With strong work requirements and time limits, the work incentive created by benefit phase out rates is 

much less important. Soon enough, individuals must work regardless of the financial work incentives. 

Despite these strong pro-work features of the TANF program, it would be a serious mistake to think that American social policy depends exclusively on these essentially negative inducements to work. Beginning roughly in the mid-1980s, Congress 

created or reformed a host of programs that supplemented the income of poor and 

low-income working families, especially single mothers. These reforms included: 

• Expansion of Medicaid and CHIP benefits so that all children in families under 

200 percent of poverty are eligible for coverage in most states 

• Several expansions of funding for child care and reform of child care programs 

to give states more flexibility in use of child care subsidies to help working families 

• Several reforms of the SNAP program making it easier for working families to 

receive food subsidies 

• Numerous expansions of the EITC; the maximum EITC benefit in most states 

is greater than the average value of their TANF benefit 

• Creation of the refundable child tax credit that, like the EITC, provides a cash 

benefit to low-income families with earnings. 

Taken together, these work support benefits constitute the nation’s most successful method of attacking poverty among families with children.11 The combination of 

increased work by poor mothers following welfare reform and benefits from the work 

support system resulted in substantial declines in poverty among children in femaleheaded families. Even today, after two recessions, the poverty rate among children 

living in female-headed families is lower than it was before welfare reform and the 

work rate among single mothers is still higher than before welfare reform.12

The TANF experience demonstrates that using phase out rates to increase work 

incentive can be trumped by strong work requirements and a comprehensive work 

support system. 

BLOCK GRANTS

Block grants provide states with a sum of money to accomplish broad policy purposes which are specified in the authorizing language. Block grants can be constructed so that they achieve a major goal of state policy and a major goal of federal 

policy.13 States are always pleased to accept federal dollars, of course, but they also 

want flexibility with how the dollars are to be spent. Thus, states are doubly pleased 

if the block grant specifies the broad purposes of the federal grant and leaves it to 

state government to decide how best to achieve those purposes. From the federal 

perspective a major potential advantage of block grants is that spending can be con-
25 

trolled. In the case of open-ended entitlement programs such as Medicaid and 

SNAP, everyone who meets program qualifications has a legal right to receive the 

benefit. By contrast, in programs with capped spending such as housing programs 

and the major child care programs, local authorities or states receive a fixed amount 

of money and individuals are not entitled to receive the benefits. Most block grants, 

including the TANF program, the Child Care and Development Fund, and the Social 

Service Block Grant, have fixed funding. In all three of these cases, federal spending 

has increased slowly if at all in recent years and then only when Congress explicitly 

authorized and appropriated the additional funds. Given the enormous and growing 

deficit that afflicts the federal government, the possibility of spending control in 

major areas of social policy through the use of block grants should not go unnoticed. 

The history of federal block grants shows that it is rare for the federal government to provide states with funds to achieve broad social goals without some strings 

attached. In the case of TANF, for example, the block grant came accompanied by 

substantial requirements for data reporting, work requirements that states had to 

follow, and many other strings. These requirements were negotiated with states in 

marathon sessions that resulted in requirements that states felt they could live 

with. If Congress is to create additional block grants, it would be advisable to negotiate the terms of the block grant with states. In the case of TANF, Congress 

worked with the National Governors Association, the National Conference of State 

Legislators, and the American Public Human Services Association to find mutually 

acceptable provisions on work requirements, data reporting, and other details. 

The general issue of block grant requirements is especially important because of 

the need for accountability in spending federal funds. Under the Single Audit Act, 

all federal grants of over $100,000 given to states must be audited under widely accepted audit standards. But accountability for spending goes far beyond ensuring 

that funds are spent on activities for which they are intended. Rather, recent years 

have seen increased emphasis on showing whether federal funds are spent on state 

programs that actually achieve their purposes. Especially in education programs 

and welfare programs designed to encourage work, high quality program evaluations, usually involving random assignment designs, are the order of the day. Both 

the Bush and Obama administrations placed great emphasis on the importance of 

evidence-based policy.14 Evidence-based policy is especially important today because 

the nation’s major social intervention programs in preschool, the public schools, delinquency, employment and training, and many other areas usually do not have significant impacts on the social problems they were designed to address.15

To continue this growing federal practice of insisting on program accountability, 

block grants should include, in addition to financial accountability, two types of 

mandatory reporting. First, all programs receiving block grant funds should be required to report a standard set of data on program participants such as number and 

characteristics of people served, type of treatment, length of treatment, and, where 

possible, evidence of program success. Second, the secretary of the federal agency 

administering the program should be provided with funds to conduct high-quality 

evaluations of selected programs to determine if particular approaches or program 

models, as well as the specific characteristics of program models, are effective in 

producing the desired program outcomes. 

ENDNOTES

1 Housing, Title I grants to local education agencies, and half of Pell Grants were counted as non-entitlement spending. Thus, $545.0 of total spending of $626.2 or 87 percent was entitlement spending in 2011. 2The number of people in poverty in 2011 will not be published by the Census Bureau until 

next fall. Based on a model designed by Richard Bavier, a former senior official at OMB, that 

has successfully predicted the poverty level for the past several years, poverty increased by .6 

percentage points in 2011, bringing the poverty rate to 15.7 percent in that year. According to 

the American Community Survey, the population of the United States in 2011 was 306 million. 

Thus, around 48,042,000 people were poor in 2011. This is the figure used to compute meanstested spending per person in poverty for 2011. 3Karen Spar, ‘‘Federal Benefits and Services for People with Low Income: Programs, Policy, 

and Spending, FY2008-FY2009’’ (R41625), Washington, DC: Congressional Research Service, 

January 2011, p. 9. 4Karen Spar, ‘‘Federal Benefits and Services for People with Low Income: Programs, Policy, 

and Spending, FY2008-FY2009’’ (R41625), Washington, DC: Congressional Research Service, 

January 2011, p. 12. 5Domestic Social Policy Division, ‘‘Cash and noncash Benefits for Persons with Limited Income: Eligibility Rules, Recipient and Expenditure Data, FY2002-FY2004’’ (RL33340), Washington, DC: Congressional Research Service, March 2006. 6 According to the Kaiser Family Foundation, only North Dakota, Oklahoma, Arkansas, and 

Idaho set the child eligibility level for Medicaid and CHIP below 200 percent of poverty; half 

the states are at 250 percent or above. See http://www.kff.org/medicaid/upload/7993-02.pdf 
26 

7 Robert Moffitt, ‘‘Incentive Effects of the U.S. Welfare System: A Review,’’ Journal of Economic Literature, 1992, 30(1): 1-61; Sheldon Danziger, Robert Haveman, and Roert Plotnick, 

‘‘How Income Transfers Affect Work, Savings, and the Income Distribution: A Critical Review,’’ 

Journal of Economic Literature, 1981, 97(3): 975-1028. 8The FICA tax for Social Security and Medicare is split between employer and employee pay- ments totaling 15.3 percent of earnings (up to a limit of about $106,800 in the case of the Social 

Security Tax). However, economists assume that if the portion of the tax paid by employers were 

not required by federal law, employers would increase wages by an amount equal to the tax. 9Karen E. Cunnyngham, ‘‘Teaching Those in Need: State Supplemental Nutrition Assistance 

Program Participation Rates in 2009,’’ Washington, DC: U.S. Department of Agriculture, December 2011. 10 Janet Currie, ‘‘The Takeup Rate of Social Benefits,’’ Los Angeles, CA: UCLA, 2004. 11 A study in the 2008 edition of the Ways and Means Committee’s Green Book (see Appendix 

E, Table E-31) shows that, primarily because of increased work rates, the poverty rate of families headed by never-married mothers before any government taxes or transfers, fell from 48.3 

percent to 39.6 percent between 1989 and 2006. Thus, due to work effort by these mothers, the 

poverty rate before taxes and transfers had fallen by nearly 20 percent. When support for these 

working families from the work support system were added to income in 2006, the poverty rate 

fell from 39.6 percent to 26.1 percent or by an additional 35 percent. The combination of increased work rates and an improved work support system has had a major impact on poverty 

among families headed by never-married mothers. 12Poverty rates for families headed by single mothers decreased between 1996 and the start 

of the Great Recession in late 2007, from 35.8 percent to 30.7 percent. Even with increased 

hardship and unemployment during the recession, the 2010 rate of 34.2 percent is still below 

the 1996 rate. According to Brookings tabulations of data from the Current Population Survey, 

the average employment-to-population ratio for never-married mothers in the five years before 

welfare reform in 1996 was 44.6 percent. The ratio increased every year through 2000, increasing to 65.6 percent in that year, an increase of 47 percent compared with the five years before 

welfare reform. Even in 2010, after two recessions, the rate was 58.7 percent, still over 30 percent above the pre-welfare reform level. 13Pietro S. Nivola, Jennifer L. Noyes, and Isabel V. Sawhill, ‘‘Waive of the Future? Federalism 

and the Next Phase of Welfare Reform,’’ Brookings Institution, Welfare Reform and Beyond Policy Brief #29, March 2004. 14 Ron Haskins and Jon Baron, ‘‘Building the Connection between Policy and Evidence,’’ London: NESTA, September 2011. 15 Isabel V. Sawhill and Jon Baron, ‘‘Federal Programs for Youth: More of the Same Won’t 

Work, Youth Today, May 2010, p. 21. 

Chairman RYAN. Thank you, Mr. Haskins. Mr. Rector. 

STATEMENT OF ROBERT RECTOR 

Mr. RECTOR. Thank you very much for the opportunity to testify 

here today. If we were to look at the overall safety net, I think it 

basically has three components, which are for the elderly, Social 

Security and Medicare, for the unemployed, unemployment insurance, and worker’s compensation; and, for the poor, what I call the 

means-tested welfare state. 

Now, the means-tested welfare state is largely unknown. Everybody understands we spend a lot of money on Social Security and 

Medicare. Virtually no one understands that for every dollar we 

spend on Social Security and Medicare, we are spending 75 cents 

on assistance to the poor. And, this year alone that spending came 

to $927 billion, close to a trillion dollars a year, on expenditures 

that are largely unrecognized. Most of the debate about this system 

is irrational because there are 79 different programs, and when we 

talk about welfare we basically talk about one program at a time 

while ignoring the other 78. It is like having a jigsaw puzzle with 

78 pieces, but when you write a press story about it, you only write 

a press story about one piece at a time. That always makes the 

welfare state seem very small, very meager, and it always seems 

like we are not spending enough, basically, because we are never 

actually discussing how much is going out the door on these programs. 

Now, if you take this $927 billion, these programs are unique in 

the sense that they have required state spending in them, so you 

cannot just look at federal spending. You are requiring states to 
27 

spend money on these programs, particularly on Medicaid, and that 

goes out the door, and it assists poor people, and that is about a 

quarter of all this spending. You have to add that in order to get 

a good sense of the resources. When you look at these 79 programs 

what you find is about half the spending goes to medical care, primarily through the Medicaid program, about 40 percent of it, which 

is about $380 billion a year, goes to cash, food, housing, and housing programs, a lot of different programs there. And about 10 percent of this spending goes to what I call our enabling programs, 

programs that are intended to make the poor more self-sufficient, 

like child development or targeted job training or targeted education funds into poor communities from the federal government. 

About half of these benefits go to families with children, predominantly single parent families with children. About a quarter of 

them go to the disabled. About 15 percent go to the elderly; so it 

is a diverse population. 

And Ron has gone into the spending. Adjusting for inflation back 

when the war on poverty started in 1965, we were spending about, 

I think, $60 billion a year. This spending, adjusting for inflation, 

has increased sixteen fold since that time. All together, we have 

spent $19.8 trillion in means-tested assistance since the beginning 

of the war on poverty. People would say that is mainly in medical 

care. This breaks it out. The purple is the medical care, but, you 

can see even after adjusting for inflation, all the other types of 

spending went up very dramatically as well. 

For example, means-tested cash, food, and housing, over the last 

20 years, actually grew faster than Social Security spending; most 

people have no idea of this. In fact, a lot of people are surprised 

when they see this, and they say, ‘‘I thought we ended this back 

in 1996.’’ And I say, ‘‘Yeah, you ended it short of $927 billion, 

okay?’’ Enormous growth in spending with really no stopping point. 

This chart shows this spending as a percentage of GDP. 
28 

What you can see is back at the beginning of the war on poverty 

the spending was about one percent of GDP, and it increases about 

one percentage point of GDP each decade. By the 1980s you were 

up to around 3.5 percent of GDP. During Bush’s presidency, you 

were at about 5 percent of GDP. We have now ratcheted up to 6 

percent of GDP. And people might say that is reasonable. We are 

in a recession. We ought to spend more money on the poor during 

a recession. But when you look at Obama’s out year projections in 

his fiscal year 2013 budget this spending never comes back down. 

It grows dramatically over the next ten years and will remain always at or above 6 percent of GDP for the foreseeable future. 

One of the rules here is the ratchet principle. When this spending goes up, there is never any press comment on it, okay? It is 

invisible, absolutely invisible. It just goes up, and you never will 

see a press story about this at all. Then after it goes up 1 percentage of GDP, if you were to try to pull it back down to, say, 5 percent of GDP, then you are savaging the safety net and so forth and 

so on; so all the increases are always invisible. They are off-camera. They are never talked about. If you try to take a dime out of 

this after it has been ratcheted up then the sky is falling. The end 

of the world is right here upon us. 

Now, one question is, well, how much is this spending? How 

much is $927 billion a year? Well, the answer is if you just took 

that money and divided by the number of poor people in the U.S., 

it comes to around $19,000 per poor person per year. My figures 

are a little different than Dr. Haskins because I have the state contributions in this as well; and that is not a very accurate figure, 

because a lot of this spending goes to non poor people as well. 

A more accurate way of assessing these resources is to say if you 

took all of this spending and spread it out equally within the lowest income one-third of the population, about 100 million people, 

which is probably the pool of overall recipients, how much does 

that amount to? It comes to around $9,000 per person per year, or 

around $36,000 for a family of four. 

One way to understand this, how much is being spent, is if you 

took that $927 billion and you converted it all into cash and you 

handed it out, you would have enough money there to raise the income of every family in the United States to 200 percent of the poverty level. That’s $44,000 a year. You could take every single low 

income family and raise their minimum of $44,000 a year and still 

have about $200 billion in spare change on the side. That is how 

much is being spent here, largely invisibly, largely without any acknowledgement, and when you try to talk about this, which is very 

important, you will immediately get caught in the briars nest of 

trying to talk about one program at a time. Well, let’s talk about 

WIC. Let us talk about Section 8 housing. 

The fact of the matter is that there is an enormous overlapping 

system of benefits with far more money going out the door than 

anyone knows. I would say before we permanently ratchet this 

spending up from 5 percent to 6 percent of GDP, which is what 

Obama is asking for, we ought to figure out where that money 

goes, because I do not know where this money goes nor does anyone else in this city. It goes out the door, but when you go to try 

to count it in the census and so forth, most of it disappears. 
29 

You guys are stuck with the game, and the game I call it that 

has been going on in this city for 40 years is you spend it and we 

in the welfare industry will not count it. All of our surveys and so 

forth, we will hide. We will not count this money as received by the 

poor. In fact, out of this $900 billion in spending, only about 4 percent of this is routinely counted as income received by poor people. 

And then we say my goodness, poor people do not have any economic resources. You need to spend more money. It is a permanent 

con game on the American taxpayer. You have to have an honest 

accounting of how much money is going out the door. This is important spending. It does go, it does help people, but you have to have 

a real accurate understanding of how much you, in fact, are asking 

the taxpayers to pay in support. 

Now, people would say under the Obama administration, this 

spending has been ratcheted up by 30 percent in three years. It is 

the largest increase ever in the U.S. welfare system, a huge, huge 

increase. And most people, when I talk to the press or to just ordinary people will say that sort of makes sense, okay? We are in the 

middle of a very severe recession. We need more spending. But the 

anticipation is that that spending will go back down after the recession ends. No way. You have not been in Washington very long 

if you think that is what is going to happen, okay? 

If you looked at that earlier chart and the one that Dr. Haskins 

had, this spending never goes down, okay? 

Maybe three years out of 50 years does this spending ever go 

down. And if you look at Obama’s 2013 budget, what he shows is 

that this spending pauses for one year, and then it starts to grow 

and grow and grow and grow very rapidly. It never goes back 

down. It will always remain above 6 percent of GDP, and by 2021, 

you are going to be spending $1.5 trillion on means-tested welfare. 

And, again, do not ever expect to see any mainstream news story 

on this as this spending goes up year after year after year. The sto-
30 

ries you will get is about some marginal cut in one of the programs 

or something like that because, basically, the left does not want to 

acknowledge how much we currently redistribute income. Not to 

say that these programs should be just slashed or abolished or that 

they do not help people, they do, but we have to be honest about 

the magnitude of help that we are giving and try to design these 

programs more accurately. 

One other thing that is very important, I think, in the Obama 

budget, is to look at the relative priorities given to the means-tested welfare system and national defense. This is out years. The blue 

line in the Obama budget, that is national defense spending. The 

pink line is means-tested welfare. 

And what you find historically is in the entire post-war period, 

defense spending always greatly outstripped welfare spending, and 

that was true up until 1993, which was the first year that welfare 

actually jumped above defense spending. But from 1993 through 

the present time, really we have spent about $1.33 in welfare for 

every dollar that we were spending on national defense, not exactly 

a story you see in the press, either, but the Obama budget breaks 

that entirely. What Obama is saying is he is going to freeze national defense spending in nominal terms for a decade while he is 

going to increase means-tested welfare by about 70 percent during 

that same period. 

So while the current ratio of means-tested welfare to defense is 

about $1.30 to a dollar, Obama by 2021 is going to take that up 

to around $2.40 of welfare for every dollar spent on national defense, a huge transformation in national priorities and national 

programming. 

I think that it is clear that the deficits that are in the Obama 

budget are unsustainable and to a significant degree, although not 

entirely, those deficits are the result of these very rapid planned 

increases in the welfare state that are buried in that budget. I 
31 

think that what we need to do, among other things, is begin to get 

this welfare spending under control, not by severely cutting it, but 

by rolling the spending back to the levels that existed before the 

beginning of the current recession, adjusting for inflation, and then 

allow that spending to increase at the rate of inflation for the next 

10 years. 

We were already at record levels of spending in 2007 before the 

recession began. If this spending is a temporary response to the recession instead of a permanent increase in the welfare state, we 

ought to be able to go back to those levels. If we did that the savings for the federal government would be $2.7 trillion over the next 

decade. That is how large this expenditure system is. 

Again, I am not calling for massive cuts. I am calling for going 

back to the sort of system that we had before the planned expansions that Obama is seeking to put into the welfare system. Thank 

you. 

[The prepared statement of Robert Rector follows:] 

PREPARED STATEMENT OF ROBERT RECTOR, SENIOR RESEARCH FELLOW, FAMILY & WELFARE STUDIES, THE HERITAGE FOUNDATION

My name is Robert Rector. I am a Senior Research Fellow at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation. 

SUMMARY

The governmental safety net has three basic components: 1) Social Security and 

Medicare for the elderly; 2) unemployment insurance and worker’s compensation; 

and 3) anti-poverty or means-tested welfare programs. My testimony will deal with 

the means-tested welfare system which could also be called comprehensive assistance to the poor. 

The means-tested welfare system consists of 79 federal programs providing cash, 

food, housing, medical care, social services, training, and targeted education aid to 

poor and low income Americans. Means-tested welfare programs differ from general 

government programs in two ways. First, they provide aid exclusively to persons (or 

communities) with low incomes; second, individuals do not need to earn eligibility 

for benefits through prior fiscal contributions. Means-tested welfare therefore does 

not include Social Security, Medicare, Unemployment Insurance, or worker’s compensation. 

Although the public is aware that Social Security and Medicare are large expen- sive programs, few are aware that for every $1.00 spent on these two program, government spends 76 cents on assistance to the poor or means-tested welfare. In FY2011, federal spending on means-tested welfare came to $717 billion. State contributions into federal programs added another $201 billion, and independent 

state programs contributed around $9 billion. Total spending from all sources 

reached $927 billion. 

About half of means-tested spending is for medical care. Roughly 40 percent goes 

to cash, food, and housing aid. The remaining 10 to 12 percent goes what might be 

called ‘‘enabling’’ programs, programs that are intended to help poor individuals become more self-sufficient. These programs include child development, job training, 

targeted federal education aid and a few other minor functions. The total of $927 billion per year in means-tested aid is an enormous sum of money. One way to think about this figure is that $927 billion amounts to $19,082 

for each American defined as ‘‘poor’’ by the Census. However, since some meanstested assistance goes to individuals who are low income but not poor, a more meaningful figure is that total means-tested aid equals $9,040 for each lower income 

American (i.e., persons in the lowest income third of the population). 

If converted to cash, means-tested welfare spending is more than sufficient to 

bring the income of every lower income American to 200 percent of the federal poverty level, roughly $44,000 per year for a family of four. (This calculation combines 

potential welfare aid with non-welfare income currently received by the poor.) 

In the two decades before the current recession, means-tested welfare was the 

fastest growing component of government spending. It grew more rapidly that Social 

Security and Medicare and its rate of increase dwarfed that of public education and 
32 

1The only exception to this rule is a small number of means-tested programs that provide 

aid to low income communities rather than individuals. 

national defense. While means-tested medical benefits have been the fastest growing 

part of the welfare system, most other forms of welfare aid have grown rapidly as 

well. 

For example, spending on means-tested cash, food and housing has grown more 

rapidly than Social Security over the last two decades. Adjusting for inflation and 

population growth, the U.S. now spends 50% more on means-tested cash, food and 

housing than it did when Bill Clinton entered office on a promise to ‘‘end welfare 

as we know it’’. It comes as a surprise to most to learn that the core welfare state 

has expanded dramatically since reform allegedly ‘‘ended welfare’’ in the mid 1990’s. 

Total means-tested spending on cash, food and housing programs is now twice 

what would be needed to lift all Americans out of poverty. Why then does the government report that over 40 million persons live in poverty each year? The answer 

is that, in counting the number of poor Americans, Census ignores almost the entire 

welfare state: Census counts only a minute fraction of means-tested cash, food and 

housing aid as income for purposes of determining whether a family is poor. 

Despite the fact that welfare spending was already at record levels when he took 

office, President Obama has increased federal means-tested welfare spending by 

more than a third. Some might this is a reasonable, temporary response to the recession, but Obama seeks a permanent, not a temporary, increase in the size of the 

welfare state. 

According to the President’s FY2013 budget plans, means-tested welfare will not 

decline as the recession ends but will continue to grow rapidly for the next decade. 

According to Obama’s budget, total annual means-tested spending will be permanently increased from five percent of GDP to six percent of GDP. Combined annual 

federal and state spending will reach $1.56 trillion in 2022. Overall, President 

Obama plans to spend $12.7 trillion on means-tested welfare over the next decade. 

Obama’s budget plans call for ruinous and unsustainable budget deficits. These 

deficits are, in part, the result of dramatic, permanent increases in means-tested 

welfare. An important step in reducing future unsustainable federal deficits would 

be to return welfare spending to pre-recession levels. 

To accomplish this, Congress should establish a cap on future welfare spending. 

When the current recession ends, or by 2013 at the latest, total federal means-tested 

welfare spending should be returned to pre-recession levels, adjusted for inflation. 

In subsequent years, aggregate federal welfare spending should grow no faster than 

inflation. This type of spending cap would save the taxpayers $2.7 trillion dollars 

during its first decade. An aggregate welfare spending cap of this sort is contained 

in HR 1167, The Welfare Reform Act of 2011 introduced by Congressman Jim Jordan (R-OH). 

THE HIDDEN WELFARE STATE

Most discussion of government spending and deficits assumes that the federal 

budget consists of four principal parts: entitlements (meaning Social Security and 

Medicare); defense; non-defense discretionary spending; and interest. This perspective is misleading because it ignores the hidden welfare state: a massive complex 

of 79 federal means-tested anti-poverty programs. 

The public is almost totally unaware of the size and scope of government spending 

on the poor. This is because Congress and the mainstream media always discuss 

welfare in a fragmented, piecemeal basis. Each of the 79 programs is debated in isolation as if it were the only program affecting the poor. This piecemeal approach 

to welfare spending perpetuates the myth that spending on the poor is meager and 

grows little, if at all. 

The piecemeal, fragmented character of the hidden welfare system makes rational 

policy-making and discussion impossible. Sound policies to aid the poor must be developed holistically, with decision makers and the public fully aware of the magnitude of overall spending. 

UNDERSTANDING MEANS-TESTED WELFARE OR AID TO THE POOR

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.1 By contrast, non-welfare programs provide benefits and services for the general 

population. For example, food stamps, public housing, Medicaid, and Temporary Assistance to Needy Families are means-tested aid programs that provide benefits only 

to poor and lower-income persons. On the other hand, Social Security, Medicare, po-
33 

lice protection, and public education are not means-tested; they provide services and 

benefits to persons at all income levels. 

Means-tested programs are anti-poverty programs: they are intended to increase 

the living standards or improve the capacity for self-support among the poor and 

near-poor. Unlike many other government programs, means-tested welfare programs do not require a prior fiscal contribution to establish eligibility. 

The size of the federal means-tested aid system is particularly large because it 

is funded not only with federal revenue but also with state funds contributed to federal programs. Ignoring these matching state payments into the federal welfare system results in a serious underestimation of spending on behalf of the poor. Prior 

to the current recession, one dollar in seven in total federal, state, and local government spending went to means-tested welfare. 

79 ASSISTANCE PROGRAMS

The 79 means-tested programs operated by the federal government provide a wide 

variety of benefits. The federal welfare state includes: 

12 programs providing food aid; 

12 programs funding social services; 

12 educational assistance programs; 

11 housing assistance programs; 

10 programs providing cash assistance; 

9 vocational training programs; 

7 medical assistance programs; 

3 energy and utility assistance programs; and, 

3 child care and child development programs. 

Several programs provide more than one type of benefit. In addition there are a 

few independent state programs providing cash and medical aid. A full list of these 

programs is provided at the end of this testimony. (Note: Social Security, Medicare, 

veterans programs, unemployment insurance and workmen’s compensation are not 

considered means-tested aid and are not included in this list, nor in the spending 

figures in this testimony.) 

In FY2011, federal spending on means-tested welfare, plus state contributions to 

federal programs, reached $927 billion per year. The federal share came to $717 billion or 77 percent; state spending was $210 billion or 23 percent. (See chart 1.) 

In recent years, 49 percent of total means-tested spending went to medical care 

for poor and lower-income persons, and 39 percent was spent on cash, food, and 

housing aid. The remaining 12 percent was spent on social services, training, child 

development, targeted federal education aid, and community development for lowerincome persons and communities. (See chart 2.) 

MEANS-TESTED SPENDING BY RECIPIENT CATEGORY

Roughly half of means-tested spending goes to families with children, most of 

which are headed by single parents. Some 28 percent of spending goes to disabled 

persons. Another 14 percent goes to elderly persons. A final eight percent of spending goes able-bodied, non-elderly adults without children. (See chart 3.) 

GROWTH OF THE WELFARE STATE

Welfare spending has grown enormously since President Lyndon B. Johnson 

launched the War on Poverty. After adjusting for inflation, welfare spending was 16 

times greater in FY 2011 than it was when the War on Poverty started in 1964. 

(See charts 4 and 5.) 

Means-tested welfare spending was 1.2 percent of the gross domestic product 

(GDP) when President Johnson began the War on Poverty. By the 1980’s spending 

had risen to around 3.5 percent of GDP. During the first decade of the twenty first 

century, spending averaged slightly less than 5 percent of GDP. By 2011, spending 

had reached 6.1 percent of GDP. However, under Obama’s budget plans spending 

will not decline as the current recession ends but will remain at 6 percent of GDP 

for the next decade. (See chart 6.) 

WELFARE SPENDING: THE FASTEST GROWING COMPONENT OF GOVERNMENT SPENDING

For the past two decades, means-tested welfare or aid to the poor has been the 

fastest growing component of government spending, outstripping the combined 

growth of Medicare and Social Security spending, as well as the growth in education 

and defense spending. Over the 20-year period between FY 1989 and FY 2008, total 

means-tested spending increased by 292 percent over the period. The increase in 
34 

3Stephen Daggett, ‘‘Costs of Major U.S. Wars,’’ Congressional Research Service, June 29, 

2010. The CRS report counts the cost of wars through FY2010; the additional cost of the wars 

in Iraq and Afghanistan in FY2011, at $159 billion, was added to the CRS figures. 4The per capita cost of medical care for elderly persons in nursing homes is particularly high; 

however, such spending is less than a tenth of overall means-tested spending, its exclusion 

would not greatly alter the figures in the text. 

combined Social Security and Medicare spending was 213 percent over the same period. 

Means-tested spending on cash, food, and housing increased more rapidly (196 

percent) than Social Security (174 percent). The growth in means-tested medical 

spending (448 percent) exceeded the growth in Medicare (376 percent).2

in means-tested aid greatly exceeded the growth in government spending on education (143 percent) and defense (126 percent). 

TOTAL COST OF THE WAR ON POVERTY

Since the beginning of the War on Poverty, government has spent $19.8 trillion 

(in inflation-adjusted 2011 dollars) on means-tested welfare. In comparison, the cost 

of all military wars in U.S. history from the Revolutionary War through the current 

war in Afghanistan has been $6.98 trillion (in inflation-adjusted 2011 dollars).3 The 

War on Poverty has cost three times as much as all other wars combined. 

MEANS-TESTED WELFARE SPENDING ON LOWER-INCOME PERSONS

With 79 overlapping means-tested programs serving different low-income populations, it is difficult to determine the average level of benefits received by low-income persons. One way of estimating average welfare benefits per recipient would 

be to divide total means-tested spending by the total number of poor persons in the 

United States. According to the Census Bureau, there were 46.2 million poor persons in the U.S. in 2010. Total means-tested spending in 2010 was $881.2 billion. 

If this sum is divided by million poor persons (including residents in nursing 

homes), the result is $19,082 in means-tested spending for each poor American. 

However, this simple calculation can be misleading because many persons with 

incomes above the official poverty levels also receive means-tested aid. Although 

programs vary, most means-tested aid is targeted to persons in the lowest income 

third of the population. Thus, a more a accurate sense of average total welfare 

spending per recipient can be obtained, if total welfare aid is divided among all persons within this larger group. Dividing total means-tested aid by all persons in the 

bottom third of the income distribution results in average welfare spending of 

$9,040 per person in 2011, or around $36,000 for a family of four. (See chart 7) 

This is not precise estimate of benefits received. Rather, the calculation is intended to gauge spending relative to the potential population of beneficiaries. Benefits are not uniform: disabled and elderly persons receive substantially higher assistance than do other recipients.4 Despite these caveats, a simple fact remains: the 

ratio of welfare outlays relative to the population served is very high. 

MEANS-TESTED SPENDING ON FAMILIES WITH CHILDREN

Another way of examining spending levels is to look at welfare spending on fami- lies with children. In FY 2011, total means-tested spending was $927 billion. About 

half of this spending ($462 billion) will go to families with children. (Around onethird of this spending went to medical care.) If the $462 billion in welfare spending were divided equally among the lowest income one third of families with children (around 14 million families), the result 

would be around $33,000 per low income family with children. 

In addition, most of these lower-income families have earned income. Average earnings within the whole group are typically about $16,000 per year per family, 

though in the midst of a recession, earnings will be lower. If average welfare aid 

and average earnings are combined, the total resources is likely to come to between 

$40,000 and $46,000 for each lower-income family with children in the U.S. It is 

very difficult to reconcile this level of resources with conventional claims that millions of lower-income families are chronically hungry, malnourished, or ill-housed. 

WELFARE SPENDING AND THE POVERTY GAP

The Census Bureau measures poverty in the U.S. by comparing a family’s annual 

cash income with the federal poverty income threshold for a similar size family. The 

poverty income threshold for a family of four was roughly $22,000 in 2010. If the 

family’s cash income is less than the poverty income threshold then the family is 

deemed poor. 
35 

5Most future state welfare spending will occur in the Medicaid program. Outyear state Medicaid spending figures were obtained from the Department of Health and Human Services, 2010 

Actuarial Report on the Financial Outlook for Medicaid, page 19. www.cms.gov/ 

ActuarialStudies/downloads/MedicaidReport2010.pdf State Medicaid spending after 2019 was 

estimated based on the prior ratios of federal to state Medicaid spending. State means-tested 

spending for programs other than Medicaid is modest; outyear spending figures were estimated 

based on the required state contributions into a program relative to federal outlays. 

The poverty gap is a measure of the total amount of extra income needed to raise 

the incomes of all poor Americans up to the federal poverty income threshold. In 

other words, the poverty gap measures the extra economic resources needed to 

eliminate official poverty in the U.S. The pre-welfare poverty gap is the poverty gap 

if the current means-tested aid which Census reports as received by poor households 

is excluded from the initial count of income. 

In 2010, the poverty gap for all households was $152 billion. The pre-welfare pov- erty gap was $173 billion. Total means-tested spending in that year was $881 billion 

or five times the pre-welfare poverty gap. Means-tested cash, food and housing was 

$339 billion or nearly twice what was needed to raise all families out of poverty. 

The double poverty gap is the total amount of extra income needed to raise incomes of all low income households to twice the federal poverty income threshold. 

In 2010, twice the federal poverty income threshold for a family of four would be 

an income of around $44,000 per year. The pre-welfare double poverty gap is the 

amount of income needed to raise all low income family’s income to twice the federal 

poverty threshold if current welfare benefits counted as received by the family are 

excluded from the initial count of family income. The pre-welfare double poverty gap for all households in 2010 was $720 billion. By comparison, total means-tested spending was $881 billion in 2010 and $927 billion in 2011. If converted into cash, total welfare spending would be more than sufficient to raise the incomes of all U.S. households to twice the poverty level. This does 

not mean that restructuring benefits in this manner and converting all aid to cash 

would be an optimal policy, but it does illustrate the high level of resources that 

are currently allocated to assisting lower income persons. 

WELFARE SPENDING INCREASES UNDER THE OBAMA ADMINISTRATION

Table 1 shows the growth in means-tested spending over recent years. In FY 

2007, total government spending on means-tested welfare or aid to the poor was a 

record high $657 billion. By fiscal year 2011, total government spending on meanstested aid had risen to $927 billion, a forty percent increase. 

TABLE 1.—GROWTH IN MEANS–TESTED SPENDING 

[In billions] 

Federal spending State spending Total spending 

FY 2007 ....................................................................................................... $468.7 $189.2 $657.9 

FY 2008 ....................................................................................................... $522.3 $191.6 $714.1 

FY 2009 ....................................................................................................... $612.7 $167.2 $779.9 

FY 2010 ....................................................................................................... $695.3 $192.7 $888.0 

FY 2011 ....................................................................................................... $717.1 $210.1 $927.2 

President Obama’s increase in federal means-tested welfare spending during his 

first two years in office was two and a half times greater than any previous increase 

in federal welfare spending in U.S. history, after adjusting for inflation. 

OBAMA PLANS PERMANENT INCREASES IN WELFARE

Supporters of the President’s spending might counter that these spending increases are merely temporary responses to the current recession. But that is not the 

case; most of Obama’s spending increases are permanent expansions of the welfare 

state. According to the long-term spending plans set forth in Obama’s FY 2013 

budget, combined federal and state spending will not drop significantly after the recession ends. In fact, according to the President’s own spending plans, by 2014, welfare spending exceeds one trillion per year. By 2022, total means-tested spending 

will reach $1.57 trillion.5 (See chart 8.) Much of this increase in spending will be 

due to the increase in medical expenditures under Obamacare. 

According to President Obama’s budget projections, federal and state welfare 

spending will total $12.8 trillion over 10 years (FY 2009 to FY 2018). This spending 

will cost over $130,000 for each taxpaying household in the U.S. 
36 

SPENDING PRIORITIES: WELFARE AND DEFENSE

Throughout most of the post-war period, annual defense spending greatly exceeded means-tested welfare. In 1993 welfare spending exceeded defense spending for 

the first time since the great depression of the 1930’s. In subsequent years the ratio 

of welfare to defense spending averaged about 1.33 to 1.00. 

Obama’s budget calls for jettisoning this pattern. Defense spending will decline 

in nominal dollars while means-tested welfare spending will increase 70 percent. By 

2022, there will be $2.33 in federal and state welfare spending for every one dollar 

spent on national defense. (See chart 9.) 

CONCLUSION

Means-tested spending comprises a vast, hidden welfare state. The public is almost totally unaware of the size and scope of government spending on the poor. This 

is because Congress and the mainstream media always discuss welfare in a fragmented, piecemeal basis. Each of the 79 programs is debated in isolation as if it 

were the only program affecting the poor. This piecemeal approach to welfare spending perpetuates the myth that spending on the poor is meager and grows little, if 

at all. 

The piecemeal, fragmented character of the hidden welfare system makes rational 

policy-making and discussion impossible. Sound policies to aid the poor must be developed holistically, with decision makers and the public fully aware of the magnitude of overall spending. 

America faces a fiscal crisis. Obama’s budget plans call for ruinous and 

unsustainable future budget deficits. These deficits are, in part, the result of dramatic, permanent increases in means-tested welfare. An important step in reducing 

future unsustainable federal deficits would be to return welfare spending to pre-recession levels. To accomplish this, Congress should establish a cap or limit on the 

future growth of total means-tested spending. 

When the current recession ends, or by 2013 at the latest, total means-tested welfare spending should be returned to pre-recession levels, adjusted for inflation. In 

subsequent years, aggregate welfare spending should grown no faster than inflation. 

This type of spending cap would save the taxpayers over $2.7 trillion dollars during 

its first decade. An aggregate welfare spending cap of this sort is contained in HR 

1167, The Welfare Reform Act of 2011 introduced by Congressman Jim Jordan (ROH). 

Chairman RYAN. Thank you. Bob? 

STATEMENT OF ROBERT GREENSTEIN 

Mr. GREENSTEIN. Thank you, Mr. Chairman, for the opportunity 

to discuss these important issues. The leading research suggests 

that the safety net is actually functioning much better than is often 

recognized. A comprehensive review is conducted by some of the 

leading scholars in the field on the impact of the safety net, among 

other things, they looked at the impact of the safety net on the 

amount that people work and found that the impact was quite 

small and that after taking this behavioral effect into account, that 

the safety net cuts poverty about in half. They found that one in 

every seven Americans would be poor without the safety net but is 

lifted above the safety net by it. 

Now, as we are hearing in this hearing and elsewhere, questions 

are raised about the safety nets impact on dependency, on the 

budget, and there are also issues about its impact on deep poverty. 

Let me briefly cover each of those in turn. 

Over the past few decades, we have moved, as Ron Haskins indicated, very much toward a work-based safety net. Cash welfare assistance for families who do not work has diminished greatly. Support for the working poor has increased. The results are notable. 

Even though 2010 was a year with an unemployment rate of 9.6 

percent, and could I have the first slide, please? 
37 

In 2010, 91 percent of all spending on federal entitlement benefits went to people who either are not expected to work because 

they are elderly or disabled, or were members of households that 

did work. These data are consistent with the findings of the comprehensive review of the research I mentioned, which finds that today’s much more work-based safety net does not have a large effect 

in reducing work effort. 

The study reported, for example, that the research shows the effect of SNAPS, formerly called food stamps, on work, is quite small 

and that the impact on, of Medicaid on work appears to be minimal. This is in significant part of result of major changes in both 

programs from programs where you largely had to be on welfare 

to get the assistance to programs primarily for low-income working 

families who are not on welfare and where you do not have to be 

on welfare and can work at low wages and continue to get this support. 

The findings on these programs differ significantly from the findings regarding the effect of the old welfare system on work prior 

to welfare reform. Concerns that the current safety net is leading 

millions to become dependent and cease working are simply not 

consistent with the research. 

Let me turn to the budgetary issue, which the previous two 

members of the panel have talked a lot about. Now, we all know 

that Medicaid has been rising substantially in costs, and is projected to rise further. Health care costs are rising faster than GDP 

throughout the entire health care system, private sector, Medicare, 

and Medicaid. They have been for several decades, and the systemwide cost increases raise Medicaid costs with them, even though 

Medicaid costs less per beneficiary than private insurance. Medicaid pays providers less. 

Medicaid costs also will rise further in coming years because of 

the aging of the population. Older people have much higher aver-
38 

age health care costs than younger people do, and costs will rise 

also because of the coverage expansions in the Affordable Care Act. 

They do not add to the deficit in that their costs were offset by reductions in Medicare and increases in revenue, but they push up 

costs for means-tested programs. 

Now, here is the key point. The figures that Ron Haskins and 

Robert Rector have just presented of the safety net exploding and 

cost are dominated by health care. They are largely a story of 

health care. Let us look at the data. What I suggest is for us to 

really dig in and understand what is going on, and that we take 

means-tested programs and we divide them into two categories: 

health care, and all of the rest. When we do that, here is what we 

find. Next slide, please. 

We find that federal expenditures for all means-tested entitlements outside health care equaled 2 percent of GDP in 2011, and, 

to be sure, that is 50 percent higher for the average for the previous 40 years. However, the recent increases are largely driven by 

the economic downturn and temporary program expansions under 

the Recovery Act. The CBO projections show that expenditures for 

means-tested entitlements outside health care will decline as the 

economy recovers. They will fall to 1.3 percent of GDP, these are 

CBOs figures, by 2020 and thereafter. 

In other words, by 2020, total means-tested entitlement expenditures outside health care will return all of the way to their prior 

40 year average, the average for 1972 to 2011, and those figures 

do not include discretionary programs. Low-income discretionary 

programs are going to shrink because all non-defense discretionary 

shrinks under the Budget Control Act caps even if there is not a 

sequester that falls by 2021 to its lowest share of GDP since 1962. 

So, total means-tested spending outside of health care is on 

track, under the CBO figures, to actually fall over the coming decade below its previous 40 year average. 
39 

What about Roberts figures on the Obama budget about how 

much means-tested spending goes up in coming years? That is an 

artifact of the expansions in the Affordable Care Act. Again, let us 

look at health care and the others separately. I would also note 

that when you look at how much the money is per poor person, you 

have to keep in account that over two-thirds of all Medicaid spending is for the elderly and disabled. Half of all nursing home expenditures in this country are paid for through Medicaid. You cannot take the big nursing home expenditures per person and somehow hand out as a per cash amount to a low income family with 

children. 

Final issue, deep poverty: This is a matter of concern. The number of children living below half the poverty line increased by 

650,000 between 1995 and 2005, even before the economy turned 

down, and these figures do count non-cash benefits, like food 

stamps and housing and so forth, and the earned income credit, as 

income. 

So, basically what has happened is the changes brought by the 

1996 welfare law, in combinations with expansions in the earned 

income credit, have pulled more single mother families into the 

labor market and raised many of their incomes. At the same time, 

the welfare changes also deepened poverty among another group of 

single mother families, primarily those with less education and 

skills and more physical, mental health, or other problems. Some 

of those families fell deeper into poverty as a result of having little, 

or nothing, from either earnings or cash assistance. 

Basically, any intervention in any field of government or even 

health care, whatever, can hurt some people, help some people and 

hurt others. The evidence suggests that the changes under the welfare law did reduce the number of people below 100 percent of poverty, and, at the same time, increased the number people below 50 

percent of poverty. Next slide, please 
40 

This phenomenon is reflected in a recent study; it just came out 

about a month ago about by leading researchers that finds that the 

number of families and the number of children living below a 

standard that the World Bank uses to measure serious poverty in 

third-world countries living on less than $2 per person per day has 

doubled since 1995. These findings are of particular concern in 

light of emerging research which shows that among low-income 

families, the level of income on a child as young affects school 

achievement and may well affect later employment and earnings as 

an adult. 

I would note here in this vein that were it not for the SNAP program, the rise in deep poverty would be much greater. The data 

showed that SNAP cuts nearly in half the percentage of children 

living below that World Bank poverty standard and plays a very 

important role here. So, in conclusion, one thing all panel members 

agree on is that we are on an unsustainable fiscal course, but we 

also have levels of poverty and inequality that are higher than 

those in most western nations. The Bowles-Simpson Commission 

Report sought to balance both of those concerns. It adopted and 

emphasized as one of its core principles that deficit reduction 

should not increase poverty or harm the disadvantaged, and it did 

not call for reductions in any low income programs outside Medicaid. 

Last year, a group of Christian leaders, ranging from the Catholic Bishops Conference and the Episcopal Church to the Salvation 

Army and the National Association of Evangelicals issued a call for 

policymakers to safeguard the poor in deficit reduction and draw 

a circle of protection, in other words, around programs targeted on 

them. So I will urge policymakers to seriously consider those principles as they face the tough decisions ahead. Thank you again for 

the opportunity to testify. 

[The prepared statement of Robert Greenstein follows:] 
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Chairman RYAN. Thank you, Bob. Let me just begin with you, 

Dr. Mulligan. One in six people are in poverty today. Our rates are 

the highest they have been in a generation. And as we have seen, 

our spending on these programs is at an all-time high as well. So 

it is not working. That is the whole point here. What can we do 

to have our anti-poverty programs work? And that is the goal of 

this. 

I think this study in marginal tax rates, the implicit incentive or 

disincentive to move on to a life of independence on upward mobility is something that we need to look at. You have done so much 

work on this, Dr. Mulligan. Can you bring up Chart 8? 
58 

We have Gene Sterling, his chart, you may be familiar with this, 

at the Urban Institute, who talked about the implicit marginal tax 

rate is as high as 80 percent or higher between the income thresholds of $15,000 and $40,000. You mentioned what the effect this 

has on labor force participation. I have two quick questions. What 

is the effect, in your quantitative analysis, on its effect on labor 

force participation, and what was the implicit rate before the recession, and what do you think it is now? And then onto that I think 

you have done some research into how much increasing spending 

on the safety net was due to natural increases related to the recession, and how much was due to changes in eligibility and benefits? 

So where were we before the recession started with the sense of 

spending and the implicit marginal tax rate? Where are we now 

with respect to the marginal tax rate? And how much of the additional spending was because of eligibility or because of the recession? 

Mr. MULLIGAN. Okay, Mr. Chairman, you pointed us to the chart 

here from the Urban Institute, and that is showing something like 

a marginal tax rate as a function of income. It is at a certain point 

in time. I do not know what year is covered, here, maybe it is 2011 

or something. But the point is we are comparing different income 

groups, and you can see the line wiggles. There is not one marginal 

tax rate, of course. 

My work has really focused on, not comparing the income groups 

but comparing different years. Last year compared to 2007 before 

there was a recession. And in doing so, of course, I look at charts 

like this, but I like to summarize things in terms of kind of just 

a middle person. I call it in my testimony, the ‘‘median household 

head or spouse.’’ What does their marginal tax rate look like? In 

2007, their marginal tax rate from all these programs considered, 

as well as some others that are not considered there, was in the 

40s, the low 40s, let’s call it 42 percent for a precise number. And 
59 

when the ARRA was at its heyday, that marginal tax rate went up 

around 50 percent, so it went up about eight points, maybe nine 

points. Some of those provisions expired, and now we are down to 

maybe 46 percent; so there was an increase at one point of 8 or 9 

percent. Now we are just 4 percent or so higher. I say, ‘‘just;’’ 4 percent is very big by historical standards, it is not like the marginal 

tax rate for the median household head or spouse changes every 

month or changes every year. That is a big change. 

I like to use the analogy of a 100 gallon fish tank and it is full 

of water, and there is fish living in there swimming around having 

fun and stuff. And you ask me, ‘‘Well, what if I take a gallon of 

water out of that fish tank?’’ And I say, ‘‘Well, the tank is already 

full, probably not going to be a big deal. There might be one sensitive fish there who is bothered, but most of the fish will be fine.’’ 

But if you got a fish tank that is half full or half empty because 

somebody else took 50 gallons out of it, and now you ask me, ‘‘Can 

I take a gallon out of that tank?’’ I say, ‘‘You better be careful. You 

are going to do a lot more damage to those fish when you take 1 

percent of the tank’s capacity out of a tank that is already half 

empty.’’ And that is where we were in 2007. People were not quite 

at 50 percent, but their marginal tax rates were up there around 

40 or 50 percent, and what we did is we added several more percentage points to that. And that affects the economy. 

I do not claim by any means that everyone or most people stop 

working because the marginal tax rate goes from 42 to 46. I am 

not claiming that. But we have decades of research on those effects, 

and what I have found is that, you know, in reality, work hours 

per capita fell about 10 percent during the recession. Now they 

have rebounded a little bit, maybe they are down about 8 percent. 

If we had just kept the safety net rules and the marginal tax rates 

the way they were in 2007, if we had just kept it that way, the recession would have been kind of half as deep. Hours per capita 

would have fallen half as much. Employment per capita would 

have fallen half as much. 

Now if you look at any single provision, as Ron was saying, you 

look at any single provision, you might say, ‘‘Well, what effect can 

that have on the employment rate?’’ ‘‘What effect can that have on 

our unemployment rate?’’ Well, that is just one provision and it is 

small, but we have a safety net with many provisions. In my testimony I list at least a dozen changes in the rules. When you add 

those changes together, that is what is having a sizable impact on 

the employment rate. 

So to put it simply, the safety net rule changes roughly doubled 

the magnitude of the recession if you measure the magnitude of the 

recession in terms of either employment per capita or work hours 

per capita. 

The other question you asked, Mr. Chairman, was about the effects of the rule changes on the government spending, as opposed 

to the economy. And Dr. Greenstein said that the growth in spending over these last couple years is some combination of the recession and legislation. And I agree with that, but I understand your 

question to be, Mr. Chairman, what is the breakdown? How much 

is coming from the recession versus the legislation. 
60 

I have prepared estimates of causes of spending changes on nonelderly people. A lot of the safety net spending is on elderly people; 

let me put that to the side for a second. Even if we ignore what 

I just said, that the social programs affected the economy, let’s ignore that. The new eligibility and benefit rules added many more 

dollars to safety net spending than the recession did. Take, for example, the combined inflation-adjusted spending on unemployment 

insurance and SNAP, adjusted for population growth. That spending would have increased about 40 percent if the program rules 

had been constant, thanks to the recession. The 40 percent is historically unprecedented, that is a big change. It would have 

changed 40 percent. 

But what happened, in reality, on top of the recession, we had 

program rules and program rule changes and those two programs 

combined, their spending increased almost 200 percent. So the 

breakdown, Mr. Chairman, is 40 percentage points from the recession, another 160 percentage points from rule changes. 

Chairman RYAN. In UI and SNAP? 

Mr. MULLIGAN. In UI and SNAP combined. And those are the 

source of, in the non-elderly safety net spending, that is over threequarters of the growth in the safety net spending in the past couple 

years has been in those two programs. So, I do not have a breakdown for you on the other programs, but you could see we got a 

big piece of the pie already. 

Now I put elderly to the side. Spending on the elderly and programs for the elderly, that is an important and interesting topic. 

Chairman RYAN. Let me get you there, because I am trying to 

keep Chris and myself to time limit, so we can get to other members, because I wanted to get to some of these other gentlemen if 

you do not mind. Let me just ask you quick, Ron, you were deeply 

involved in 1996 reform, so were you, Robert. Knowing what you 

now know from that experience, what would you do now in a very 

brief time period, to do, say welfare reform round two, to try and 

replicate the sort of successes we saw in the late 1990s? 

Mr. MULLIGAN. I think that the biggest mistake in the legislation, and I do not think anybody anticipated exactly how this was 

going to unfold, but there is a problem, I think, at the bottom. Robert and I disagree about this. 

Chairman RYAN. Deep poverty, you are talking about? 

Mr. MULLIGAN. Well, yes, measured in various ways. I think they 

are incompetent. I do not think they are capable of holding down 

even a minimum wage job. They get a job, they lose it, and they 

just cannot sustain themselves in the market. And they are the 

ones that are worse off. I think that problem is undeniable. Other 

people deny it and say that’s not a big deal. 

Now, what would we do about it? We do not really know. When 

I testified for the Budget Committee a couple years ago, I said, ‘‘We 

should do experiments to find out and try different things,’’ I am 

not talking about a lot of money here. I am talking about trying 

to figure out how we can help these people at the bottom. 

Here is the point. More than in the past, our safety net is not 

just giving stuff away, it is requiring work, and I am sure at least 

one-and-a-half million low-income mothers went to work as a result 

of welfare reform, and they are better off, poverty fell, it turned out 
61 

as Republicans said it would. But this group at the bottom, they 

at least appear to be incapable of sustaining employment, so they 

are really in trouble. They get food stamps, they live with other 

people, but their poverty rates are extremely high, and they last 

longer than in the past; so that is the group that I am concerned 

about. 

But the rest of it, I think, is a good model for the kind of things 

that you want to do. I think block grants definitely should be on 

the table; I am sure we would have big arguments about exactly 

what the characteristics are and what the strings would be for the 

states. Here is one notable difference, though, I will just take one 

second and say this, and that is in 1996, both Democratic and Republican state governors supported block grant. They wanted to 

block grant, and we knew it negotiating with them and so forth. 

I am not sure that is true now, and I am quite certain would not 

be true about Medicaid. The governors would be opponents, at least 

Democratic governors, and I think some Republican governors, too. 

That is a big difference between now and then. 

Chairman RYAN. Thank you. I want to keep time-sensitive, the 

other two gentlemen, we will just get you in on some other questions from other members. Mr. Van Hollen. 

Mr. VAN HOLLEN. Thank you, Mr. Chairman. First, I would observe that while spending on safety net programs is high now it is 

largely the function of the economic downturn. It has been called 

the most serious downturn since the Great Depression, and that 

obviously has an impact on safety net programs. In fact, they are 

designed to help cushion people during especially during different 

economic times. And so, while spending is up, the poverty levels 

would be much higher in the absence of those programs, and a little later I am going to ask Mr. Greenstein to comment on that. 

Mr. Haskins, as you said, the safety net programs are requiring 

work now more than they did in the past. I assume, based on your 

involvement that you think that the EITC, the earned income tax 

credit, is an important part of the reforms that have been made. 

Mr. MULLIGAN. Yes. 

Mr. VAN HOLLEN. And Mr. Rector, you pointed to the fact that 

there are 79 programs. There is no doubt that there are lots of programs, and I think we would all agree that we can look to see 

whether we can better coordinate programs and where we can find 

efficiencies, we should. But I think you know that big drivers of 

costs are really about five programs that really drive those. I assume one of the ones you are talking about on your list as meanstested programs is the EITC, is that not right? 

Mr. MULLIGAN. Yes. 

Mr. VAN HOLLEN. Mr. Mulligan, I just wanted to ask you about 

your analysis, because you state here, and I appreciate it. Obviously anytime you have these kind of programs, it will have some 

impact on labor market efficiency, that is not the argument here. 

The argument is the magnitude and the extent. Here you say 

America absolutely must have taxes and safety net programs, even 

though they reduce the reward to working. And so, there is no 

doubt at the margins here, these things have impact. The issue is 

how much? 
62 

Mr. Greenstein referenced another study that has been done, and 

I would just like, Mr. Chairman, to include it in the record. It was 

revised June 2011 by three very distinguished economists where 

they found that taking into account all the behavioral effects in response to these incentives has very little impact on the incentive 

to work. And I would just like to ask you, Mr. Mulligan, and I understand that you recognize that some of the ARRA provisions are 

expiring. Others are also going to expire in time. For example 

under SNAP, there is a November 2013 end to the enhanced benefit. Have you broken out the different components of that as part 

of your analysis with respect to the 4 percent? 

Mr. MULLIGAN. Yes, I have done some breakdowns. Actually it 

was not so much a break-out, it was a build-up; I built up all the 

programs together. And yes there is an expiration coming on some 

of these things. On the other hand, we have the Patient Protection 

Act that is going to bring in some increases in marginal tax rate. 

And so, on the whole, going out four or five years, it looks like marginal tax rates will continue to be elevated above 2007 levels. 

Mr. VAN HOLLEN. Right. So I am glad you brought up the Patient Protection Act, because it goes to Mr. Greenstein’s point, that 

really to have a conversation about this that sheds more light than 

noise, we need to separate means-tested programs into health programs and everything else.—And if you could put up the next slide, 

please. 

This is based on Congressional Budget Office data. And this is 

based on current law, CBO looks at current law, so Mr. Mulligan, 

they look at the expiration dates for different enhancements in 

ARRA, for example. And what this shows, the bottom line shows 

all the major non-health-related means-tested anti-poverty efforts, 

safety-net efforts. And what you see is obviously they increased as 

the economy hit the skids, more people out of work, that is the 

bump up, and over time as those provisions phase out and the 
63 

economy improves, you will see that that bottom line, the purple 

line actually returns down by the year 2022 to 1 percent of GDP, 

in fact lower than it was in the pre-recession period of time. 

The top line are the healthcare spending, so that includes Medicaid, that includes CHIP programs, children’s health insurance 

program, it also includes the additional people who will be eligible 

for Medicaid as a result of the Affordable Care Act. So this chart, 

I think, is very important as we have this conversation, as Mr. 

Greenstein pointed out, because when you are talking about Medicaid, let’s put aside the Patient Protection Act, when talk about 

the current Medicaid program, the question I have for you, Mr. 

Mulligan, is if you agree with the statement made in the study that 

I cited. And here’s what they say: They say that they find that 

when it comes to labor supply effects, the effects from Medicaid appear to be minimal, and they make no adjustment. Have you done 

an analysis of the labor supply effects of the Medicaid program? 

Mr. MULLIGAN. Yes, in fact my estimates are built on a lot of the 

work that Dr. Moffet [spelled phonetically] in that study has done. 

I was more ambitious. I look at a lot more programs as included 

in their study, unemployment insurance would be an important 

thing. 

Mr. VAN HOLLEN. I am just asking right now, with respect to 

Medicaid, the Medicaid program, the effect of the access and ability 

of people to access that program on incentives to work. 

Mr. MULLIGAN. In what year? 

Mr. VAN HOLLEN. This year and going forward. 

Mr. MULLIGAN. Yes, I have looked at that, and I agree with your 

characterization that by itself, it is small. 

Mr. VAN HOLLEN. Okay. Now the reason I raise that is this is 

the Budget Committee, right? We are looking at ways to reduce the 

deficit, I believe, we have a joint effort to do that. If you look at 

their budget, they cut $800 billion out of Medicaid over 10 years. 

And I just want to go to the next chart that shows what the composition of people on Medicaid is by dollar; these are the costs from 

Medicaid. 
64 

Almost two-thirds of Medicaid dollars go to seniors and individuals with disability. I would venture to guess, you are not going to 

get a lot of work incentive changes out of seniors in nursing homes. 

Another 20 percent benefits kids. I venture we are not talking 

about trying to put kids to work. 

So if you look at the big cost drivers, and you look at the Republican budget, where they go is after Medicaid. And as you have 

said, Mr. Mulligan, the impact that Medicaid has on incentives to 

work is minimal, and we can see one of the reasons why, at least 

on a cost basis. 

So, let’s be serious about this conversation here in the Budget 

Committee. We are happy to look at reforming programs. As I said, 

there may be 79 programs. A lot of them may be very small, and 

if we can find savings, we should. But the Republican budget reduces the Medicaid spending by 30 percent in the year 2022 and 

75 percent in the year 2050. That is CBO, Congressional Budget 

Office, numbers. And I think we should keep our eye on the ball 

here in the conversation. 

And I would just like to end by asking Mr. Greenstein to comment on that, because every member of this committee knows Medicaid is already stretched to the limit. And everybody talks about 

the provider cuts under Medicare? We already know that there are 

really high provider expenditures in Medicaid. You have a waiver 

system that allows states great flexibility right now. And so to suggest that as part of this analysis and work incentives that we are 

going to get a lot of budget savings and the number one driver 

Medicaid is just wrong. Mr. Greenstein, if you could just comment 

about that. 

Mr. GREENSTEIN. Two comments. Interestingly, some of the studies that Dr. Mulligan cites in his testimony, when you look at 

them, what they find is, and this is something. An expansion in a 

safety net program, depending on how it is designed, can actually 
65 

increase work incentives. Example, one of the studies he cites, 

issued by a conservative think tank here in Washington, found that 

the changes in Medicaid, which were bipartisan, in the 1980s and 

early 1990s that changed Medicaid so that children did not have 

to be in welfare families to get Medicaid and the children in lowincome working families became eligible, it found that that increased work incentives, decreased welfare use. 

When you make it so that you have to be on welfare and cannot 

work to get benefits, you are going to have big work disincentive 

effects. When you change the programs so you can work and get 

them, and as the welfare law does, it is hard to not work and get 

cash assistance, then you can actually increase work incentives. 

I would argue that the Affordable Care Act is likely to increase 

work incentives. A little example, today under Medicaid in the median state, if you are a low-income working family, you as a parent 

lose eligibility for Medicaid when your earnings hit 63 percent of 

the poverty line. If you are at 75 percent, if you are a full-time minimum wage worker, and I would note that 55 percent of all employees in the United States whose families are below the poverty line 

do not have an offer of coverage from their employer, if you are 

working minimum wage and you do not have an employer offer of 

coverage, and you get really sick, you often have to quit your job 

in order to qualify for Medicaid. That is crazy, and the Affordable 

Care Act fixes that. 

With regard to the proposal in the House Budget, my concern is 

since Medicaid already pays about 20 percent less per beneficiary 

than private insurance, it pays providers a lot less, and its costs 

are actually been rising a little slower than private insurance, and 

mostly it is already contract with private managed care companies 

to run the Medicaid program for children and parents, it is extremely difficult to see how you could get savings of the magnitude 

in the House Budget without really deep cuts. 

In the Urban Institute study this last year, and under their most 

optimistic scenario, in which states exceeded in doing efficiencies 

that reduced Medicaid cost-growth per beneficiary all the way to 

GDP plus zero, they found that states would have to take 14 million low-income people off of Medicaid to fit within the budget parameters. And if they were not as successful, it could be as much 

as 27 million people losing Medicaid coverage, with a average reduction in provider rates of about 30 percent on top of that, meaning there being few doctors to accept patients. 

Chairman RYAN. Thank you. Mr. Garrett? 

Mr. GARRETT. I yield the first 30 seconds. 

Chairman RYAN. I just want to point for clarification, I think it 

has been said a couple of times, our budget does not propose on 

Medicaid, work requirements or time-limits. That is not a proposal 

contained in our budget. I just want to clarify that. 

The other point is we are spending $100 billion next year on 

Medicaid alone. So I know this is the Washington talk. It is not 

being cut. It is not growing as fast as what the president’s Budget 

proposes. And yes, we do propose to repeal the president’s health 

care law, which has a dramatic increase, but we are actually still 

increasing spending on Medicaid in our budget. We are not calling 

for work requirements and time-limits on Medicaid, and that is 
66 

now defined as a savage cut when it is actually an increase that 

is not as big of an increase as the president is proposing. Mr. Garrett. 

Mr. GARRETT. Thank you. Mr. Rector, according to your work as 

we have heard already, there are 79 means-tested welfare anti-poverty programs that the federal government runs. It costs around 

$927 billion per year. And since the creation of the modern day 

welfare state back in the 1960s, the size and scope of these federal 

anti programs have skyrocketed. In fact, according to CRS, taxpayers spent $2.7 billion in today’s dollars back in 1962. Today we 

spend around $600 billion on the welfare programs. 

All these are well-intentioned or well-motivated and safety-net 

programs, but I am concerned that many of these programs are unconstitutional. You have TRIO, you have Job Corps, you have energy programs like LIHEAP, they are just a few of them that have 

dubious constitutionality, I would think, and again, are better off, 

quite honestly, left to the states to do. 

Now this issue of constitutionality is a timely one, considering 

what is going on across the street or what has gone on across the 

street with regard to health care. But most of today’s so-called welfare state is built on, what I would suggest, is an unconstitutional 

foundation that we should begin to examine closely. So the question to you is, out of these 79 welfare programs are out there, how 

many do you think, or what percentage are simply totally unconstitutional or highly questionable in their constitutionality? 

Mr. RECTOR. I would agree with you that it is very difficult to 

find a constitutional basis for much of any of this, but I am a realist, and these programs are not going away. And the reality is I 

think we would have been better served if the state governments 

had taken the role here, but all the way back into the 1920s, the 

state governments have been shucking their role. And basically 

their main function is to come here and ask you for more money. 

Honestly, I have been doing this for 30 years, and that is basically 

what I see states do. 

I do think that what we have to do is change the nature of the 

programs. And one thing that we need to avoid is the idea that the 

solution to this is to collect money in Washington and then hand 

it over to the states willy-nilly without any goals or guidelines, and 

that is a recipe for success. In fact, that is a recipe for failure. 

The word ‘‘block grant’’ is frequently used with respect to TANF. 

I would say that is a misnomer, with respect to the Temporary Assistance to Needy Families program, which I helped to design. I 

would call that a work activation grant, because the core of that 

program was to push people off of welfare and into employment, 

and it was, within its own little limited realm, which is a very 

small portion of the welfare state, it was pretty successful in doing 

that. But we did not say that the idea was to collect money here 

in Washington and then hand it over to the states. 

The biggest block grant program of all time was revenue sharing, 

created by Richard Nixon. What was the first program that Ronald 

Reagan abolished when he got in office? Revenue sharing. It was 

a waste of money. I would love it if the states wanted to take fiscal 

responsibility for this, but I do not see that. And so what you have 

to do is try to deal with this real world, which is a huge system 
67 

that is growing very rapidly, a system that penalizes work and penalizes marriage, and thereby generates an endless increase in 

need for aid. 

Mr. GARRETT. Well let’s just follow up on that then to your left. 

Mr. Greenstein was just making reference to how some of that is 

potentially addressed in the Affordable Health Care Act, in his argument, that when you get into the situation of marginal tax rates 

and that there is a benefit of actually staying on the system as opposed to actually getting out and getting to work, do you agree 

with the assertions that he has made? He sounded reasonable. 

Mr. RECTOR. I think that that is a fool’s errand, and it will end 

up costing you more. 

Mr. GARRETT. Why is that? 

Mr. RECTOR. Try to reduce these marginal tax rates, you just expend the programs farther and farther up the stream until you 

have these programs going up to families making $80,000 a year. 

Way back in the ancient days we had something called the Seattle 

Denver Income Maintenance Experiment, which was in the 1970s 

and 1980s. And what that experiment showed was that the marginal tax rates on the programs, it created different experimental 

programs, marginal tax rate did not matter that much. What 

mattered was the core amount of benefits being given. How do you 

cut the Gordian knot here? The simplest thing is when you are giving assistance to an able-bodied adult, you must require that adult 

to work, prepare for work or look for work as a condition of receiving aid. That is what we did in the AFDC reform, but we only did 

it in one program, and that is why that reform was unsuccessful. 

That does not cost you more money; that costs you less money. 

That is the key to increasing employment. 

Mr. GARRETT. Thank you, Mr. Rector. 

Chairman RYAN. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. I would agree with 

what Mr. Rector said about states being AWOL, states historically 

have not stepped up. They could have, they did not, but there is 

a whole range of areas: pollution, we would not have a Clean Water 

Act if states would have stepped up and done it, and if they had 

had the capacity to deal with things that crossed state lines. 

That is why, for instance, and I appreciate Mr. Haskins talking 

about some of the upside of what happened in 1996 and some of 

the downside. The states loved the idea of block granting then, and 

you look at what has happened in some states, Texas is a classic 

example, where they have back-filled a whole host of other things. 

The benefit levels in Texas are abysmal. Nobody in this room could 

remotely live on those levels, but they have used it for other purposes. And you have got material, all of you have got material that 

the press has tracked some of this, where it has not gone to the 

neediest, it has gone instead to back-fill problems that they could 

not solve in Arizona by selling their state capitol. I am not certain 

that that was the best policies to have followed, but we are dealing 

with some realities, here. 

I am more than a little frustrated that we seem to have an inability to accept some of the successes. I mean, Richard Nixon, 

Daniel Patrick Moynihan wanted a guaranteed annual income, and 

we have started to move in, some of the direction of 1996, to move 
68 

towards rewarding work. But at the same time, Congress, in its 

wisdom, has made these programs much more complex. Poor people 

have to navigate all sorts of conflicting standards, we have tried to 

streamline it for food stamps. That has been a struggle. We make 

it hard for them. We have different standards for poverty if it is 

going to be for a college program under Pell grants it is what happens in terms of qualifying for some other educational benefits, for 

food stamps, for receiving money. They navigate something that 

would take the complaints we hear from the business community 

about the complexity of rules and regulations, they are simple by 

comparison to what families which, and I again agree with Mr. 

Haskins, a lot of these people are marginally functional, and we 

have them go from pillar to post to try and deal with different 

standards for health care, for food stamps, for educational benefits. 

It is draining, it is exhausting, it is not efficient. It wastes money 

of the system and of their time. 

I think it would be better if we tried to take the programs that 

work, try and refine them, actually have some standards, but deal 

with the realities that these folks live in. I just chuckle with the 

notion Mr. Rector talks about, if you just even this out all across 

the board, it would be $36,000 for the 100 million poorest Americans. That is not how the system works, that is not how it is allocated. We are dealing with, as my colleague, Mr. Van Hollen, pointed out, the bulk of this medical expense driven to the disabled, the 

elderly, the most vulnerable and expensive, and that is not going 

to change. 

I am hopeful that we can come back and be realistic about the 

needs. And before we start walking down the path of seriously entertaining more draconian activities, more block granting to states 

that will use it to back-fill and not step up, for example, like Medicaid, the people that are visiting your offices are terrified that the 

Republican approach to Medicaid will be adopted. Because they are 

getting hammered now, even though it, as Mr. Greenstein points 

out, it saves money, at least as composed to private health insurance or Medicare. They are terrified about the cuts that are coming, and there is nobody that is going to step up and take it. 

One of the things I am concerned about, and Mr. Haskins, while 

we have you here, part of the law of unintended consequences, did 

not we see some rather interesting shift after 1996 to watching 

people move from welfare to disability. Have you looked at that at 

all? 

Mr. HASKINS. Yes, there has been some movement like that, especially among children. And some people think it is not right, but 

advocates think it is. This is a very sensitive subject. We did 

change SSI for kids in the 1996 legislation, and as a result of that, 

about 100,000 little bit more than that I think, lost their benefits 

because they were not disabled, they had things like dyslexia. So 

the rolls went down, but then they came back up. 

Mr. BLUMENAUER. I see my time has expired, Mr. Chairman, but 

that is one of the areas I think would be kind of fun for us to focus 

in on, not for children, but for what has happened to disability payments altogether, that has been skyrocketing. 

Chairman RYAN. Yeah. Ways and Means, we have done some 

hearings on this as well. Mr. Stutzman? 
69 

Mr. STUTZMAN. Thank you, Mr. Chairman. Mr. Rector, I would 

like to follow up on a comment that you had made, and I know 

what you are referencing to as states are coming to the federal government to ask for money for programs. I come from Indiana and 

served in the state legislature there for eight years, and I am seeing a real shift there that legislators would like to see more authority and the ability to have authority over programs like Medicaid. 

Are you seeing that anywhere else across the country? Is there a 

shift that people are frustrated with the strings that Mr. Haskins 

referenced? We saw that with the stimulus package. We saw that 

with just about every federal government program. There are always strings attached to it. We even just avoided unemployment 

insurance money from the federal government because of the 

strings that were attached to it in Indiana. 

Mr. RECTOR. I think Medicaid is different because, as I said in 

my testimony, 75 percent of means-tested spending is federal, 25 

percent is state, but almost all that state spending is in Medicaid. 

And when you set Medicaid aside, this is like a 95 percent federally 

funded system. It is important to realize that. 

States are serious about Medicaid, because they have a lot of 

money on the table, okay, and it is absolutely true that what 

Obamacare does is it radically demands that states spend more 

money on Medicaid by increasing enrollment. It is not increased for 

disabled; disabled are already covered by that program. All these 

increases are going to able-bodied people, okay. And the reality is 

I think that the states do have a lot of play in the Medicaid system, 

and they need to have a very important role in determining how 

that system would work. 

By contrast, something like food stamps, they have only 10 cents 

on the dollar in play there. What actually happens with a program 

like that is it becomes bureaucratically autonomous when it hits 

the state. States will not be serious about work requirements, for 

example, they do not have any money in it. It is not their program, 

and they do not want it. You want to take this over? They will not 

take that program over. They do not want to spend their money on 

that; they want you to spend federal money. But if you are going 

to spend federal money on a program like that, you have to make 

sure that that program meets the real goals, which should be to 

promote self-sufficiency. 

When Lyndon Johnson launched the war on poverty, he said he 

wanted to reduce dependence, not increase it. He wanted to make 

people prosperous and self-sufficient through their own abilities. 

And judged by those standards, this $19 trillion has been an absolute debacle. The poor are far less capable of self-sufficiency today 

than they were in 1964 when we started these programs, because 

these programs reward non-work, and they in particular non-marriage. The percentage of births out of wedlock has grown from 7 

percent in 1964 to 42 percent today. That is the key cause of child 

poverty today, and it is a key factor in all this welfare spending. 

Mr. STUTZMAN. Mr. Mulligan, I would like to ask you a question 

as well. In relation to the 70 programs, roughly 70 programs, which 

I am not sure if that even includes Earned Income Tax Credit. 

Mr. MULLIGAN. It does. 
70 

Mr. STUTZMAN. Does it? Okay. How have you seen these programs affect the incentive to working for people, because I can tell 

you, I hear from constituents back home that are very frustrated 

with folks who do take advantage of programs, and they say, ‘‘You 

know, if they had worked as hard at finding a job or getting out 

and finding work as they do at finding government programs, they 

would be successful.’’ And so I think that there is also this shift in 

our society that there are so many government programs out there, 

go out and find it, and you can make a living off of it. 

Mr. MULLIGAN. In the research field, we have a term called 

‘‘take-up.’’ It refers to how many people are technically eligible to 

receive the benefits from a program actually go and get the benefits. And the take-up in a lot of programs is less than 100 percent. 

There are a lot of people who choose not to take the benefits, and 

I account for that in my calculus. Now, I have not looked a baseline 

of what happens if we had no safety net? My baseline has always 

been what happens if we go back to 2007? And if we go back to 

2007, there would be a small percentage of people whose employment status would be different. Now in an economy with 300 million people, a small percentage, we are talking a couple million people would be affected, but it is still a small percentage. And the 

norm is to continue working, continue to be employed despite rule 

changes in the safety net programs. 

Mr. STUTZMAN. Thank you, I yield back. 

Chairman RYAN. Thank you. Ms. McCollum. 

Ms. MCCOLLUM. Thank you, Mr. Chair. Thank you. After being 

here an hour and a half, there are so many questions and things 

that I would like cleared up, but I am going to have to focus here 

tight. One thing I would like to say is, to Mr. Garrett, the term 

‘‘unconstitutional,’’ versus not in the Constitution, directed in the 

Constitution are two very different ideas, two very different concepts, because something silent in the Constitution versus unconstitutional, and we are just kind of throwing those phrases around 

here, and the social studies teacher in me just had to take a second 

and go back and take out the dictionary, and we need to mean 

what we say and say what we mean here. 

I would like to go back and just really look at this chart here. 

The people that we are talking about, seniors, our aunts, our uncles, great aunts and uncles if you are lucky enough like I am to 

have a great aunt who has made it to 104, never thought that she 

would live this long, lives independently. She receives Medicaid 

support and help. The disabled that I heard from when I was in 

the State House and we were going through and doing the welfare 

reform, who said, you know, ‘‘I want to work, but when I work and 

I make a living wage, I lose my personal health care attendant. I 

cannot afford that. I cannot afford to lose my personal health care 

attendant.’’ 

The mothers, through no fault of their own, found themselves all 

of the sudden with children, say, ‘‘I do not have any health insurance if I go back to work.’’ So some of the reforms that we made 

to Medicare to help the elderly, we also made to Medicaid to help 

people who had children who wanted to go back to work. And now 

we are saying, ‘‘No, we are going to cut that. You are not going to 

have access to health insurance for your children.’’ 
71 

But I want to talk about SNAP for a minute, because I have been 

out visiting several schools in St. Paul. And I have to tell you, two 

of them that I had been to, 40, 60 percent poverty in these grade 

schools, and I have been there in the morning, and this is the 

School Lunch Program, but SNAP is also what is keeping them fed 

at home. Their parents, after about two weeks, the food is done 

from SNAP, they are over to the food shelves. But these kids who 

come into the School Lunch Program that on Monday might have 

been the first opportunity for them to have milk or a piece of fresh 

fruit. They are quiet, they say thank you and then they have a 

healthy meal again at lunch. If kids are hungry, they cannot concentrate in the classroom. And I know that this would not reflect 

any one of my colleagues here, but this is what is upsetting to me 

about the discussion, and what I am hearing about how people are 

talking about cutting SNAP and ‘‘SNAP is not needed,’’ and ‘‘food 

stamps are a waste.’’ And I know this does not reflect any of my 

colleagues here, or any of the people on the panel, but these are 

the things that are out there, people are talking about. 

Rush Limbaugh, ‘‘Children to eat. Cannot find food, there is always a neighborhood dumpster.’’ June 16, 2010. And I will just cut 

to the end of it. 

It says, ‘‘There is things in your house. There is a thing called 

a refrigerator, you probably know about it. Try looking there. There 

is also things that are called in the kitchen in your house called 

cupboards. And in those cupboards, you might go to find a dingdong, a twinkie, potato chips,’’ he goes on and on and on. And then 

he goes on and says, ‘‘If that does not work, try a happy meal at 

McDonald’s. You know where a McDonald’s is. There is a dollar 

menu at McDonald’s, and if they do not have chicken McNuggets, 

dial 911 and ask for Obama.’’ But here is what really, I think, goes 

to the heart of what when we are talking about SNAP and ‘‘those 

people.’’ 

‘‘There is another place,’’ Limbaugh goes on, ‘‘If none of those options work to find food, there is always the neighborhood dumpster. 

Now you might find some competition with homeless people there, 

but there are videos that have been produced to show you how to 

healthfully dine and how to dumpster dive and survive until school 

kicks back up in August. Can you imagine the benefit we would 

provide people?’’ 

Folks, we need to, when we are having these discussions, not 

talk about ‘‘those people’’ or ‘‘welfare people,’’ the way that we are 

talking about Americans; we are talking about our children, we are 

talking about our elderly who, by the way, access SNAP. And so, 

just to this chart again, where we are today with where we talk 

about cutting entitlement programs, it is seniors, it is the disabled 

and it is children. 

Chairman RYAN. Thank you. Mr. Lankford. 

Mr. LANKFORD. Thanks you all for being here. Here is a hard 

question for us as a nation to struggle with. We have people in 

great need, and we are a nation that has determined we are going 

to step up and help. We are going to provide a safety net. Now, 

how do we determine success of that safety net? 

Is it based on the percentage of people that are in poverty? Is it 

based on the transition of people that were once in the safety net, 
72 

out of the safety net, that they were there; we helped them successfully navigate out of that safety net? Is it the length of time in programs? Is it the coverage of every area of that individual? How do 

we determine success? So a lot of questions there, just quick responses, what you have seen from anyone who would like to respond to that. How do we determine success? 

Mr. RECTOR. I would go back to Lyndon Johnson’s original goal 

that success here is not to increase the number of people receiving 

handouts. He said I do not want to deal merely with the symptom 

of poverty. I want to deal with the causes. I want to make people 

prosperous and self-sufficient. He said he wanted to turn the poor 

from being tax-eaters into taxpayers. 

So one measure of success would be the percentage of the ablebodied population that is able to sustain itself above the poverty 

level without government handouts, and by that standard, absolute, unmitigated 40 year disaster. 

Mr. LANKFORD. That is the issue. We have this structure now, 

if that is a goal, and I would concur that it is a great option for 

the goal, to say let’s help people transition out of it, and are we 

accomplishing that? That is part of the issue here. Other comments 

you want to make? Yes, sir. 

Mr. GREENSTEIN. Well there is no simple answer, there are multiple goals: reducing need and great hardship, we do not expect 

people who are elderly or disabled to go and work, and I very much 

agree with Ron Haskins, the data is crystal clear. Though I wish 

it were not the case, but there is a group of families at the bottom 

who have physical problems, mental health problems, depression, 

little education, little cognitive skills. I do not know if I would go 

so far as to use Ron’s word, ‘‘incompetent,’’ but these are people, 

and that has gone up. And for some of them, I think we could try 

subsidized employment programs in the private sector, but they 

have a very hard time holding a job on their own. 

In terms of transitioning off the safety net, well yes, but. You 

know, here we have, I think the Chairman would probably agree 

with what I am about to say, I mean, if you really want to look 

at the safety net, you have to look at the tax code as well. I mean, 

we have a trillion dollars of tax expenditures. We have people who 

get things all the way up, so it is complicated. 

One last point though, that is key. Over the last several decades 

we have effectively made a decision implicitly in this country that 

to compete internationally in the economy we will let wages erode 

some at the bottom of the wage scale, and we provide things like 

the Earned Income Credit. We let health insurances erode among 

employers, but we have broader health coverage. Surely I would 

presume, most members, and perhaps all of the Republican members would agree that the right answer to lifting working-poor out 

of poverty is not to have the government set a minimum wage so 

high that, that alone, I mean you would probably lose jobs if you 

raised the minimum wage that high. So if you are in this international economy where wages are eroding at the bottom, you need 

a larger government role in making work pay and supplementing 

low wages. 

Mr. LANKFORD. Let me interrupt because I do have a ton of questions we are not going to get to now. But I do want to make a cou-
73 

ple mentions of it. One is the comment that you made earlier Mr. 

Rector, and that is, as we have seen marriages collapse, especially 

among the poor, we have seen a greater need for government to engage. And the safety net continues to grow. And it is my concern 

is that we have shaped a safety net in such a way that it is created 

a disincentive for families to stay together, and that we have, 

somehow, as we try to create this safety net, we have also created 

a system where families are not needed financially in that. We 

need to have a system that does not punish or does not ignore the 

family, but also blesses the family in that. 

But I would also ask this question. Areas of fraud that we experience, because there are areas of fraud that are out there, we need 

to have a good safety net, but we need also to be diligent, to make 

sure that the people that are receiving benefits are the people that 

are exactly intended to receive those benefits as well. Comments 

about fraud, whether that be in SNAP or that be in SSI, I cannot 

tell you the number of senior adults that catch me that are furious 

about fraud that they have seen or experienced around Medicare, 

individuals that have come up to me that are receiving SNAP, or 

that are receiving Medicaid, that once we probe it, you think okay, 

this is probably not legal, and now they are receiving it. Are there 

other things that you have seen or comments that anyone want to 

make about SNAP or any other program, or how we deal with deficiencies to make sure the right people receive the right benefits. 

Mr. RECTOR. There is a massive amount of fraud all the way 

through all of these programs. You have to have much greater controls on identity, particularly in Medicaid. One of the other things 

that you can do to reduce fraud, though, one of the key elements 

of fraud is people that are working and do not tell you that they 

are working, and they get benefits they are not entitled to. One 

way to get around that is to have a work requirement. If you say, 

‘‘You have to come down here and do job search,’’ and they already 

have a secret job they are not telling you about, they cannot do 

both of those things. That was a major factor in the caseload reductions in the early TANF reform, which were effectively rooting out 

fraud, caused substantial reductions in people that should never 

have been on that program. 

Chairman RYAN. Thank you. Ms. Bass. 

Ms. BASS. Yes, thank you. Let me just follow-up on some of what 

you were saying, because I do think that there has been a lot of 

fraud and misuse of benefits, but I think oftentimes, especially if 

you look at the dollar amount, a lot of that fraud in Medicare, if 

you look at who is committing that fraud, the dollar amount does 

not compare to the individuals versus some of the fraudulent businesses in the medical appliances and all, you cannot really make 

that comparison. 

But using the example that you were just giving, though, in 

terms of somebody who was working and they hid the fact that 

they were working, a lot of times people are caught in a catch-22, 

because one of the main reasons why women go on and off public 

assistance is because when their children get sick, if they do not 

have the type of job that allows them to take sick days, then they 

have to stay home with the children, they lose their jobs. So it is 

a real catch-22. If people had healthcare, and if people had 
74 

childcare, that is one of the biggest incentives for people to be able 

to have their job and retain it. 

I wanted to ask a couple of questions. Mr. Haskins, you described 

people who were at the lowest income levels as being incompetent, 

and I was just wondering if you could maybe explain that a little 

more. What you know about this population, why you would describe them as incompetent and where you would go with that. You 

raised the question that you were not exactly sure what to do with 

them, so maybe you could tell me how you have reached the conclusion about competency. 

Mr. HASKINS. The first characteristic is an inability to hold down 

even a moderate job. 

Ms. BASS. Right. 

Mr. HASKINS. And I can tell you that research shows that families that have more than one problem that interferes with job, like 

three or more children, a disabled child or a child with some kind 

of even mild disability, a low education, a big one is depression. So 

low-income families, usually single mothers, that have two or more 

of those problems are much less likely to be able to stay in the 

workforce. 

Ms. BASS. Right. 

Mr. HASKINS. So that is what I mean. They have problems, it is 

not like they are lazy, they just are not competent to handle the 

problems that other people are able to get around. We all have 

those kind of problems, so that is what I meant. 

Ms. BASS. Okay, and I appreciate you making the distinction between that and laziness, because actually some of those problems 

that you described, and I am sure that you would agree, a person 

who is middle class can also have all of those same problems, or 

upper middle class, but if you have support services around you 

and you can afford to purchase counseling, or purchase medication, 

then you do not typically fall through the cracks if you have those 

same type of problems. 

Mr. HASKINS. I think there is some truth in that. If you want to 

learn more about this problem, there is a program in Chicago 

called Project Match. A woman named Toby Herr who has been 

working on this problem, I think, for 20 years, and I think she 

would agree with the description I just gave to you, and she finds 

that it is very difficult, even with intense help, to help these people 

get on their own two feet. She has a program called Small Steps. 

So what she does, for example, is to get the mother to come to the 

childcare facility or Head Start facility and be there for, say, 10 

hours a week. And then after she has done that for six months, to 

come more and to do something else, eventually to look for and get 

work. So it is a series of small steps. I think these problems that 

the low-income mothers have that I am describing, they are less 

able to handle them than other even single mothers are. 

Ms. BASS. Right, and one of the reasons why I was asking you 

to explain, and I appreciate your explanation, is because how you 

would resolve those problems, what you have described are a number of programs. Now what I am concerned about, and again I appreciate your description, because frankly, sometimes I am saddened when I listen to some of my colleagues who describe people 

who are low-income because I think that they do not have a real 
75 

view or maybe they do not have the life exposure or the education 

to understand that people who are in the circumstances that you 

described, and you described them as not being lazy, but you described them as people who have a variety of circumstances that 

when multiplied have people fall through the cracks. 

So to me then, I think about some of what we are proposing here, 

would actually make the problems that you are describing worse. 

And also, people who might have had a higher level of competency, 

education skills, or whatever, could actually be pushed down. So instead of strengthening the programs that you are describing, I am 

concerned that what we are talking about doing would actually exacerbate the problem in the population that you have just described. 

Mr. HASKINS. Can I give a 30 second response to that, Mr. Chairman? Okay. I agree with much of what you say, but this is exactly 

the kind of description that we had back in 1996 when welfare reform was passed. People on welfare are not going to be able to support themselves. When we created a system that demanded they do 

so, imposed financial penalties on them, imposed time-limits on 

them, no matter what your interpretation of their characteristics is 

they went to work. 

Ms. BASS. Right, however, a couple things. I got to claim my 

time, because I am going to run out of it. I got to respond to this. 

Chairman RYAN. I will give you 20 seconds because, we got other 

Members here, and we got a vote coming up. 

Ms. BASS. That is fine. I would agree with you. During that time, 

we were in a better economic situation, and what we provided was 

childcare, and we also provided the ability for those folks to get 

training and education. Over the years, we have cut that back. We 

have cut the childcare. We have cut the education. I think that we 

all know, especially in this current recession, the homelessness 

amongst women and children has increased. Thank you. 

Chairman RYAN. Thank you. Ms. Black. 

Ms. BLACK. Thank you, Mr. Chairman. I am one of those people 

that really can be convinced that something is workable if you can 

show me the numbers that it is really managing the problem that 

you have. And when we look back at the initiation of these programs, and we see 6 percent of the population at that point in 

time, and now we say 42 percent of the population is in poverty, 

something is not working. And for me, I want to know, what is it 

that we can do to make it work? Because if our real incentive here 

is as President Johnson indicated, that we want to make people 

self-sufficient and prosperous, it does not appear that we are going 

that way if more people tend to be taking from the government because they are not able or not being self-sufficient, there is a real 

concern for me. 

And I will say that, as a nurse, and having worked with a number of people in the programs that I worked in, that what I saw 

was something very disturbing is that people become trapped. And 

they become so dependent upon a system where even when they 

have the skills, and you give them the opportunities and they attain the skills, that they are fearful that if they go to work or if 

they are not any longer getting that assistance that they have gotten regularly, that they may not be successful in the work world, 
76 

so you know, ‘‘I am fearful now, I cannot do this, I am going to be 

trapped.’’ And that is where, I think, that our mistake is being 

made, is that we have got so many people being trapped in this 

program, and they are not getting out. 

So, can any of you, and maybe I will start with Mr. Haskins and 

Mr. Rector, talk about how we can do things to keep people from 

getting trapped in these programs? 

Mr. HASKINS. Well, again, I hate to be a one note Johnny here, 

but work is the key. We have to have strong work requirements. 

We have two work requirements in food stamp program that are 

observed in the breach. The states do not aggressively implement 

the program. The biggest savings, I think, is in unemployment insurance. I mean, what kind of system do we have where unemployment insurance, people that draw that, have a work history? Compared to welfare we have very strong work requirements in welfare, but in unemployment insurance system, we have a requirement in the law but it is not observed. We should have much 

stronger requirements in unemployment insurance. People would 

get back to work much more quickly. You are supposed to be the 

land of entitlement and to give money to everybody? Several European countries, especially Germany and something called the 

Hart’s reforms, has greatly strengthened their unemployment insurance programs and imposed much stronger requirements and 

even reduced benefits and reduced the length of benefits to get people back to work. This is the future of all the western democracies. 

More people have to work. When they get unemployed, they have 

to go back to work sooner. That is what we have to do? 

Ms. BLACK. Would you agree, Mr. Rector? 

Mr. RECTOR. Focus on two factors. If you look at the $450 billion 

of the welfare state that is families with children, overwhelmingly, 

about 80 percent of that is single-parent families. Okay, so there 

are two causes of child poverty in the United States and two causes 

of welfare dependence, and those are the collapse of marriage and 

very low levels of work. Even in the hottest economic boom, the average poor parent has only about 600 hours of work during the 

year. If you were able to raise that to full-time work, you would 

drop the poverty rate in those families by about 60 percent, and 

this is not in a recession, but in the hottest economic boom. 

As Ron said, you clearly have to get the work rate up. You have 

to do that in programs like housing and food stamps, able-bodied 

people will work or at least look for work. But more importantly, 

that is not really going to work if the marriage continues to collapse. The welfare state has driven fathers out of the home. That 

is the predominant cause of child poverty today. If a mother is 

married to the father, even if you hold education and race constant, 

it drops the probability of child poverty by 85 percent. There is 

nothing even remotely like that. Marriage is more effective, now 

get this, marriage is more effective in reducing child poverty than 

having the parent graduate from high school. I will probably get a 

press report saying he does not want people to graduate from high 

school. Graduating from high school is really important, okay? But 

actually, amazingly, marriage is more important, and we treat it 

with absolute indifference if not disdain within the welfare system. 
77 

Ms. BLACK. Well thank you. And, Mr. Chairman, I think it is already said, my second question would have been about the incredible growth in the SSI program. And I know we have had some 

hearings in Ways and Means, but I would encourage that we would 

have those very hearing in here as well. Thank you. I yield back 

my time. 

Chairman RYAN. Thank you. Ms. Bonamici. 

Ms. BONAMICI. Thank you, Mr. Chairman. So I noticed, Mr. Rector, in your testimony you talk about some 79, I believe it is, 

means-tested programs that you describe as making up the federal 

welfare system. And then you have tables attached to your written 

testimony that outline those programs. I think it would be helpful 

if we run through just a couple of those, so everyone has a clearer 

picture when we hear a reference to the means-tested programs 

you are describing as part of the federal welfare system. 

You include the refundable child tax credit, the Pell grant, Job 

Corps, America Corps VISTA and Head Start, and I am not sure 

that those programs in particular come to mind for most people 

when we talk about the federal welfare system. But I just want to 

take a moment and talk about Head Start. 

In October last year, there was a column in the New York Times 

by native Oregonian, Nicholas Kristof. And the column is titled, 

‘‘Occupy the Classroom.’’ And Mr. Kristof described the findings of 

one of his interview subjects, Professor David Deming of Harvard, 

who had taken a look at Head Start outcomes. And here is what 

he wrote. 

‘‘The former Head Start participants are significantly less likely 

than siblings,’’ so we are talking about the same socioeconomic 

group, ‘‘to repeat grades, to be diagnosed with a learning disability 

or to suffer the kind of poor health associated with poverty. Head 

Start alumni were more likely than their siblings to graduate from 

high school and attend college.’’ 

So I want to ask Mr. Greenstein, this assertion seems to back up 

what you said about the long-term gains that these programs 

produce. Programs, such as Head Start, such as the Pell grant and 

Job Corps, seem to be the kind of things that we would want to 

invest in if we truly have an interest in breaking the cycle of poverty. So, I am sort of setting aside that these programs are the 

right thing to do to help those in need. Let’s just look at the economic sense, and these investments make long-term economic 

sense, do they not? 

Mr. GREENSTEIN. I agree. You have to look at each program one 

by one, but if you take something like Pell grants, in the absence 

of Pell grants, fewer promising low-income students would be able 

to afford to go to college, and the data is very clear that while there 

are many factors, that people who graduate from college have higher earnings and better employment prospects than people who do 

not. 

With regard to Head Start, it is interesting. For awhile, there 

were a lot of data that showed gains for children in the years following Head Start, but that then when you did standardized test 

scores, the gains seemed to fade away in secondary school. There 

is now new research that is very challenging that finds that even 

though some of the gains, or many of the gains, fade away in sec-
78 

ondary school, they actually are finding that by the time people get 

to adulthood, that there are some increases in earnings. 

So I think these things are really important, and I am also in 

agreement with Ron Haskins that for the people at the very bottom, we really need to do more demonstration projects to find the 

things that are most effective in helping them and then replicate 

them. 

One last point, this is really key, some of the most important 

emerging research is research is research that finds for young children that a difference of several thousand dollars in their income, 

whether it is from earnings or from government assistance, is associated with increases in employment and earnings in adulthood. 

There is starting to be some evidence that it is deleterious for children’s long-term earnings prospects to grow up in deep poverty, 

and we also need to take that into account. 

Ms. BONAMICI. Thank you so much. And just briefly, I wanted to 

talk also about SNAP, because in 2010 there were proximately 

27,000 households in my district receiving SNAP benefits. And 

when we talk about the programs and the people who rely on them, 

sometimes certain assumptions are made. So I just want to make 

clear about the data here. Of those 27,000 households in my district, the medium income was below $19,000 a year; 50 percent of 

the families had at least one person working in the previous year, 

and 36 percent had two or more people working in the previous 12 

months. So roughly 87 percent of the participating families in my 

district had somebody working. So it is our struggling working families who really need this help. These are programs we should be 

supporting and not cutting. And I yield back the remainder of my 

time. Thank you, Mr. Chair. 

Chairman RYAN. Thank you. Mr. Flores. 

Mr. FLORES. Thank you, Mr. Chairman. This has been a fascinating hearing. And it really exposes the deep differences in the 

way we look at economic opportunity in this country. I have to 

start by saying let’s remember that the best social program ever 

designed by man to combat poverty is a private sector paycheck. 

This is where you house a family, you feed a family, you educate 

a family, you grow a state and local tax base and you grow and economically secure middle class. 

This hearing is about a choice between two futures for this country, a choice of debt, doubt and decline versus a choice of restoration of American exceptionalism. It is a choice between a failed 

Washington solution versus Main Street solutions. It is a choice between the reallocation of a shrinking economic pie versus a growing 

economic pie that provides more opportunity for everyone. It is a 

choice between the president’s Budget, which accelerates our bankruptcy, which no Member of the Congress voted for, including the 

ranking Member that waxes so positively about it versus a budget 

that grows our economy and protects our security. 

It is a choice between no Senate budget versus a realistic House 

budget. It is a choice between food stamps or paychecks. It is a 

choice between more government versus more private sector. It is 

a choice between Solyndra versus Keystone. It is a choice between 

fake energy versus real energy, a choice between expensive gasoline versus abundant energy. It is a choice between tax increases 
79 

versus tax reform. It is a choice between more poverty or more 

jobs. It is a choice between hiring more IRS agents and more UPA 

regulators, but having fewer troops and less security versus more 

private sector jobs and greater national security. 

For example, for the cost of a typical EPA bureaucrat, we can 

pay and equip two enlisted persons in our military. It is a choice 

between more million dollar vacations and spring break trips for 

our first family or more vacations for American workers. It is a 

choice between more wars against stay-at-home moms versus better job opportunities and bigger paychecks for spouses that work 

outside the home. 

It is a choice between more fast and furious guns for drug lords 

or more protection for Americans’ Second Amendment rights. It is 

a choice between more spending of debt or a Balanced Budget 

Amendment. It is a choice between more spending on GSA bureaucrat parties versus more economic certainty and opportunities for 

middle class Americans. It is a choice between more taxes on job 

creators versus more jobs from those same job creators. 

It is a choice between more unemployment versus more employment. In summary, it is a choice between more debt, doubt and decline for future generations versus restoration of American promise, prosperity and security for our children and grandchildren. 

In this regard, I have a question for Mr. Rector. What is the single biggest determinant of poverty among families? I think you 

have talked about it, but what is the single biggest determinant? 

Mr. RECTOR. The single strongest determinant of child poverty is 

the absence of an employed father from the home, and basically as 

we have seen the non-marital birthrate rise from 7 percent to 42 

percent. That has caused a massive rate of poverty as well as need 

for assistance. And it is just amazing that in any academic setting, 

every liberal and conservative in the room would agree about this, 

but once you come out in public, ‘‘Oh well, we are not going to talk 

about this,’’ Senator Moynihan talked about this almost 40 years 

ago. And this is the key factor. This is the key cause of poverty, 

and it leads to all sorts of problems for those kids. And if I were 

to say there was one thing that the TANF reform failed in 1996 

was, the goal of that reform was to at least hold the line and not 

allow further erosion of the family, and that did not happen, it just 

got worse. 

Mr. FLORES. Let me ask you this. Does anything that has been 

proposed improve the outcome of that single biggest determinant? 

Mr. RECTOR. I think that we really have made very few efforts 

in this. But what I would say is recognizing that if the research 

shows that these single mothers who are predominantly very low 

educated, the least educated women on our society, are not hostile 

to marriage. In fact, they idealize it. They believe it is a wonderful 

thing, the way you and I might think about a trip to Paris, okay. 

And they are very serious about being moms. They do not want a 

baby to have something to play with. They want to be a successful 

mom. The first and foremost thing we could do to help those mothers is, before they have children, and these are adult women, these 

are not teenagers, but to say to them from a very early age, ‘‘You 

want to have children. You do not want your children to be poor. 
80 

Do you understand that the number one factor in reducing poverty 

among children is to be married?’’ Because no one tells them that. 

Mr. FLORES. Mr. Chairman, I yield back. 

Chairman RYAN. Ms. Moore. 

Ms. MOORE. Thank you so much, Mr. Chairman. It is so hard to 

prepare good, copious talking points because I am too busy listening to what people say, and I have to respond to it. 

First of all, I want to associate myself with the comments of the 

Chairman early on when he said, ‘‘Let’s put aside the outrageous 

rhetoric.’’ I agree with that. Let’s start out with the rhetoric about 

the wildly successful TANF program. By the way, hello, Mr. Greenstein, hello, Ron Haskins, these are good friends of mine. We have 

known each other since welfare was ended. Can you put this chart 

up? The first one I want is just the child poverty rates and the loss 

of benefits. 

This is a real straightforward chart that shows that as benefits 

have gone down, child poverty has gone up. You do not have to 

graduate from the Wharton School of Economics to understand this 

chart. And rather than adopt my good friend Joe Wilson from 

South Carolina’s rhetoric, I will just invite you to look at that 

chart. 

I am so glad that in the past week, I have watched my favorite 

reality program, these news programs, and our candidates, and the 

candidate for president has talked about how being a stay-at-home 

mom is work. I am glad that we realize that taking care of children 

is work. I have three children, and trust me, it was work, they are 

all grown, they are still work. 

And so here we are hearing about how women who receive TANF 

are not working. You cannot have it both ways. And if they must 

go out in the workforce, and parenting is especially hard if your 

maid does not show up, or your nanny does not show up on a particular day. And it is really hard when you are the nanny, and you 
81 

are the maid for somebody else’s kids, and if you do not show up 

for work, you get sanctioned under TANF. Not only do you get 

sanctioned under TANF, but you are deemed to be lazy. 

So that is the first myth that I want to put up. And you can also 

put up the second chart. 

The second wild, outrageous rhetoric I would like to put aside is 

I am sorry, this methodology that we have from you sir, Mr. Rector. 

I will be 61 tomorrow, and I did have inferior education all my life, 

coming from the ghetto and all that, but I did go to college under 

one of the welfare programs, Pell grants. And I turned in a paper 

where you just sort of look together all kinds of numbers, benefits 

that are given on a community-base level, say AIDS stuff, or community development block grants, stuff that was not given to individuals, looked them all together and then claimed that you had 

given $13,000, but I could not keep up with these growing numbers 

that you had that were giving to all these people. And they gave 

me my paper back. They told me, ‘‘No, Gwendolyn, you cannot do 

that, use that kind of methodology.’’ 

So I would venture to risk, knowing that you are a genius, that 

I reject your methodology in determining that poor people are indeed receiving all these benefits. You just cannot deem some 86- 

year-old woman that is laying up the ICU spending thousands of 

dollars a day in the ICU and deem that income to a 2-year-old and 

say that they are not in poverty. I guess I want Mr. Greenstein to 

really respond to this. 

Mr. GREENSTEIN. Well, I very much agree with that. As Mr. Rector acknowledged, half or more of all the dollars in his chart is 

health care. That is not money that goes to a family to spend, it 

is money that goes to hospitals, doctors, labs, nursing homes. 

Ms. MOORE. It goes to elderly. 

Mr. GREENSTEIN. Two-thirds of all Medicaid goes to elderly. I 

also agree with you that it is pretty difficult to take programs like 

the Community Development Block Grant, some of which goes to 

developers. 

Ms. MOORE. Balance the budget. 

Mr. GREENSTEIN. And to act as though the CDBG dollars are the 

equivalent of purchasing power for low-income people. But the biggest issue regards health care, and it is consistent with what I said 

earlier, what I think Congressman Van Hollen said in his remarks. 

There are specific, particular issues with health care, and we need 

to look at them somewhat separately. 

Ms. MOORE. Claiming my time, sir. I was so happy to hear Mr. 

Chairman indulge me, and I was so happy to hear that women are 

revered in this campaign and in this budget. I just want to point 

out that two-thirds of the SNAP benefits and two-thirds of the 

Medicaid benefits go to women, and if any of you guys know a man 

who wants to marry me so that I do not need Medicare, bring him 

on. I mean, I am single, I am open. 

Chairman RYAN. Gwen, we’ve got some mutual friends in Milwaukee, we’ll talk later. 

Ms. MOORE. Okay, I am serious. 

Chairman RYAN. Mr. Rokita. 
82 

Mr. ROKITA. Thank you, Mr. Chairman, I wanted to give Mr. 

Rector some time to respond, not to the marriage proposal, but to 

the other things that were said. 

Mr. RECTOR. Well, I think that they are all interesting and valid 

points. As I laid out, when you look at this total expenditure, about 

half of it is medical care. I made that very clear. About 10 percent 

of it is what I called enabling functions. Now that is money, it is 

about $100 billion a year we are spending on behalf of the poor. 

We are putting that money out the door, for some analysis, you 

want to take that off the table, for some analysis you are trying 

to describe the resources that are going in, it is kind of important. 

But 40 percent of this is cash, food and housing, and the simple 

fact is that, just in cash, food and housing alone, we are spending 

twice the amount of money needed to raise every single person out 

of poverty in the United States. Even if you took all the enabling 

programs off the table, took all the Medicaid expenditures for people in nursing homes, take that off the table, you still have enough 

money left over, if you converted this into cash, to take every family in the United States to 200 percent of the poverty level, $44,000 

a year: no Head Start, no job training, no nursing home care, 

$44,000 a year. It is an enormous amount of money, and no one 

knows where this money goes. 

Mr. ROKITA. Let me go into that. Thank you, Mr. Rector. That 

was one of the questions that I had for you. You ask and rightfully 

so, for a need for an honest counting. Is there a specific proposal 

out there that you endorse? A system or process or procedure that 

would get us down this road to accomplish your request? 

Mr. RECTOR. I think you actually have to change the way that 

the Census works. The Census has undercounted income dramatically since 1950. It undercounts all types of income. The only thing 

it counts accurately is earnings. You know why it counts earnings 

accurately? Because it fixes the numbers. It adjusts them behind 

the scenes so they match up. Everything else is substantially 

undercounted, and then, for the most part, all the non-cash assistance, which is now the bulk of assistance here, is just off the table. 

So what you have here is you have close to $1 trillion in spending. 

And when the Census goes to count resources available to the poor 

in the most normal numbers, they count 4 percent of that. And 

then people come back and say, ‘‘Oh my gosh, the poor people have 

no resources.’’ They do not have any resources because it was all 

hidden. It is all not counted. Again, the game here is you spend, 

then we in social science do not count it. 

Mr. ROKITA. Thank you. I understood that from your testimony, 

I just wanted you to get as specific as possible in the procedure. 

Mr. RECTOR. I think that you need, first of all, to ensure that all 

things about resources of the poor have to include all the resources 

including the non-cash, do not talk about cash-only. Secondly, I 

think you need a completely improve the Census system that begins to use non-survey data, looks at tax records and things like 

that, looks at welfare receipt and things like that, gets to be accurate. The Census is missing $2 trillion in income each year. That 

is more than the Gross National Product of England, I believe. It 

is very inaccurate. 
83 

Mr. ROKITA. Thank you. Mr. Mulligan, do you have a response 

to that, anything to add to my question about how do you get to 

an honest accounting, from a procedural perspective? If you do not, 

that is fine. 

Mr. MULLIGAN. The account area is really beyond my expertise. 

Mr. ROKITA. Thank you. Mr. Haskins, same question. 

Mr. HASKINS. Yes. I do not think the accounts are that bad the 

way they are now. The official Census Bureau measure is hopelessly flawed. The Census Bureau has a new measure they have 

been working on for a long time. It also has flaws, but it is much 

better, because it counts all the resources. It does count the food 

stamps and so forth. And it may undercount them some, Robert is 

right about that, but a guy named Burkhouser, Professor 

Burkhouser at Cornell is able to include all those government benefits, including healthcare and apply it to the income distribution 

and show that, unlike what you are likely to read in the New York 

Times, that the income all five quintiles since 1979 has increased. 

And it has increased substantially because of government benefits, 

especially at the bottom. 

So government is already doing a tremendous amount, and I 

think we could reduce what government does and still, not equalize, but bring the bottom up a little. 

Mr. ROKITA. Thank you. Mr. Greenstein, same question. Did you 

have anything to add? 

Mr. GREENSTEIN. Yes. We have a CBO series. It currently goes 

through 2007; it adjusts, and it counts these other benefits. And I 

want to note that the figures I have presented in my testimony 

today give a full accounting. How do I do that? Like in my figures 

on 650,000 more kids below half the poverty line? I count non-cash 

benefits, not health care, I count the other non-cash benefits and 

Robert’s correct that the Census undercounts. The Urban Institute, 

in what is called the trim model, fully adjusts. We adjusted using 

the trim model. We added in all of the additional benefits to get 

to the full amount that goes out the door and is shown in the federal budget, and it was after we counted non-cash benefits and 

fully adjusted that we find an increase between 1995 and 2005 of 

650,000 kids below half the poverty line. There are ways that are 

available to analysts right, left or center to adjust. 

Mr. ROKITA. Thank you. My time has expired. I thank all the 

witnesses. 

Chairman RYAN. Mr. Ryan. 

Mr. RYAN OF OHIO. Thank you, Mr. Chairman. This has been a 

pretty interesting debate and discussion, so thank you for all the 

various viewpoints here. I think part of this, too, I think we need 

to look at the issue of poverty in context. And I do not think it even 

breaks down to some of these specific programs that we are talking 

about. And I agree that obviously the family is the number one indicator, and not just single-parent homes. I come from a single-parent home, but there were grandparents and family members that 

are around, so there are alternative ways to try to deal with those 

situations. 

But the issue of context, and I think part of it is our education 

system. I think this drive to say that it is only about math and 

science, and it is not about the other skills that you actually need 
84 

to live a full life in the United States of America are not being addressed, the social and emotional skills and having a level of emotional intelligence. It seems to me, it does not seem what job you 

end up at, it is about 10 percent of knowledge, of actual content, 

and the other 90 percent is how you show up. You are on time. You 

know how to deal with other people. You know how to connect to 

other people. 

And I think that this test-driven mentality that we have in the 

country has been a disservice to most of us, including and especially these young kids who are living in poverty, because those 

first set of skills that they need, and this is a bit off-message for 

what this debate is supposed to be about, those essential skills that 

they need are not being taught to them in the schools. And they 

come from broken homes. But we are not talking about managing 

poverty. I think everybody here is about ending it and figuring out 

a way to end it. 

Part of the discussion too saying we want to move people from 

tax-eaters to taxpayers is part of this, but that does not reflect the 

fact of the matter that 50 percent of this is Medicaid, and, while 

it may not be a cut in the definition of the chairman, it certainly 

is a cut if health care costs continue to rise and those costs are 

going to be pushed off onto somebody. And those people are in Ohio 

and Wisconsin and Maryland and Florida that end up in a nursing 

home. That is who uses Medicaid in Ohio. Those are middle class 

people maybe making $40,000 a year, and they cannot afford to 

send someone to a nursing home, but for the Medicaid program. 

It is about the issue of violence in our society and in those neighborhoods that those kids come from and beefing up cops programs, 

so that we have enough cops on the beat, because the tax base has 

been eviscerated in some of these communities. You cannot learn 

if you live in a violent, abusive neighborhood. Period, dot, the brain 

science is in. You cannot learn. Your medulla destroys your brain, 

and your prefrontal cortex does not work. 

So we have got to provide safe environments in our schools and 

in our neighborhoods. And we have got to invest in after-school programs, so these kids who do not have a father, who live in violent 

neighborhoods, have a place to go, so they can learn the skills of 

teamwork and problem-solving and all these things that we want 

to teach. 

So I think this whole thing has to be taken into context. And I 

would argue, as well as probably most people on our side of the 

aisle, that the Affordable Care Act helped address a lot of these 

problems. I mean, you talked about disincentives to go to work, 

well the Affordable Care Act incentivized work because you would 

be able to go to work and get health care. So there was not this 

choice for the single mom to say I have to quit my job so I can get 

on Medicaid and stay home with my kid and go on the dole. Nobody wants to do that, and the Affordable Care Act incentivized 

that. It also provided incentives so that we can actually deal with 

people who are costing us a lot of money, with the medical home 

and the accountable care organizations, so that we have those 

wrap-around services that will drive health care costs down. 

At Summa Healthcare System in Akron, Ohio, they are already saving $8 million, $9 million, 10$ million a year by making sure 
85 

that people do not end up in the emergency room, they end up getting the preventative medicine that they need. And I think the Affordable Care Act has done a good a good job, and will continue to 

do a good job. 

Lastly, you talk about having to go and check in so you do not 

have an underground economy job, you got to go and check in at 

Department of Job and Family Services. Well, there are cuts in almost all the states now in programs like that, they are downsizing 

and there is more people trying to access, so we have got to say 

if we want to end poverty, we maybe have to make these investments into the workforce that is going to have to manage these 

programs. 

And then lastly, I really do wish a lot of my friends on the other 

side were as concerned about fraud in the tax system as they were 

about fraud among poor people in our society. And Mr. Flores mentioned it. The president is trying to beef up the Internal Revenue 

Service, so that we can actually go after these folks, and there is 

not support on the other side. So it seems to me we are having a 

whole hearing on fraud from our friends on the welfare state, but 

when we talk about fraud in the IRS, there is no hearings or 

beefing up the IRS agents. 

Chairman RYAN. Thank you. Mr. Huelskamp. 

Mr. HUELSKAMP. Thank you, Mr. Chairman. I appreciate the opportunity to ask questions from our experts here today. I come 

from the state of Kansas, and actually last fall our state department that deals with these programs; I do not think it was a comprehensive review, anyway, but a pretty superficial initial start or 

review, and found at least in our small state, as much as $30 million in fraud in many of these programs. And some of the typical 

cases of folks that are not who they say they are, 6,400 that were 

probably from out of state because of our generous welfare policies 

in Kansas, 312 folks possibly dead and still receiving benefits, 

somehow somebody was picking up that check, but that is just a 

small state. By my calculations, if every state undertook a similar 

review, they could save at least $3 billion to $4 billion annually, 

which is kind of what we are talking about in some of these farm 

bill discussions over on the Agriculture Committee as well. 

My question is for the state of Kansas, or any other state, what 

particular incentives do we have in the system to actually ask our 

state partners to actually help root out the fraud and abuse that 

we hear over and over is occurring and occurring right in our state 

of Kansas. Mr. Rector, if you would like to start? 

Mr. RECTOR. Unfortunately, not very much. Again, part of the 

reason that TANF reform was taken seriously was that the states 

had money on the table in TANF. A lot of these other programs, 

SSI, food stamps, they have very little money on the table, and 

therefore it is very difficult to get state legislators or governors to 

pay attention to them. They certainly do not have any incentive to 

put effort into, say, cleaning up food stamp fraud because they do 

not pay for it. And I think that is very important to understand, 

and if you are going to clean that fraud up, it would have to be 

done by the people who pay for it, which happen to be you right 

here. 
86 

Mr. HUELSKAMP. Yeah. Actually, I served in the state legislature, 

and actually the incentive is probably the other way around. 

Mr. RECTOR. Yes. 

Mr. HUELSKAMP. Actually, on the Medicaid program, the more 

the state spends, at least in our state of Kansas, the feds will put 

even more in. The debate over and over on the state floor is if we 

spend 40 cents, you will automatically get another 60 cents whether it is for fraud or otherwise. And, of course, we spend billions at 

the federal level trying to force fraud prevention units to work on 

the Medicaid and the Medicare side as well. 

But specifically, we have a farm bill discussion hopefully coming 

up this year; we will hopefully make some real changes. But I want 

to ask each one of you, what could we do at the state level that 

would encourage our state partners, and they are a partner in 

these programs, we expect them to serve as partners and actually 

to find a way to root out fraud and abuse and actually help improve a program to get the funds, we spend billions, as they do a 

great job outlining, to get to the people that are in need. And I 

guess I’ll start with Mr. Haskins, if you’d like. 

Mr. HASKINS. Well, I think there is already considerable motivation for states. They pay for almost half of Medicaid. They pay for 

half of TANF. They pay for half of the child protection programs. 

So they could save considerable money, and they administer all 

these programs, and they pay at least half the administrative cost 

of the programs. So they already have money in the game. Now, 

true, it is correct that food stamps is the one that they would be 

least likely to be vigilant about. 

Mr. HUELSKAMP. Food stamps though, that is within our jurisdiction on this farm bill that is coming up. So what can they do on 

food stamps? Are we just going to wait on Washington, or what can 

they do? So, quick question on that, just on the food stamps, that 

we are talking about here. 

Mr. RECTOR. I think the key in food stamps is to turn it into a 

work activation grant, not a block grant, which is just we give you 

money and you do what you want, but a grant program that is designed to promote work and marriage, that requires states to have 

certain goals in terms of participation, it has some penalties and 

rewards if you do not and has some serious things like fraud reduction. That is what really has to be done. I mean, this program is 

basically a dinosaur. It has not changed for 40 years. It is the same 

old giveaway program it always was. I mean certainly it meets 

needs, I do not want to suggest that people are not getting this 

money and are not getting benefits from it, but in terms of promoting self-sufficiency and upward progress, it is not good at all, 

and we need to change it. 

Mr. GREENSTEIN. Exactly the opposite is true. I think I know a 

little about this, I used to run the food stamp program for the federal government in 1979 and 1980. I was credited with cutting the 

error and fraud rate more than in half and was celebrated by an 

Inspector General who was one of those junkyard dogs Ronald 

Reagan promoted when he became president. 

The food stamp program today has only a 3 percent overpayment 

rate, fraud is a part of that. That is one-fifth the rate in the internal revenue code. States do have incentives. They come from sev-
87 

eral forms. States are required, as a condition of getting federal 

funding under food stamps, to do a very thorough; it is about eight 

to 12 hours per case investigation. There are 50,000 cases done nationally. There is a statistically valid sample for each state. If the 

state’s error rate is high, they are required to take corrective action. The federal government can or on occasion does withhold the 

portion of the federal share of state administrative costs if they do 

not act. And we have gone, over several decades, from a program 

that had a 17 percent error rate when I first came in, to 3 percent 

today, and the 3 percent overpayment, 2 percent net of underpayments. There is more that can be done, but one should not think 

that everything is a failure. I think in terms of error and fraud reduction in food stamps, we have made great progress. We have further to go, but we have made very substantial progress. 

Chairman RYAN. Thank you. 

Mr. HUELSKAMP. Thank you, I appreciate that. 

Chairman RYAN. Ms. Kaptur. 

Ms. KAPTUR. Thank you. I want to thank Chairman Ryan and 

Ranking Member Van Hollen for holding a hearing this morning on 

something very important. I view feeding the hungry, as do the 

majority of people I represent, as both a moral as well as civil imperative. I have a problem with the Republican proposal, however, 

and I am glad for the hearing, because I frankly cannot support a 

budget that expands tax preferences for the most wealthy by nearly 

a trillion dollars, $961 billion, while cutting the Supplemental Nutrition Assistance Program, our major food program, by $122 billion. For me it fails on a moral level as well as a civil level. 

I am sorry Congressman Garrett is not here. He talked about the 

Constitution. Well, I think feeding the hungry is a constitutional 

imperative. We talk about forming a more perfect union, about assuring domestic tranquility, about promoting the general welfare 

and securing the blessings of life for our current population and future population, and it seems to me this is central to our Constitution. 

The tax preferences that are in the proposed budget outweigh the 

food cuts by eight to one, eight times more benefit to the wealthy 

than what is proposed here in terms of the $122 billion cut in Supplemental Nutrition Assistance. It is simply is a nonstarter for me. 

And we know that two-thirds of these are people in our country 

who are gravely struggling. 

I can take you to a neighborhood in Toledo where we are installing community gardens and where women over the age of 85 go 

and pick every pepper that we raise in the summertime to the 

ground because of hunger needs. And there is not a single food 

bank in the region that I represent that is not strapped to the edge. 

So I think to propose cuts, $122 billion is absolutely unconscionable. 

Now, I asked the staff to put up this chart, because I was sitting 

here working on some numbers. 
88 

These are raw figures. They show the number of people in poverty in different years and decades and the number on SNAP. Well, 

when I sat here and figured out per million population, and if you 

go back to 1990 and you look at how many people were on SNAP 

when we had 248 million people in the United States, it was about 

8 percent of the population was registered for our food programs. 

You know what it is today with population of 310 million? About 

7 percent. And so, it has actually not gone up, and it has actually 

gone down as a percent of our people, despite everything that is 

happening. 

So this chart needs another line, and that is to talk about the 

relationship to our population as a whole. So I think we are doing 

extraordinarily well as a country. And also, if you look at the red 

line at the top, you will see when Republicans were in power, Mr. 

Flores talked about jobs, more people went into poverty because 

jobs were outsourced. Jobs were not being created. Those who had 

wealth took it someplace else, and they did not invest here. 

So you look at the Bush era after the late 1980s, early 1900s, 

and when Clinton became president, what happened? Poverty 

started to go down; it started to go down. And then what happened 

when Bush got in there? Back up again. In the early 2000s, and 

then we had the horrible crash in 2008 under Bush’s watch. Look 

what happened. We are still trying to dig out of that. 

I think that we have to be reasonable in putting these budgets 

together and do what our people would want us to do, and that is 

to take care of those, including many members of our military, who 

are eligible for food stamps because they are not paid enough, and 

for those who are working. Who can possibly work in a laundromat, 

a mother with children, at minimum wage, owning a clunker of a 

car, having to pay gas to get to work, pay the heat bill, live on 

$1,300 a month, almost an impossibility in our country. 
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So, I wanted to ask Mr. Greenstein your thoughts on the SNAP 

program. Most of the money in SNAP, and I am a member of the 

Subcommittee on Agriculture, goes right into benefits. It is a very 

efficient program. Is not the program being run efficiently something that we should be proud of and not be cutting at a time of 

need in our country, when there are not enough jobs being created 

because so many of our so-called corporations decide to go abroad 

where there are no labor rights, there are no environmental standards and people live as bonded labor in so many of these countries. 

Is it not an efficient program, we should be proud of this program, 

maintain it and not cut it by $122 billion? 

Mr. GREENSTEIN. Yes, I think it is one of the most efficient and 

best-run programs we have. There has been a lot of discussion by 

the chairman, among others, of the big increases in SNAP costs in 

recent years. When you look at what happened, following the 1996 

welfare law in an unintended side-effect, a lot of people that left 

welfare for work got cut off food stamps when they went to work 

for low wages. It was not intended. Ron Haskins was among those 

who testified that we should address that. You should not lose food 

stamps if you went to work for low wages. Congress, on a bipartisan basis, Clinton and particularly the Bush administrations 

made the program more accessible to the working poor. We went 

from about 70 percent of eligibles getting benefits in 1995 down to 

about 50 percent at the start of, chairman, your 10 year period. It 

is back up to 72 percent. 

The three major reasons food stamp costs have grown are the 

downturn in the economy, the increase, which will expire under 

ARRA and the significant increase since 10 years ago in the percentage of eligibles that get benefits concentrated among the working poor. We went in the last 10 years from 43 percent of eligible 

low-income working families getting food stamps to 60 percent. I 

had in my testimony, it is somewhere in the slides, if you look at 

food stamp costs since 1995 as a share of GDP, they are way up 

now, but under the CBO forecast, by the end of the decade they 

come all the way back down and then go below the 1995 level as 

a share of GDP. 

Ms. KAPTUR. May I just interrupt and say, Mr. Chairman, the 

cost of food has gone up so much. In Ohio, to buy two lamb chops, 

which I do not buy, $10.62. Now, who can afford that in the supermarket? All right, so the cost of food was not included in these 

charts either. 

Mr. Chairman, I just want to ask for the record if any of the panelists could submit for the record, how many people in the state of 

Ohio in each of the following categories would become increasingly 

food-insecure if the $122 billion cut were adopted: children, seniors, 

the severely disabled, the unemployed and families who are working. Does anybody have those figures? 

Chairman RYAN. I do not think they do. Time has expired. Ms. 

Wasserman Schultz. 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. You know, 

it has been interesting to sit through this ironically-titled hearing, 

‘‘Strengthening the Safety Net,’’ when the Ryan budget does just 

the opposite, because it achieves most of its savings by pulling the 

safety net out from under the most vulnerable. With that preface, 
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Mr. Greenstein, could you help with some data? What percent of 

the Ryan budget cuts, in your analysis, come from programs that 

serve low-income Americans? And also, could you talk about your 

broader analysis of the impact that the Ryan budget has, in general, and what were your main findings? 

Mr. GREENSTEIN. So there are $5.3 trillion in expenditure reductions, not counting interest savings over the next 10 years. Our 

analysis, and it is conservative, the figure is probably too low, is 

that at least about 62 percent of that would come from low-income 

programs. They way we got that was for all the programs where 

there are specific figures, Medicaid, food stamps, and the like, including the specific figures, for the areas where there were not: 

non-defense discretionary and entitlement programs other than 

like Social Security, Medicare and so forth, for which there is not 

a specific number, we simply assumed that the percentage reduction in that part of the budget that you would have the same percentage reduction in the low-income component. If you take discretionary, since I do not think there are going to be those kind of reductions in veterans health or the FBI or things of that sort, the 

odds are that the low-income reductions would be bigger, but we 

did not assume that. And the figure ended up being 62 percent, or 

$3.3 trillion of the $5.3 trillion in budget cuts. 

Ms. WASSERMAN SCHULTZ. And just more specifically about 

SNAP caseloads, because obviously during the Great Recession and 

its aftermath, SNAP caseloads grew, making sure that people were 

not food-deprived, that was incredibly important. But as the economy recovers, and we have had many more people who, in order 

to make ends meet, are dependent upon SNAP. Can you talk about 

what we can expect would happen to SNAP caseloads as the economy improves? 

Mr. GREENSTEIN. So I have been following the SNAP program 

since 1972, and the caseloads go up in every recession a lot. In 

every recession there is a lot of commentary that they will never 

come back down after the economy recovers; and after every recession, they do come back down. And that is the CBO forecast and, 

I think, that of most analysts. 

Over 90 percent of the funding in food stamps is right for benefits, and the remaining, a little short of 10 percent, is to make sure 

people are eligible, to make sure retailers are complying with the 

program, and they administer work requirements, which the program does have, and the employment and training program. It is 

hard to get much savings there. If you had to take $133 billion out 

of the program, which the budget does, you have to cut benefits. 

You have to cut eligibility, benefits, or both. It is unclear which 

states would do, perhaps a combination, but there is little question 

that you would have some numbers of millions of people who would 

no longer be able to get food stamps, and for those who did, most 

likely they would get smaller amounts, which is a concern, given 

the evidence that people do run out of food before the end of the 

month. 

The Institute of Medicine is currently conducting a study of 

whether the level of benefits in SNAP is adequate. I do not know 

where they will come up, but enough questions have been raised 
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in the research that they thought it warranted a study. I think the 

results will come out the end of the year. 

Ms. WASSERMAN SCHULTZ. Having gone through an exercise myself on trying to subsist on what it would be like if I were on a food 

stamp budget, I can attest to it being extremely difficult, if not impossible. 

Just lastly, as recently as 2008 and 2009 in my home state of 

Florida, nearly 350,000 families with children were living in poverty. Can you talk about the impact, in the time I have remaining, 

of what that would mean for those families if we changed the 

SNAP program, the food stamp program, from a safety net program 

into a block grant program? 

Mr. GREENSTEIN. Well, the effect would be by far the most severe 

during economic downturns. The food stamp program automatically 

responds in recessions, block grants do not. 

Ms. WASSERMAN SCHULTZ. And that is because a block grant, you 

are giving a finite amount of money. You are saying this is what 

you have. Do with it what you will. 

Mr. GREENSTEIN. And under the TANF block grant, there is no 

adjustment even for inflation, and the total amount of federal 

money in the program is lower in nominal terms today than it was 

when the program started because of the elimination of the supplemental grants. 

I do not know what the specifics would be in food stamps, but 

based on prior proposals maybe it would adjust for inflation, maybe 

it would not, but that does not necessarily take into account population growth. It certainly does not take into account downturns in 

the recession. And block grants do very badly in adjusting for 

changes in need across states. Not all state economies, poverty 

rates and so forth move at the same rate. 

My particular concern is about the people both Ron Haskins and 

I have been talking about on this panel, at the very bottom. The 

people who have difficulty holding a job. The people who are worse 

off as a result of the welfare law, recognizing other people are better off. 

In 1995, my distinct recollection is that when the Ways and 

Means Committee marked up the welfare law, Democrats on the 

committee said this is going to harm poor children and leading Republicans on the committee said we are maintaining food stamps 

as a floor. No children will be hungry. The fact that TANF is a 

block grant actually, in my view, makes it all the more important 

that food stamps retain its entitlement structure and be that floor 

under the poorest families. 

Chairman RYAN. Thank you. 

Ms. WASSERMAN SCHULTZ. Thank you very much. 

Chairman RYAN. Thank you. In closing, I will make a couple 

points of clarification. There is a lot to talk about spending cuts. 

The budget we passed increases federal spending from $3.6 trillion 

a year to about $4.9 trillion a year over the 10-year period, instead 

of the $5.8 trillion, which is what the president proposes. So we are 

talking about rates of increase here, not even talking about actual 

cuts. 

With the respect to how to structure block grants to say, programs like SNAP, when your formula, as ours proposes, is eligible 
92 

population plus inflation, then if the eligible population increases 

because of a recession, then the formula reflects that. So you can 

measure for these things, account for these things in your block 

grant formula so long as you write your block grant formula appropriately, and that is what we are proposing. But Mr. Van Hollen, 

I want to yield to you. Do you have a UC you want to ask for? 

Mr. VAN HOLLEN. I do. Thank you, Mr. Chairman. First of all, 

I want to thank all the witnesses for their testimony. I do, Mr. 

Chairman, think going forward, we should keep in mind this distinction between means-tested health programs and other programs. I think as we have seen, the overwhelming amount of funds 

are in the health programs, and the growth is in those programs, 

and I do not think that the Welfare Reform Act work incentives 

apply many lessons to there, as we have heard today. 

I would ask you, Mr. Chairman, for unanimous consent to submit 

for the record a report from the Saint Camillus Food Pantry in Silver Spring, Maryland, a food pantry in my community that serves 

over 6,000 families, on the issue of food security. 

[The information follows:] 
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94 

Chairman RYAN. Without objection. Gentlemen, thank you very 

much for spending your morning and into the afternoon with us. 

We appreciate your time traveling out from Chicago, Dr. Mulligan 

and everyone else. This hearing is adjourned. 

[Whereupon, at 12:44 p.m., the Committee was adjourned.] 

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