NCPA - National Center for Policy Analysis

The Invisible Welfare State

May 3, 1999

Measuring fiscal responsibility by budget deficits has made it possible for welfare spending to skyrocket to record levels virtually unnoticed. In addition to on-budget spending, tax and off-budget programs have created an invisible welfare state.

The Census Bureau reports federal domestic spending reached $1.5 trillion last year.

  • More than half of this, $836 billion, consisted of direct payments to individuals for retirement, disability, health and welfare programs.
  • States received $269 billion in grants; private firms got $209 billion in procurement contracts; and the $170 billion balance went to government employees' salaries.
  • In addition, the federal government provided $683 billion of off-budget assistance in loans, loan guarantees and insurance commitments.

Spending on low-income families not receiving cash assistance has risen from $5.6 billion in 1984 to $51.7 billion this year, according to the Congressional Budget Office. And almost three- fourths of this increase has been tax provisions, especially the Earned Income Tax Credit (EITC), not normally counted as welfare spending.

In the U.S., tax expenditures add to the welfare state.

  • The Organization for Economic Cooperation and Development recently found that the welfare state shrinks by about a fourth in Sweden, Denmark and the Netherlands when one deducts the heavy taxes paid on welfare benefits.
  • By contrast, the inclusion of tax provisions raises total welfare spending in the U.S. by about 5 percent.

In "The Hidden Welfare State" (Princeton University Press, 1997), Christopher Howard concludes that "the United States may not spend less on social welfare than other countries do; it may just spend similar amounts of public monies in different ways."

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 3, 1999.


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