Fiscal policy

What’s Driving Growth in Spending on Means-Tested Programs

Last week, the Congressional Budget Office released an interesting infographic depicting the growth since 1972 in spending on federal means-tested programs and tax credits, such as Medicaid, the Earned Income Tax Credit (EITC), and the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp program).

The expansion of such programs has been staggering: even adjusted for inflation, the CBO’s figures show that these programs have increased by over tenfold, from $55 billion in 1972 to $588 billion in 2012.

Knowing that spending has ballooned is one thing; understanding why this has happened is another. This infographic from the CBO provides a useful framework for understanding exactly why spending on these programs has increased in the last two decades. It highlights an important distinction between two driving forces behind the spending growth: an increase in the number of participants in each program vs. an increase in average spending per participant.

Two Factors Behind Spending Growth

The first driver of spending growth is easy to understand: if more people enroll in these programs, total spending will increase. One reason why enrollment has risen in the last three decades is that many of these programs were created or have expanded eligibility since 1972. But other programs, such as SNAP or the Temporary Assistance for Needy Families (TANF), have seen higher enrollment during times of recession, when job loss and other economic hardship have pushed more Americans into eligibility for such assistance. Lastly, sheer population growth and immigration also boosts the overall participation rate in these programs.

The second driver, an increase in the average amount of spending per participant, is a slightly more complicated. Some of the reasons why average spending per person has increased are relatively organic — the cost of services or housing may have pushed up the amount needed to cover each participant in these programs. However, another reason why average spending is increasing is that lawmakers have also been steadily raising the amount of benefits over the years.

Putting It Into Perspective 

The extent to which one or both of these drivers influences overall spending growth varies from program to program, which makes this framework useful in thinking about how best to cut back spending on each program.

For example, notice the difference in growth in spending between Medicaid and SNAP: the number of recipients has doubled for both since 1972, but the average spending per person in SNAP has stayed the same, while the average spending per Medicaid recipient has increased by two-thirds.

This suggests that there is more to cutting spending than, well, actively cutting spending. In the case of Medicaid, lawmakers need to address both the rising participation rate and the rising cost of services per participant. But for SNAP, this suggests that lawmakers should be focusing more on evaluating whether or not eligibility needs to be adjusted to reduce enrollment, rather than on whether or not to cut benefits. The CBO also forecasts that programs like SNAP and TANF, whose spending growth is fueled mainly by rising enrollment, may see a natural decline in spending, as the economy recovers from recession and fewer people rely on these programs.

As policymakers consider how to address the growing amount spent on means-tested programs and tax credits, knowing what factors are fueling the growth of each program can better inform decisions about which types of cuts are the most urgent and the most effective.