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Do We Really Spend A Lot of Money on Poor People?


Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to “Encore.”

David Brooks is one of my favorite commentators.  That said, as part of a  recent piece ­– “Midlife Economics” (New York Times 12-26-11) – he wrote that the United States “spends so much on poverty programs that if we just took that money and handed poor people checks, we would virtually eliminate poverty overnight.”  The statement was part of the broader argument that analogies between the current period and the progressive era are ill conceived.  In the progressive era, the country was young and vibrant, and the job was to impose order.  Today, the country is middle aged and self indulgent.  The general argument may be right, but the notion that we spend so much money on poor people didn’t ring true.

One useful place to look is the federal budget.  Federal government spending falls into three broad categories (see Figure).  The first is mandatory programs, such as Social Security, Medicare, Medicaid, and other programs, where spending is determined by rules for eligibility, benefit formulas, and other parameters rather than by specific appropriations.  The second category is discretionary spending, which is controlled by annual appropriations.  Roughly half of discretionary spending consists of  spending on defense and the other half on non-defense programs, such as education, transportation, and agriculture.  The final category is interest payments on the nation’s debt.

So where is spending on the poor in this picture? In my view, Social Security and Medicare are not designed for poor people; these programs provide the backbone of the fragile retirement system for all Americans. Most of Medicaid spending does not go to the poor (much goes to middle-income individuals who spend down to qualify for long-term care and to the disabled), and, in any case, it hardly represents money in their pocket. The bulk of non-health spending on the poor is found in the small wedge entitled “other programs” of mandatory spending. This category includes Supplemental Security Income, tax credits (about a third of which might go to the poor), and a handful of other programs. Non-defense discretionary spending also includes a category called “Income Security,” which consists of housing and nutritional assistance. In 2010, federal expenditures on programs for poor people totaled $270 billion, roughly 8 percent of total federal outlays of $3.456 trillion.

So would handing out checks to poor people virtually eliminate poverty over night? Part of the expenditures, such as Supplemental Security Income, is already included in the income measure for determining poverty, so the payments would be about $195 billion. The Census reports that 46.2 million fell below the poverty threshold in 2010. Each poor person would receive a check of about $4,200. That money would help, but it would not dramatically change the poverty picture in this country.


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    • Thank you for the sensible critique. Me and my neighbor were just preparing to do a little research about this. We got a grab a book from our local library but I think I learned more clear from this post. I’m very glad to see such fantastic info being shared freely out there.

    • None of this information helps me.

    • Actually, I am not sure about Dr. Munnell’s assertion that much of Medicaid spending doesn’t go to the poor. She highlights formerly middle-class folks who’ve exhausted their resources in paying for long-term care – our Medicaid data aren’t good enough to tell us how many such cases there are. There are likely to be a fair number, but I would not be surprised if they are the minority of seniors on Medicaid. She also highlights the disabled – most of them are poor. Some of them may be from middle class families, but as individuals they have to be poor to get on Medicaid.

      To be sure, at the macro level the Feds do spend a lot of money on the middle class and the rich, counting both explicit spending and tax expenditures. Dr. Munnell’s point still stands, I’m just contesting the picture specific to Medicaid. And I specialize in long-term care policy, so I do know a fair bit about Medicaid.

    • Well sure, if we disregard the TRILLIONS we spend on Social Security and Medicaid just because not all of it goes to the poor (even though hundreds of billions of it does), and ignore state programs, we don’t spend that much on the poor. But you can’t just ignore massive entitlements as if they don’t exist! And if we pretend all poor people are single and can’t lump their shares together, 4,200 might not seem like a game-changer. But you can’t make that assumption either. What this article tells us is that if you tinker with the numbers enough, you can find statistical evidence for just about anything.

    • The short answer to the question in the article’s title is “Yes, we do spend a LOT of money on poor people.” Unfortunately, most of that money is spent foolishly, in ways that benefit neither the poor, nor society.

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.