Note to Readers - Solving the Deficit Has Been Revised

In perusing my blog recently I was surprised to find that all of the embedded images had disappeared.  On the off chance that somebody may have actually looked at one of these posts, I went through them and replaced the missing images.

I am pleased to note that my posts on "Solving the Deficit", which I wrote in 2011, have stood the test of time.  In particular, the trajectory of the deficits and the recovery of the economy predicted by the Office of Management and Budget (CBO) and reported in my blog have proved to be spot on or even better.  For example, the 2014 deficit was 2.8% of GDP which is considerably lower than the deficit of 4.4% in 2008, President Bush's last year in office.  And the 2014 deficit would be a surplus were it not for the tax cuts enacted under Bush.  Yes, the 2014 can be attributed entirely to the Bush tax cuts my friends, which is consistent with my contention that we citizens of the United States are under- rather than over-taxed.  As I pointed out in my blog, US federal taxes as a % of GDP are 2.8% lower than they were at the end of the Eisenhower administration.  During that time we have added Medicare, Medicaid, and income support for the disabled (SSI) and much more.  So what do you get when you cut taxes and increase spending dramatically?  This is not rocket science, but nobody is talking about it and the Republicans continue to rant about how over-taxed we are.  I just don't understand why they are allowed to get away with this incredible con job?

Comments are welcomed, particularly if you spot any errors.

Regards

Jim Hawthorne

It's Private, not Public, Debt That's the Problem

The following excerpt is from a review of the book, "Debt: The First 5,000 Years", by David Graeber. The review was written by Robert Kuttner and appears in the New York Review of Books, May 9, 2013 (they deliver the magazine way ahead of the publication date). The main point is that conservatives have succeeded in persuading Americans that government debt is the big threat to our economy when, in reality, it is private debt that caused the recession and private debt that poses the real threat to future economic growth.

"At the heart of the argument about how to revive a depressed economy is the question of debt. When political leaders and economists debate the subject, they refer mostly to public debt. To conservatives, the economy’s capacity for recovery is impaired by too much government borrowing. These escalating obligations, they claim, will be passed along to our children and grandchildren, leaving America a poorer country. Liberal economists, such as Paul Krugman and Joseph Stiglitz, have replied that only faster growth rates and higher gross domestic product will reduce the relative weight of past debts. Budget austerity, in their view, will shrink demand and slow growth, making the debt burden that much heavier.

As important as this debate is, there’s something missing. Public debt was not implicated in the collapse of 2008, nor is it retarding the recovery today. Enlarged government deficits were the consequence of the financial crash, not the cause. Indeed, there’s a strong case that government deficits are keeping a weak economy out of deeper recession. When Congress raised taxes in January at an annual rate of over $180 billion to avoid the so-called fiscal cliff, and then accepted a “sequester” of $85 billion in spending cuts in March, the combined fiscal contraction cut economic growth for 2013 about in half, according to the Congressional Budget Office. Moreover, some of the causes of public deficits, such as Medicare, reflect to a large extent inefficiency and inflation in health care rather than profligacy in public budgeting.

It was private speculative debts—exotic mortgage bonds financed by short-term borrowing at very high costs—that produced the crisis of 2008. The burden of private debts continues to hobble the economy’s potential. In the decade prior to the collapse of 2008, private debts grew at more than triple the rate of increase of the public debt. In 22 percent of America’s homes with mortgages, the debt exceeds the value of the house. Young adults begin economic life saddled with student debt that recently reached a trillion dollars, limiting their purchasing power. Middle-class families use debt as a substitute for wages and salaries that have lagged behind the cost of living. This private debt overhang, far more than the obsessively debated question of public debt, retards the recovery."

The Deficit Revisited - Overview

THE DEFICIT REVISITED

OVERVIEW

In this and subsequent posts, I revisit and update the series that I posted two years ago.  I am pleased to report that nothing that I have seen over the past two years has given me any reason to modify the main conclusions that I presented in that series of post and, if anything, some of the new material that has emerged since then has left me more confident in those conclusions.

I have updated some of the original material with more recent data and have added much new content.  As before, most of the analyses are based on data from original sources such as the Official Budget of the United States, the Bureau of Economic Analysis, the Treasury Department, the Congressional Budget Office, and the Organization for Economic Cooperation and Development (OECD).  I have provided detailed source information so that readers who are so inclined can check for themselves.

My analysis of deficits and the national debt will be limited to the years preceding 2009.  The great recession that began towards the end of 2008 has created an economic environment that is so different from previous years that it really needs to be addressed separately.  I will do this in a later post.

The posts that follow will provide the evidence to support the following conclusions:

We Are Not Over-taxed.

• In 1960, when Dwight Eisenhower was President and we had a balanced budget.  Taxes then amounted to 15.8% of Gross Domestic Product (GDP); in 2008 they were 13.0% of GDP - a loss of tax revenues equivalent to $400 billion in 2008.  The deficit that year was $642 billion

• Not only is our tax burden lower than it was 50 years ago, it is also significantly lower than in other developed countries.  The mean tax burden (local, state, and Federal) in OECD^[1] countries is 35% of GDP; for the US^[2] it is 30%.

Spending As Such is Not the Problem.

• Whether spending is excessive depends on what you think of the programs for which the money is spent.  If you view Medicare and Medicaid as misguided government intrusions into areas better left to the private sector then you will view spending for them as unnecessary and excessive.  If you think that agricultural subsidies to huge corporate farming operations are vital to the national wellfare, you will view those expenditures as a prudent allocation of resources.

• In 1960, Medicare and Medicaid did not exist.  Those two programs alone cost $643 billion in 2008.  Despite the fact that we have increased spending for those and many other programs, our tax bill in 2008 was nearly $400 billion lower than it would have been under Eisenhower’s tax policies.  (To put these numbers in perspective, the 2008 deficit was $642 billion.)

• Eliminating the deficit without raising taxes would require draconian cuts in services to the most vulnerable segments of the population.  It would also involve major cutbacks in programs and services that are taken for granted by middle- and upper-income Americans. 

• Tea Party enthusiasts don’t have a clue about the way in which their lives would be affected by the spending cuts they are clamoring for.  If they understood, you can rest assured that they would be considerably less enthusiastic about their spending cuts.

•  Programs like Food Stamps and Subsidized Housing are popular targets for right wing talk show hosts who love to spin yarns about outrageous abuses.  In reality, total spending for all of those programs amounts to 4% of federal spending.  Even if 25% of participants are committing fraud, we are looking at only 1% of the budget, hardly a promising place for deficit reduction.

The Deficit And Debt “Crises” Are Not The Result Of Irresponsible “Tax And Spend” Policies Of Liberal Democrats. 

• At the close of 2008, 75% of our national debt had been generated by the “borrow and spend” policies of just three Presidents - Ronald Reagan, George H.W. Bush, and George W. Bush.  The remaining 25% of the debt was accumulated by the 39 Presidents who preceded Ronald Reagan.

•  The dramatic surge in the 2009 deficit can be attributed to five events:

1. The recession  (27% of the deficit).  An analysis done by The Center for Budget and Policy Priorities (CBPP) has shown the recession to be the single largest cause of deficit spending.  Recessions deliver a double whammy to the federal budget.  They trigger large, automatic, increases in expenditures for safety net programs like unemployment insurance, Medicaid, and food stamps.  At the same time, they also result in a substantial drop in tax revenues.
2. Running close behind the recession are the Bush tax cuts (24% of the deficit)
3. The Wall Street bailouts (16% of the deficit).  (Signed into law by George W. Bush, by the way).
4. The economic stimulus^[3] (12% of the deficit).  This is the only part of the deficit that can be attributed to President Obama.  Most mainstream economists agree that the stimulus headed off a catastrophic economic catastrophe and more than paid for itself.
5. Two unfunded wars (12% of the deficit).

The Real Threats to Our Economic Future

• Rising health care costs - and we are not talking about publicly funded programs like Medicare and Medicaid.  Expenditures in employer-based, private sector health programs are rising faster than those in publicly funded programs.

• Our Inefficient health care system - We spend 18% of GDP on health care compared to 11% in OECD countries, and yet the United States lags behind those countries in virtually every measure of population health, from infant mortality to life expectancy.

• If our health care system were as cost effective as the systems in those “socialist” OECD countries, we would save 7% of GDP each year, equivalent to $1.0  trillion in 2008 (when the deficit was a mere $642 billion).

•  The US defense budget ($663 billion) is larger than the combined defense budgets of the 20 next largest countries ($654 billion).  Can we and should we continue to play the role of world super-power?

• Too Big to Fail Financial Institutions.  The fallout from the financial crisis goes far beyond the tax dollars used to rescue Wall Street banks from the results of their reckless and irresponsible financial speculation.  It must also include trillions of dollars in foreclosed homes, lost jobs, and lost tax revenues, not to mention the continuing provision of free money in the form of near-zero loans from the Treasury Department.  

• The same financial institutions that triggered the recession are now bigger than ever and are now “too big to jail” according to testimony by Attorney-general Eric Holder before the Senate Finance Committee on 3/6/2013.  Holder stated that the Justice Department is hesitant to initiate criminal cases against  some of the largest financial institutions because prosecution could seriously disrupt both the US and the World economies.  So the folks who made a killing by manipulating LIBOR rates and who knowingly laundered money for Iran and for the Mexican drug cartels no longer need to worry.

---

^[1] Organization for Economic Cooperation and Development.  Member countries include Western Europe, the UK, Canada, Australia, and developed East Asian countries like South Korea and Japan.

^[2] After adjusting for the fact that the tax burden in OECD countries is higher because a much higher proportion of health care costs is born by government in those countries.

^[3] Otherwise known as the American Reinvestment and Recovery Act (ARRA) of 2009

The Deficit Debate round 3

David - 

(1) Cristina Romer and Taxes - Cristina Romer agrees that tax cuts for the rich are a terrible idea - one of the very worst of all the ways of stimulating the economy.  (Conservatives should always be careful about quoting a known Keynesian)

“Both tax increases and spending cuts will tend to slow the recovery in the near term, but spending cuts will likely slow it more. Over the longer term, sensible tax increases will probably do less damage to economic growth and productivity than cuts in government investment.”

Wealthier households typically pay for more of a tax increase out of savings, and so they reduce their spending less than ordinary households. This implies that tax increases on wealthy households probably have less effect on the economy than those on the poor or the middle class.

All of this argues against any form of fiscal austerity just now. Even some deficit hawks warn that immediate tax increases or spending cuts could push the economy back into recession. Far better to pass a plan that phases in spending cuts or tax increases over time.

But if federal policy makers do decide to reduce the deficit immediately, reducing spending alone would probably be the most damaging to the recovery. Raising taxes for the wealthy would be least likely to reduce overall demand and raise unemployment.”

Government spending on things like basic scientific research, education and infrastructure, on the other hand, helps increase future productivity. This type of spending often produces high social returns, but the private sector is unlikely to step up if the government pulls back. Case studies described in a recent survey found that less than half of the returns from research-and-development spending were captured by the private investor, so corporations shy away from such endeavors. Cutting federal funds for R.& D. would leave a void and could have significant long-run effects on growth.

These long-term considerations, like the short-run concerns, point to a plan for reducing the deficit that combines spending cuts and tax increases. The cuts should spare valuable investment spending. On the tax side, nearly every economist I know agrees that the best way to raise revenue would be limit tax breaks for households and corporations.

“The Rock and the Hard Place on the Deficit”  By CHRISTINA D. ROMER  New York Times, Published: July 2, 2011

We are at historically low levels of taxation and the US has a substantially lower tax burden than every other developed country except Korea and Japan.  And, if low taxes are so critical for growth, how do you account for the fact that Canada, with much higher tax rates, has experienced an average growth in real GDP over the past 40 years of  3.07632 vs. 3.07638 for the US (or is that fifth decimal place really important?).  (See http://stats.oecd.org/index.aspx).  

And if low taxes are so great for economic growth, how do you explain the abysmal growth in GDP during Bush's two terms?  Or the fact that growth was higher during Clinton's two terms than in Reagan's, this despite the fact that Clinton raised taxes (and thus reduced the deficit) while Reagan goosed the economy with $1.3 trillion in deficit spending.  Why was this OK for Reagan and not Obama?  Conservatives like to claim that GDP growth under Reagan was terrific but that claim requires that you (1) measure GDP in nominal dollars (thereby conflating the growth and inflation) and  (2) ignore that some of that growth came from the short-term stimulus of massive deficit spending. 

TABLE III-1

Average Growth in Real GDP
Reagan	3.4%
Bush I	1.7%
Clinton	3.9%
Bush II	2.1%

                                       Source: Budget of the US Government,2012, Historical Tables, 

                                                                  Table 1010-1. My calculations can be found in Workbook 2(10-1]

  Fancy statistical models look impressive on paper, but sometimes it is worth looking at the real world.  And, by the way, in Romer’s regression model exogenous changes in taxation explain only 9% of the variation in GDP which means that 91% of the variation is due to unknown variables.  Before I placed too much faith in her model, I would want to account for a little more of that unexplained variance and especially to be certain that one of those unknown variables does not co-vary with exogenous tax changes.

Spending

The point of my last email was not to affix blame but to show that the 2009 deficit could hardly be attributed to “reckless” spending by Obama as you claim.    The same is true of 2010 and 2011.  Your statement that spending has grown to 25% of GDP is disingenuous since you fail to mention that the recession caused a 5% spike in spending.  Here are the numbers from recent years:

1998	19.1
1999	18.5
2000	18.2
2001	18.2
2002	19.1
2003	19.7
2004	19.6
2005	19.9
2006	20.1
2007	19.6
2008	20.7
2009	25.0
2010	23.8
2011 estimate	25.3

In Part V of this series, I note that, according to CBO projections, when the recession ends we will be left with a structural deficit of about 3.5% of GDP, equivalent to a deficit of $526 billion in 2011.  As the attached graph shows, the only spending increases have been in Defense, Medicare, Medicaid, and Income Security and the major future drivers of the deficit will be Medicare, Medicaid, and interest.

Defense  I am all for cuts in defense.  The US can no longer afford to play the role of the lone super-power that unilaterally polices the rest of the world.  Terrorism, rather than a conventional war, in which the US is attacked by another nation State, is now the preeminent security challenge faced by the US.  The global economy is now so inter-locked, that wars between nation states would result in catastrophic disruptions to the world economy that would be devastating to all countries, including any potential combatants.  And, if that is not a sufficient disincentive, the US retains control of enough nuclear weapons to reduce any country in the world to ashes in about five minutes.  Aircraft carriers and tanks are not an effective response to terrorism, nor can single nation acting unilaterally deal effectively with terrorists who operate across national boundaries

  

Medicare and Medicaid - This is where the real crisis is.  But it is not just Medicare and Medicaid that are in trouble, it is the whole US health care system.  The cost of private insurance is rising even faster than Medicare costs (see Kaiser Foundation Report) and is undermining the ability of American companies to compete in international markets.  We have the only employer based, for-profit insurance system in the world and we spent 17.6% of GDP on health care in 2010 compared to 11% of other developed countries.  And it’s not like we are healthier as a result, since the US comes up short on the limited number of measures that can be used for comparisons.  We have 50 different Medicaid programs (one for each State), Medicare, the VA system, and hundreds of private insurers who provide slightly different sets of benefits to each of the hundreds of employers they insure.  It is an administrative nightmare for providers.  A recent study reports that the cost, to primary care practices, of dealing with insurance companies ranges from $57,500 per physician in larger practices to $72,700 per physician in practices with only one or two physicians.  Oh, and I forgot to mention the roughly 25,000 insurance brokers who peddle health insurance. 

 

Consider the following anecdote from TR Reid’s excellent book, “The Healing of America.” 

Reid is a foreign correspondent who has lived in a half-dozen different countries long enough to enroll in their health systems.   In France, he goes to see a doctor.  On entering the doctor’s office, he is struck by the absence of any auxiliary staff.  He gives the doctor his Carte de Sante which contains a microchip with his entire medical history on it.  The doctor slides the card into his computer and reviews Reid’s medical history.  After examining Reid, he types his note, orders some lab work, and writes a prescription, all of which is instantly recorded on Reid’s Carte de Sante.  Before he leaves, Reid asks the doctor about his billing system.  The doctor says, “Oh, I’d be delighted to show it to you.”  He reaches over to his computer keyboard and hits the Enter key.  “That”, he says, “is my billing system.”

Nothing short of the abandonment of our current system and the adoption of a European style system will have much effect on our escalating health care costs.  Politically impossible?  Maybe.  But if that is the case, "We be f****ed!" as they would say in Ebonics.  And even if the US adopted a European style health system, we would not get costs down to European levels without drastic changes in the way we pay doctors and the litigious nature of American society.  The direct costs of malpractice litigation are significant but probably pale in comparison to the cost of all of the unnecessary tests and procedures that result when doctors practice “defensive medicine” to avoid litigation.  Unfortunately, it is virtually impossible to quantify the latter costs.

  

Social Security - This is one area where the Democrats need to yield.  Given longer life expectancies, we need to raise the retirement age.  We also need to lift the cap on FICA taxes so that they get applied to incomes over $100,000 a year.

1

Income Security - $548.5 billion (88%) of the $623 billion is mandatory and thus outside the President’s control.  The following six items (all mandatory) account for 70% of total spending for Income Security:

Unemployment Insurance                      $130.8

Food Stamps                                        $  78.2

Federal employee retirement -               $  72.5

Military Retirement                                $  55.3

SSI                                                       $  52.7        (payments of $672 per month for the blind and disabled)

Earned Income Tax Credit                     $  44.9        (tax credits for working poor¹)

================================

Subtotal                                               $434.4 

¹  A cash payment to people who file income tax returns.  Based on income and family size.  Maximum benefit is $5,600.  Example:  a single parent with three children who earned $20,000 would receive $4,921.

Assuming that you could, where and how much would you cut?   I have yet to encounter a conservative who was willing to be specific about where the cuts should be made.  Diane Rehm recently tried valiantly to pin Grover Norquist down, but he weaseled out every time, even after Diane complained point blank that he was not answering her question.  So, David, put our money where your mouth is and tell us where to cut.

I provide the details of the 2011 budget below and  I challenge you to specify were and how much you would cut while sparing grandmothers, widows and orphans (again, spreadsheet versions of all tables are available at Google Docs). 

After a careful analysis of the budget, it is clear to me that you cannot eliminate the deficit with spending cuts alone.  In fact, tax increases will have to play the major part in eliminating the deficit. 

(4) Are Taxes Always Bad?

Obviously, Romer doesn’t think so.  And doesn’t it depend on what the taxes are used for?  The US spends far more than any other country on defense and doesn’t provide affordable health insurance to many of its citizens.  

What about taxes that are used to invest in education and job training, or in infrastructure, or to foster the development of new technologies in areas where the private sector will not venture because the short-term returns are not appealing.  The US is falling behind in the development of clean energy technologies while China and European countries are taking the lead.  How will it help our trade deficit if we have to buy advanced green energy technologies from China?

(5) Is GDP Growth the Definitive Measure of What is Good?

This is an unchallenged assumption that is really very dubious in my eyes.  It is much easier to track than quality of life, rule of law, economic mobility or other indices of  national well-being but it ignores other important factors that will determine the long-term success of a country.

 

How desirable is economic growth based on an unsustainable abuse of the environment that exhausts limited resources and impairs population health via pollution (e.g. China)?

How beneficial is economic growth in a society with limited economic mobility?  Unequal access to education, jobs, health care, etc can result in the creation of an underclass from which escape is difficult.  The US is already lagging behind other developed countries in mobility.  For example, the probability of a son born to a father in the lowest income quartile remaining in that quartile is 42% in the US vs. 30% in the UK and 25% in Sweden.   An underclass that lacks access to economic opportunity through legitimate means will resort to crime and substance abuse and will create a large underground economy (under-the-table employment, a large  covert market in stolen goods) that undercuts legitimate economic growth and is a de facto tax on law-abiding citizens.  The US already has an underground economy that is equivalent to 9% of GDP (well over a trillion dollars).

How sustainable is economic growth in the absence of long-term investment in infrastructure and human resources.  The US Society of Engineers recently published a report indicating that deteriorating infrastructure currently costs the US economy $240 billion a year and will rapidly grow more costly if not addressed.  US students have fallen increasingly behind students in other countries in terms of scores on standardized tests of basic math, science, and reading skills.  Lack of investment may reduce taxes and increase economic growth in the short term, but what about the longer term?

A Failure of Leadership - I too would like to see concrete proposals to deal with the deficit, but neither the President nor the Congressional Democrats has put anything meaningful on the table, and the Ryan proposals would gut Medicare and Medicaid along with other safety net programs and even then would fall far short of eliminating the deficit.  In Part V of my blog  I provided the evidence that we will have to do much more than eliminate tax cuts for the rich.  Sizable tax increases for everyone  will be needed to balance the budget unless you are truly prepared to cut spending for the most vulnerable in our country - cuts that I would consider profoundly immoral.  Again, prove me wrong by showing how we can cut $526 billion from the 2011 budget.

 =================================

The 2011 Budget

TABLE B1
On-Budget Federal On-Budget Spending 2011
	Discretionary Outlays	Mandatory Outlays	Total Outlays
050 National defense:	$760.9	$7.4	$768.2
150 International affairs:	$57.7	($2.5)	$55.2
250 General science, space, and technology:	$33.2	$0.2	$33.4
270 Energy:	$22.9	$4.9	$27.9
300 Natural resources and environment:	$47.2	$1.8	$49.0
350 Agriculture:	$7.0	$18.1	$25.1
370 Commerce and housing credit:	$0.5	$13.1	$13.6
400 Transportation:	$45.0	$49.5	$94.5
450 Community and regional development:	$26.8	($1.1)	$25.7
500 Education, training, employment, and social services:	$129.0	($13.9)	$115.0
550 Health:	$65.6	$322.0	$387.6
570 Medicare:	$5.9	$488.4	$494.3
600 Income security:	$74.1	$548.5	$622.7
650 Social security:	$0.8	$14.2	$15.0
700 Veterans benefits and services:	$56.8	$84.6	$141.4
750 Administration of justice:	$53.1	$7.6	$60.7
800 General government:	$22.3	$9.7	$32.1
900 Net interest:	$0.0	$324.9	$324.9
920 Allowances:	$0.6	$2.5	$3.1
950 Undistributed offsetting receipts:	$0.0	($89.7)	($89.7)
	$1,409.5	$1,790.3	$3,199.8

TABLE B2
350 Agriculture		Disc	Mand
Farm Subsidies		$2.0	$17.7
Agricultural Research Services		$5.0	$0.0
Other		$0.0	$0.4
GRAND TOTAL		$7.0	$18.1
TABLE B3
370 Commerce and Housing Credit:		Disc	Mand
Federal Housing Administration (FHA) loan programs		($10.0)	$8.7
GSE purchase programs			$32.1
Small Business Assistance		$1.2	$6.3
Science and technology		$2.8
Economic and demographic statistics		$2.0
Federal Deposit Insurance Fund			$5.4
Universal service fund			$8.6
TARP			($38.1)
Other		$4.6	($10.0)
TOTAL		$0.5	$13.1
GRAND TOTAL			$13.6
TABLE B4
400 Transportation:		Disc	Mand
Highways		$7.1	$35.4
Mass transit		$4.3	$9.2
Railroads		$1.7	$1.7
Airports and airways (FAA)		$21.7	($0.1)
Marine safety and transportation		$8.3	$0.0
Other		$1.9	$3.3
		$45.0	$49.5
GRAND TOTAL			$94.5
	TABLE B5
	450 Community and regional development:				Disc	Mand
	Community development:				$8.1
	Disaster Relief				$12.1
	Other				$6.6	($1.1)
	TOTAL				$26.8	($1.1)
	GRAND TOTAL					$25.7
	TABLE B6
	500 Education, training, employment, and social services:				Disc	Mand
	Education for the disadvantaged				$23.7
	School improvement				$5.6
	Special education				$17.6
	State Fiscal Stabilization Fund, Recovery Act				$17.9
	Student financial for Higher Education				$25.4	$16.4
	Training and employment:				$4.8
	Children and families services programs				$11.4
	Social services block grant					$2.0
	Rehabilitation services - Department of Education					$3.3
	Other				$22.6	($35.5)
	TOTALS				$129.0	($13.9)
	GRAND TOTAL					$115.1
	TABLE B7
	550 Health:				Disc	Mand
	Substance abuse and mental health services				$3.4
	Indian health Services				$4.3
	Health Resources and Services Administration				$7.1
	Disease control, research, and training				$6.1
	Public health and social services emergency fund				$4.4
	National Institutes of Health				$33.0
	Food and Drug Safety				$3.4
	Grants to states for Medicaid					$276.2
	Children's health insurance program (CHIP)					$9.1
	Federal employees' and retired employees' health benefits					$12.4
	Military  Medicare-eligible retiree health care fund					$9.5
	COBRA tax credit					$3.0
	Other health services					$9.2
	Other				$3.9	$2.7
	TOTALS				$65.6	$322.0
	GRAND TOTAL					$387.6

(1)  Health Resources and Services Administration  - Provides subsidies to outpatient health centers in underserved areas.

(2)  Grants to States for Medicaid - Medicaid is administered primarily by the States and jointly funded by the States and the Federal government. States receive Federal dollars in the form of a block grant (called the Federal Medical Assistance Percentage or FMAP) that is calculated using a formula based on each State’s average per capita income.  On average, the Federal government pays 56% of the tab, but wealthier States like Minnesota, Maryland, Massachusetts, Connecticut, New York, and California receive 50% while poorer States receive more (Texas 61%, South Carolina 61%, Louisiana (64%), Tennessee (66%), Idaho (68%), Alabama (69%), Arkansas (71%), Utah (71%), Mississippi (75%) and West Virginia (73%).  (Notice a pattern here?)  Medicaid serves over sixty million Americans.  The sub-populations served and the amounts spent in 2008 (the most recent year for which complete data are available) are shown in Table A5b.

Table A5b

2008 Federal Medicaid Expenditures
	Number of Eligibles	% of Enrollees	Federal Expenditures (billions)	% of Expenditures
Aged	5,346,910	8.9%	$32.2	16.0%
Blind or Disabled	9,714,884	16.1%	$68.1	33.8%
Children	29982760	49.7%	$100.4	49.8%
Parents of covered children	15,059,041	25.0%	$0.2	0.1%
Women w. Breast or Cervical Cancer	46,797	0.1%	$0.3	0.1%
Unemployed adult	177,173	0.3%	$0.2	0.1%
	60,327,565	100%	$201.4	100%

TABLE B8
600 Income security:	Disc	Mand
Unemployment insurance program admin Expenses	$3.4
Section 8 rental assistance	$28.6
Public Housing	$8.7
Home Investment Partnership Program	$2.7
Homeless assistance	$2.3
Special supplemental food program for women,infants, and children (WIC)	$7.7
Low income home energy assistance	$5.1
Child care and development block grant	$2.7
Supplemental security income (SSI) administrative expenses	$3.6
Railroad retirement		$6.6
Federal civilian employee retirement and disability		$72.5
Military retirement		$55.3
Unemployment insurance (UI) programs		$130.8
First-time homebuyer tax credit		$7.3
Troubled Asset Relief Program mortgage modification program		$9.8
Recovery Act grants in lieu of low-income housing tax credits		$3.3
Food stamps		$78.2
State child nutrition programs		$18.5
Supplemental security income (SSI)		$52.7
Child support and family support programs		$3.6
Temporary assistance for needy families (TANF) andrelated programs		$19.5
Child care entitlement to states		$2.7
Foster care and adoption assistance		$6.9
Earned income tax credit (EITC)		$44.9
Child tax credit		$22.9
Making Work Pay Tax Credit		$13.9
Other	$9.3	($0.9)
TOTALS	$74.1	$548.5
GRAND TOTAL	GRAND TOTAL	$622.7

(3)  Supplemental Security Income (SSI)   SSI is a program of cash assistance for disabled, blind and aged individuals who are not otherwise eligible for social security.  A little over 8 million Americans qualify for SSI payments of $674 a month for individuals and $1011 for couples.  Beneficiaries who qualify for regular social security benefits can receive an SSI supplemental payment if their social security benefit is less than the SSI payment levels just mentioned. 

(4) Earned Income Tax Credit   The EITC provides tax credits to low-income individuals - mostly families with children.  To qualify, individuals or families must have a social security number, earned income (from salaries, tips, or self-employment) and file a Federal tax return.  Qualifying individuals receive a check from the IRS after filing their tax return.  For tax year 2010, the maximum EITC for a person or couple without qualifying children was $457 annually.  With one qualifying child it was $3,050 per year, with two qualifying children it was $5,036, and with three or more qualifying children it was $5,666.  The payment increases with the amount of income reported  but cannot exceed a maximum amount that varies with family size.  The maximum payment of $5,666 would be for a family with three or more children and earned income of  $16,500.  The maximum credit for an individual is $457.