Skip Navigation

This study was prepared by the staffs of the Human Resources and Community Development Division and the Human Resources Cost Estimates Unit of the Budget Analysis Division of the Congressional Budget Office, under the supervision of Nancy M. Gordon, Assistant Director for Human Resources and Community Development, and Charles Seagrave, Chief of the Human Resources Cost Estimates Unit. Questions regarding this analysis may be addressed to Patricia Ruggles.
 

SUMMARY

INTRODUCTION

SECTION I. AGGREGATE IMPACTS OF RECENT ECONOMIC AND LEGISLATIVE CHANGES

SECTION II. FEDERAL SPENDING FOR PROGRAMS SERVING FAMILIES AND INDIVIDUALS

• Changes in the Composition of Federal Outlays
• Impact of Recent Legislative Changes in Human Resources Programs

SECTION III. ANALYSIS OF CHANGES IN HUMAN RESOURCES PROGRAMS

• Retirement and Disability Programs
• Other Income Security Programs
• Health Care Programs
• Education and Social Services
• Employment and Training Programs

SECTION IV. IMPACT OF LEGISLATIVE CHANGES ON HOUSEHOLDS IN DIFFERENT INCOME CATEGORIES

• Distribution of Total Outlay Changes Resulting From Legislative Changes in Programs Providing Benefits to Individuals
• Distribution of Average Per-Household Changes in Federal Outlays for Benefits to Individuals

In the last two years, major changes have been enacted in many of the human resources programs. These changes have affected both total program outlays and the numbers and types of families served by particular programs. This memorandum summarizes the effects of these changes, both for the budget and for families and individuals.

The focus of this analysis is the effect of program changes enacted from January 1981 through July 1983 in five major areas of the human resources budget:

• Retirement and disability programs,
  
  
• Other income security programs,
  
  
• Health care programs,
  
  
• Education and social services, and
  
  
• Employment programs.

Overall, the programs considered here account for 96 percent of human resources spending. For each area, the impacts of legislative changes on program outlays have been estimated by comparing the Congressional Budget Office's current projections with those that would have occurred under the laws in effect at the beginning of 1981. It should be noted, however, that the 1981 spending levels are not intended to represent optimal amounts, but rather what would have occurred if no policies had been changed. Both sets of projections have been prepared using the CBO's February 1983 economic assumptions, so that the effects of legislative changes may be seen without complications introduced by changing economic factors.

In addition to summarizing the effects of changes in particular programs, this memorandum also examines the overall impact on households in different income categories of the changes in programs providing benefits for individuals. In this part of the analysis, only those changes directly affecting specific households have been included. Thus, for example, changes in such programs as Social Security and Food Stamps, which provide benefits to identifiable individuals and families in the population, have been included in the estimates, but changes in grants-in-aid to state and local governments (other than individual assistance grants) have not. Because most education aid, social services, and employment services are provided through grants to states and localities, changes in these programs are for the most part included in the first part of this study only.

To estimate the impacts of the changes in benefit programs on households in different income categories, federal benefits have been valued at the cost to the federal government of providing them, which may either exaggerate or understate their value to individuals. This is especially likely for benefits provided in kind as goods and services, rather than in cash. A reduction in federal outlays for a health-care program, for example, may not reduce the perceived well-being of the recipients by the same amount as a reduction in cash benefits with equivalent federal savings.

In addition, the estimates of changes in benefits for households in different income categories represent averages over the entire income group. Within each category, some households will actually be affected by changes in many programs, while others will experience no changes. In fact, in all income categories many households receive no benefits. Therefore, the impacts of benefit reductions or increases on those who are affected will generally be larger than the averages for the entire income group suggest.

Further, the estimates presented here are for changes in federal spending only; they do not include the effects of the tax reductions and increases enacted over the last two years, nor do they reflect any change in state and local spending or taxes in response to the federal program changes. The federal tax reductions would raise after-tax incomes for some households in all income categories. For some income groups, particularly the higher-income ones, the tax reductions would more than offset benefit reductions, on average, while for other groups, average tax reductions would only partially offset average benefit cuts. In any event, the tax reductions would not necessarily affect the specific households whose benefits had been cut.

Finally, an important caution that applies to both parts of the study is that the estimates of projected changes in spending presented here do not include any macroeconomic impacts of either the tax or the spending changes enacted over the last two years. If the program changes taken together significantly raise the rate of economic growth and reduce unemployment, for example, then they would provide higher incomes that would to some extent offset the reductions in benefits.

The major conclusions of this study are:

• Spending for human resources programs has been reduced, in total, by about 7 percent relative to what it would have been under the laws existing at the beginning of 1981.
  
  
• Reductions differ markedly by program area. In percentage terms, they are largest for the employment programs, which have been reduced by almost 60 percent compared to what they would have been under prior law. The largest dollar savings over the 1982-1985 period will result from reductions in retirement and disability programs, other income security programs, and employment programs.
  
  
• Reductions in benefit payments for individuals will be greatest for households with incomes below $10,000. In 1984, for example, such households will lose an average of $430 in benefits relative to what they would have received under prior law, as compared to an average loss over all income categories of about $250.

The impacts of the legislative changes in human resources programs are outlined in the Summary Table for the major programs in each area. Federal savings resulting from reductions in retirement and disability programs, other income security programs, and employment programs are about the same magnitude, with projected savings in 1982-1985 exceeding $25 billion in each of these areas. Total reductions in outlays for human resources programs relative to prior law are projected to be about $110 billion over the fiscal year 1982-1985 period.

The largest percentage reductions, other than those in the employment programs, are projected in the area of education and social services, outlays for which have been reduced by almost 20 percent overall relative to prior law. Projected outlays for income security programs, excluding retirement and disability programs, have been reduced by about 10 percent, while projected health-care outlays have been cut about 5 percent and projected outlays for retirement and disability programs have fallen about 3 percent overall.

Within each area, the relative size of the changes varies by program. In the employment area, for example, the Public Service Employment program was eliminated, reducing projected outlays by about $17 billion, while projected outlays for the Job Corps have been reduced by about $145 million relative to what they would have been for the 1982-1985 period--a reduction of about 6 percent. Similarly, projected outlays for child nutrition programs are about 28 percent lower than they would have been under prior law, while outlays for the Supplemental Feeding Program for Women, Infants, and Children (WIC) have been increased slightly. The only other major human resources program to experience a net increase in projected outlays as a result of legislative action in this period is the Supplemental Security Income (SSI) program, which provides means-tested benefits for aged, disabled, and blind persons. Its outlays are projected to be about 4 percent higher than they would have been under prior law, largely as a result of a benefit increase enacted as part of the Social Security Amendments of 1983.

The changes in projected outlays will also have different effects on households with different incomes. Overall, about 40 percent of the federal savings from changes in benefit programs are projected to result from reductions affecting households with 1982 incomes of less than $10,000--who make up about 23 percent of the population--and another 30 percent will come from reductions affecting households with incomes between $10,000 and $20,000--about 25 percent of the population. Reductions in cash benefits will account for about 60 percent of the total savings from reductions in benefits for individuals, with the remainder coming from in-kind benefits.

Average reductions in benefits per household are also projected to be greater for households in the below $10,000 income category than for any other group. In 1984, for example, the average reduction in benefits going to this group is projected to be about $430, compared to an average reduction of about $300 for those with incomes between $10,000 and $20,000. Reductions for the households in higher income categories are projected to range from $140 to $170 per household.

This document is available in its entirety in PDF.