About one in every five dollars that passes through the federal welfare system ends up right back where it started, according to a new report. It’s not robbing Peter to pay Paul. It’s more like “robbing Peter to pay Peter,” wrote the report’s author, Judge Glock, director of research at the Manhattan Institute.

As the federal welfare state has expanded to the point where many middle-class and even upper-income households receive benefits, it has become more typical for the same households to pay federal taxes while also receiving federal transfer payments. Glock’s study demonstrates how big this overlap is: almost 20% of the annual money in the federal welfare system are simply returned to households that paid that amount of federal taxes.

And, if you exclude households receiving Social Security—the largest federal welfare program, despite being rarely characterized as such—the percentage of welfare benefits canceled out by taxes in the same year is 29 percent, according to Glock’s research.

It appears that those people and families would be better off paying less in taxes in the first place.

“Such a system of taxing and returning the same amount of money is a pure waste,” Glock stated, “since both the taxes and transfers limit households’ options, and there is a bureaucratic cost to circulating income from households to the government and back to households.”

Economically, the transfers and taxes essentially cancel each other out, leaving people no worse off (on a balance sheet) than if the money had never been taken by the government and returned.

Glock argues that perspective is missing some important, but often overlooked, details. Dollars returned in the form of welfare transfers are often restricted—food stamps can only be used for certain purchases, for example—in ways that dollars never taxed away from someone’s paycheck aren’t. Or the funds might only be available at certain times of the year, as is the case with welfare delivered via refundable tax credits. There’s also the cost of cycling that money through the system: paying for the IRS to collect it and various bureaucrats in other places to oversee its return.

Because of the size of the federal welfare state, that 20 percent represents a huge amount of money being returned to the same households that paid it. In 2022, those so-called netting taxes would have been equal to about $800 billion, or 3 percent of gross domestic product, Gluck calculated.

This relationship between federal taxes and the federal welfare state has little relevance for the most recent effort to expand the welfare state. Congress is currently working on a plan to expand the child tax credit program to make it fully refundable for low-income parents who do not qualify for the full amount of the tax credit under current law.

As it currently stands, a single mother with three kids who earns $10,000 annually gets a refundable tax credit (which is really a transfer payment) of $1,250 while a mother with three kids who earns $150,000 can qualify for a $6,000 tax credit, as The Washington Post noted. The proposed change wouldn’t affect the wealthier parent, but would allow the poorer mother to collect $3,750 instead.

The mother earning only $10,000 is unlikely to owe any federal income taxes, so increasing transfer payments to her doesn’t increase the amount of “netted” taxes. However, the wealthier mother is a good example of Glock’s point in a different context. When the per-child tax credit was temporarily expanded to $3,000 per child during the pandemic, even for families earning six figures, those extra payments were delivered in the form of checks. In many cases, the federal government was simply returning funds that those same families paid in taxes throughout the year.

The same is likely to be true of any other expansion of welfare programs to middle- and upper-income households.

Read Also: Do I Have to Pay State and Federal Taxes on my Pension?

“A large welfare state inevitably ends up taking from the same people it supports,” Glock tells Reason, “and the larger the welfare state gets, the more it will do so.”

Where Tax Dollars are Spent

The federal government collects taxes, which are then distributed by Congress to pay various government programs. When the budget exceeds tax income, the government usually borrows money. A considerable portion of the budget is allocated to the same government programs year after year, making the approximate percentage of the budget spent on those programs easier to forecast.

Defense

Approximately 20 percent of the federal budget is spent on defense and security. Most of that 20 percent is for the Department of Defense, which covers the cost of military operations, troop training, equipment, and weapons research. Defense and security spending also includes funding for the Department of Homeland Security and the Transportation Security Administration.

Social Security

Social Security accounts for roughly 20 percent of the budget. It provides benefits to workers who have paid into the system and have reached an established retirement age. Additionally, Social Security pays benefits to disabled workers who can no longer work or have limited income and resources. It also pays survivor benefits to the spouses and children of workers who have died.

Health care

Medicare, the Children’s Health Insurance Program (CHIP) and Medicaid account for another 20 percent of the federal budget. Almost two-thirds of the 20 percent is spent on Medicare. Medicare provides health coverage to qualifying people 65 and older, and to those with disabilities that leave them unable to work. The CHIP and Medicaid programs pay health care costs for those who meet low-income guidelines.

Public assistance and interest payments

Roughly 14 percent of the budget provides assistance to families and individuals in need. This includes refundable tax credits, Supplemental Security Income, Supplemental Nutritional Assistance Program (SNAP), low-income housing and school meals. Additionally, some of the tax money pays interest payments on the national debt, the money borrowed by the federal government to pay its expenses. In recent history, interest on the national debt has taken almost 10 percent of the annual budget.

The rest of the money

The remaining part of the budget provides for a variety of programs, such as benefits for retired veterans and federal employees, investments in scientific and medical research, international aid, and infrastructure such as federal roads and airports.

How Much Does the US Pay in Welfare a Year?

In fiscal year 2022, the federal government spent $1.19 trillion on more than 80 different welfare programs. That represents almost 20% of total federal spending and a quarter of tax revenues in 2022 or $9,000 spent per American household. The Biden Budget proposes more than $2.6 trillion in new entitlement program spending, 3% of total spending and 4% of revenues, adding to the already unsustainable debt trajectory and further fueling inflation. 

Biden’s massive entitlement expansion will add trillions to CBO’s current baseline, which projects $12.7 trillion in spending on these programs over the FY 2024-2033 budget window.

Biden Budget Expands Entitlements (outlays in billions of dollars)
Child Tax Credit Expansion for Three Years	$469.9
Government Child Care	$424.3
Government Paid Family Leave	$325.0
Government Preschool	$200.0
Force States to Expand Medicaid	$200.0
Expand Indian Health Service	$185.3
Medicaid Home and Community-Based Care Services	$150.0
Expand EITC	$136.7
Expand Obamacare Subsidies	$130.0
Double Pell Grant	$96.1
“Free” Community College	$90.0
Expand Housing Subsidies	$60.0
Public Health	$43.3
Behavioral Health	$41.1
“Equity”-Based Tuition Subsidies	$30.5
Expand School Meal Subsidies	$14.6
Extend Trade Adjustment Assistance	$2.0
Medicaid Nutrition Coverage	$1.7
Total	$2,600.5

11.1 Million More People on Medicaid

• Since President Biden took office in January of 2021, Medicaid enrollment has grown by 11.1 million individuals, while annual Medicaid spending has increased by $69 billion or 13%.
• The Biden Administration has extended the Public Health Emergency six times despite COVID-19 infection rates dramatically dropping. The Biden Administration estimated that 9.5 percent of Medicaid enrollees (8.2 million) are currently enrolled but do not meet eligibility requirements.
• Biden’s FY2024 Budget proposes more than $200 billion in new spending to expand Medicaid, with no improvements, and no flexibility for states to meet the needs of their Medicare populations.  

6.6 Million More People on Obamacare

• Since President Biden took office in January of 2021, Obamacare enrollment has grown by 6.6 million individuals, including people whose income exceeds Obamacare’s original limits.
• Biden’s 2021 partisan American Rescue Plan (ARP) spent nearly $35 billion to temporarily expand Obamacare subsidies of which $22.5 billion went to individuals who already had subsidized Obamacare coverage and $13 billion went to new Obamacare enrollees, including our nation’s highest earners with income well over 400% of the Federal poverty level (FPL).
  • Biden’s 2022 so-called Inflation Reduction Act extended these Obamacare subsidies for three years, at the cost of $64 billion. Just 4.6% of previously uninsured Americans are estimated to gain coverage from the expanded Obamacare subsidies.
• Biden’s FY2024 Budget proposes to make permanent these increased Obamacare subsidies, doubling down on a government-run healthcare system that failed to lower costs, increase access, and improve outcomes – costing taxpayers over $183 billion, and further fueling inflation. 
• Additionally, Biden’s unlawful reinterpretation of the original Affordable Care Act statute incentivizes employers to reduce or eliminate their contributions to dependent coverage.
  • CBO projected that Biden’s regulatory action would increase the deficit by $34 billion and transition 600,000 individuals who already have employer-sponsored coverage onto Obamacare.

Expanding Welfare Without Work 

• President Biden’s 2024 budget continues his Administration’s disturbing trend of discouraging work. The Biden Budget proposes resurrecting the expanded Child Tax Credit spending program from the ARP, radically changing the long-standing, bipartisan Child Tax Credit by removing work requirements and turning it into an unconditional cash payment per child.
• This policy would cost taxpayers an astonishing cost of $429 billion despite only expanding for just three years. However, the removal of work requirements would be a permanent policy.
• If the policy was made permanent, the Joint Committee on Taxation (JCT) analysis projects, over the next decade, these expanded entitlement programs would:
  • Cost taxpayers $1.4 trillion over the next decade,
  • Shrink the economy by $50 billion,
  • Lead to a $19 billion loss of private-sector investment,
  • Sideline 300,000 workers, pushing more Americans on welfare dependence.
• Biden discourages work at precisely the wrong time:
  • There are 2.8 million fewer people working today than before the pandemic despite nearly 11 million job openings for 5.7 million unemployed individuals. That is a ratio of almost two jobs open per unemployed person.

Billions of Taxpayer Dollars Wasted on Fraud and Abuse

In 2021, according to the Government Accountability Office, the government spent at least $279 billion in known improper payments – an 8.6% improper payment rate – equivalent to more than $2,000 per household. The vast majority of those improper payments are concentrated in welfare programs.

• According to the Centers for Medicare and Medicaid Services (CMS), The 2022 Medicaid improper payment rate was 15.62%, or $80.57 billion (it was over 21.7% in 2021). In addition, for CHIP, the 2022 improper payment rate was 26.75%, or $4.30 billion (it was over 31.8% in 2021).
• As for Food Stamps, a 2019 report by the Governmental Accountability Office estimates fraud could cost taxpayers anywhere from “$960 million to 4.7 billion.”
• In 2021, the Child Tax Credit cash grants had a 13% improper payment rate, costing taxpayers more than $5.2 billion. The IRS projects that 28 percent of Earned Income Tax Credits are improperly paid.
• A January 2023 Government Accountability Office report suggested at least $60 billion was lost to fraudulent Unemployment Insurance payments since the start of the pandemic. Some estimates by outside experts say as much as $400 billion, or nearly half, of unemployment benefits paid during the pandemic may have been stolen.
• Improper payment rates by program:
  • Medicaid: 15.6% – $81 billion
  • CHIP: 27% – $4.3 billion
  • Child Tax Credit: 13% – $5.2 billion
  • COVID Unemployment Insurance: nearly 50% – $400 billion
  • Food Stamps: 6.18% – $960 million – $4.7 billion

Who Pays for Welfare in the US?

The term welfare refers to a variety of government initiatives that offer financial or other assistance to individuals or groups who are unable to maintain themselves. Welfare programs are typically supported by taxpayers and help people deal with financial stress at difficult times in their lives. Most welfare recipients receive biweekly or monthly payments. The purposes of welfare differ, but all aim to encourage the pursuit of job, education, or, in some cases, a higher level of living.

Social welfare systems assist individuals and families through health care, food assistance, unemployment compensation, housing assistance, and child care assistance. In the U.S., a caseworker is assigned to each individual or family applying for housing benefits to determine and confirm the applicant’s needs.

The benefits available to an individual vary by state. Eligibility is determined based on factors surrounding the person’s financial status and its relation to the minimum acceptable levels within a particular state. The factors involved can include the family unit’s size, current income levels, or an assessed disability.

Social welfare systems may go by different names within each state, but they often serve similar functions. This can cause confusion when attempting to compare one state’s program to another. Additionally, the requirements to qualify also vary, depending on the poverty line in a particular state. This allows for adjustments based on the cost of living that isn’t based on one standard.

An individual who is on welfare is usually provided free or deeply discounted goods and services. The government requires that individuals or families seeking assistance must prove that their annual income falls below the federal poverty level (FPL). The FPL is an economic measure of income used to determine whether an individual or family qualifies for certain subsidies or aid.

The 2023 poverty guideline for one person is $14,580 and $30,000 for a family of four.

Welfare programs are initiatives set up by the government to support poor, developmentally challenged, and disadvantaged groups. Compared to other developed countries, the U.S. provides a relatively small social safety net and has fewer welfare programs available, and with greater restrictions.

The history of welfare programs in the United States is complex and controversial in some circles of politics. In the 1960s, President Lyndon Johnson created programs like Head Start, food stamps, and Medicare. All of these programs were designed to fight what he called “the war on poverty” in America. Former President Richard Nixon was responsible for spearheading the Family Assistance Plan.

Fast-forward to the 1980s, former president Ronald Regan slashed welfare budget programs designed to help families and created “welfare to work” programs instituted in 40 states during the 1980s. In 1996 welfare reform legislation focused on shifting responsibility to welfare participants and advocating work over general assistance. In the 21st century, welfare reform and assistance programs continue to expand and change under President Joe Biden’s leadership.

There are seven major welfare programs in America, they include:

• Medicaid
• Supplemental Security Income (SSI)
• Supplemental Nutrition Assistance Program (SNAP)
• Child’s Health Insurance Program (CHIP)
• Temporary Assistance to Needy Families
• housing assistance
• Earned Income Tax Credit (EITC)

Bottom Line

Welfare encompasses a range of government programs designed for individuals and families who do not make enough money to have a decent standard of living. Housing, food, medical care, and financial assistance for daily life are all provided by different social welfare programs.

Welfare programs are funded by taxpayers and help those in need cope with financial stress and hardship. Recipients often receive biweekly or monthly payments in the form of food stamps, vouchers, or, in some cases, direct payments. The goal of welfare is to support families and individuals in need as they work towards a more secure financial life.