The U.S. Social Security Administration defines social welfare expenditures as the cost of "cash benefits, services, and the administration of public programs that directly benefit individuals and families." This broad definition includes expenditures for social security (Old-Age, Survivor's, Disability, and Health Insurance, or OASDHI), health and medical programs, education, housing, veterans' programs, and public aid programs.
In fiscal year 2000 (the last year for which combined information on social welfare expenditures from all sources is available) federal, state, and local governments spent about $1.01 trillion on social welfare programs. According to the Treasury Department's 2002 Financial Report of the U.S. Government, the total expenditure for social welfare in 2002 was slightly over 4 percent of the gross domestic product (GDP), the monetary total of the domestic goods and services produced by the United States. This reflects a drop of nearly one full percentage point since 1980 and about .75 percent since the early 1990s.
While the Social Security Administration uses a broad definition of social welfare to categorize public expenditures, public welfare, or public aid, is generally taken to refer to cash or noncash assistance for low-income persons. This narrower definition excludes social insurance programs such as Social Security and Medicare, which are considered entitlement programs—that is, programs to which people have a right because of contributions they have made from their earnings.
In 2000 about 56 percent of social welfare expenditures was dedicated to such entitlements as Social Security and Medicare. About 43 percent of social welfare spending was directed toward means-tested programs, including Medicaid and Temporary Assistance for Needy Families (TANF). This volume focuses on welfare programs that provide benefits or services to persons who are determined to be eligible based on a test of their income or "means."
The federal government accounted for about 70 percent of total means-tested spending on social welfare, while state and local governments were responsible for the remaining 30 percent of means-tested expenditures in 2000. The proportion of expenditures at the federal and state level in each category of spending was very different, however. Outlays for medical benefits, primarily Medicaid, made up nearly half (43 percent) of federal welfare spending and about three-fourths (72 percent) of state and local welfare spending. On the other hand, expenditures on food assistance accounted for a little over 10 percent of the total federal welfare spending, while only 1.7 percent of state and local welfare costs funded food assistance programs. (See Table 1.1.)
Federal social welfare expenditures remained relatively stable from 1980 to 2002, making up between 49 and 60 percent of all federal spending. However, expenditures on social welfare have been increasing as a percentage of state and local government costs. State and local spending for social welfare programs continued to increase into the early twenty-first century. This constant rise in costs was a major reason for the severe budget problems faced by local and state governments during the early 1990s. The problem was relieved somewhat by the strong economy of the mid-1990s, which helped the states to absorb these costs. When the economy began to weaken in 2000, however, the problem resurfaced. In 2002 public assistance, Medicaid, and other social welfare programs accounted for about a third of all state outlays.