CHAMPAIGN, Ill. -- Slashing government funding for Medicaid, food stamps and other programs that serve the poor - while politically popular with some lawmakers and many conservatives - may do more harm than good to the economy and cost taxpayers more in the long run, suggests a report by researchers at the University of Illinois.
Government spending on public benefits programs promotes economic well-being in several ways - stimulating local, state and national economies; creating jobs; generating tax revenue and increasing economic security, the researchers found.
A team led by Mary Keegan Eamon , a faculty member in the School of Social Work , analyzed studies on the four main types of public benefits programs - cash assistance, public health insurance, food assistance and public housing - provided to low-income households in the U.S. and the advantages these programs accrue to non-recipients.
Federal and state lawmakers are considering multibillion-dollar cuts to programs for the poor, including the Supplemental Nutrition Assistance Program, formerly known as food stamps, in attempts to reign in the national debt and states’ budgetary shortfalls.
However, focusing on direct expenditures alone ignores the cost savings these programs provide to taxpayers and the private sector, especially over the long term, Eamon said.
As an example, Eamon pointed to the Supplemental Nutrition Program for Women, Infants and Children, which serves 9 million low-income women and children each month and is among the federal programs targeted for significant cuts in the coming fiscal year. By providing nutritious food and medical care, the program prevents low-birth-weight babies, significantly reducing Medicaid costs and expenditures for services related to developmental problems caused by nutritional deficiencies.
“We spend less on Supplemental Security Income for disabled children, hospital costs during the baby’s first few months, educational modifiers and other types of programs that are the result of the baby and its mother not having the nutrients and medical care that they needed prenatally,” Eamon said.
A cost-benefit analysis by the U.S. General Accounting Office in 1992 found that each federal dollar spent on WIC returns an estimated $3.50 to federal, state, and local governments and private payers - saving an estimated $1 billion over 18 years.
Expenditures on public benefits programs - public health insurance, public housing, food programs and the Earned Income Tax credit for low-income workers - have been linked by numerous researchers to increases in state and/or local tax revenue and economic activity. Increased consumer spending and economic activity from receipt of public benefits positively affect employment, increase earnings and enhance property values, even in more affluent neighborhoods, indirectly benefitting non-recipients.
Spending cutbacks work in reverse - costing jobs and depressing wages and property values.
A recent analysis indicated that state Medicaid expenditures - along with federal matching funds - generated about 3.4 million jobs and wages of more than $133 billion during Fiscal Year 2005. Increases in the Earned Income Tax Credit also create jobs, studies indicate.