Multiple Budget Functions
Reduce Spending on Other Mandatory Programs
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
|Billions of Dollars||2023||2024||2025||2026||2027||2028||2029||2030||2031||2032||2023–
|Total Change in Mandatory Outlays||-1||-49||-60||-62||-64||-69||-64||-69||-71||-73||-236||-580|
|Change in outlays for VA disability compensation||0||-17||-26||-27||-28||-31||-27||-31||-32||-33||-98||-253|
|Change in outlays for income security programs||-1||-31||-34||-35||-36||-37||-36||-38||-39||-39||-138||-327|
Mandatory spending on programs other than Social Security and the major health care programs (referred to as other mandatory spending in this option) accounted for 50 percent of mandatory outlays and 36 percent of all outlays in 2021. Most of the outlays for other mandatory programs in that year were for temporary programs (or temporary expansions to existing programs) established in response to the coronavirus pandemic. In 2019, before the establishment of those temporary programs, other mandatory spending accounted for 21 percent of mandatory outlays and 13 percent of total outlays. The Congressional Budget Office projects that, under current law, such spending would decline to 15 percent of mandatory outlays and 9 percent of total outlays by 2032.
Other mandatory spending consists of spending on a variety of programs, including those focused on income security (such as the Supplemental Nutrition Assistance Program, or SNAP; the Supplemental Security Income program, or SSI; and refundable portions of the earned income tax credit and the child tax credit), retirement benefits for federal employees, and some benefits for veterans. Many of those programs are funded by general revenues, although some programs are paid for, in part, through revenues dedicated to trust funds that support those programs.
Under this option, spending for certain large mandatory programs without dedicated trust funds would be reduced. Specifically, this option would reduce spending on the two components of such spending that are projected to be the largest over the 2023–2032 period: disability compensation paid by the Department of Veterans Affairs (VA) and income security programs. For VA disability compensation, the reduction would be achieved by applying a means test to VA disability payments (that is, by limiting eligibility for households with higher income). For income security programs, this option would involve a 15 percent reduction in spending that could be achieved in different ways. Refundable tax credits and unemployment compensation would not be affected.
In CBO's estimation, this option would reduce the federal deficit by $580 billion over the 2023–2032 period. The change to VA disability compensation would reduce outlays by $253 billion, or 17 percent. Reducing spending on income security programs by 15 percent would save $327 billion from 2023 to 2032, CBO estimates. The total reduction would amount to 1.3 percent of total mandatory spending and 8.8 percent of other mandatory spending in 2032 in CBO's baseline; over the 2023–2032 period, they would equal 1.3 percent of total mandatory spending and 7.4 percent of other mandatory spending in the baseline.
Means-Test VA Disability Compensation for Veterans With Higher Income
In 2021, 5.2 million veterans received disability compensation from VA because of medical conditions or injuries that occurred or worsened during active-duty service; about 280,000 of them received compensation for the first time that year. Service-connected disabilities vary widely in severity and type and include the loss of a limb, anxiety, and hearing loss. VA determines whether a veteran has a service-connected disability and assigns a rating to each condition on the basis of the severity of the disability from zero (little or no impairment) to 100 percent (highest impairment) in increments of 10. The amount of base compensation veterans receive depends on their combined (overall) rating. VA disability compensation is tax free, indexed to inflation, and—with some exceptions—continues in the form of a monthly annuity for the rest of the veteran's life. In calendar year 2022, base compensation rates ranged from $150 to $3,330 per month.
According to federal law, the Secretary of Veterans Affairs "shall adopt and apply a schedule of ratings of reductions in earning capacity from specific injuries or combination of injuries. The ratings shall be based, as far as practicable, upon the average impairments of earning capacity resulting from such injuries in civil occupations." (See 38 U.S. §1155.) The current system of ratings is generally based on physicians' and lawyers' judgments made in 1945 about the effects of service-connected conditions on jobs requiring manual or physical labor. In practice, those effects were estimates of the earnings that veterans were expected to lose in the civilian labor market for a given service-connected disability, on average, and were not linked to the specific labor market experience of the person receiving the rating. Ratings for many medical conditions have not changed since then. In those cases, advances in medical technology and changes in the economy may not be reflected in the ratings.
VA disability compensation is structured differently than disability compensation for people who are not veterans. Veterans who work remain eligible for payments; most working-age veterans who receive VA disability compensation are in the labor force. By contrast, Social Security Disability Insurance pays cash benefits only to adults who are judged to be unable to perform "substantial gainful activity" and sharply limits the income recipients can earn without losing benefits.
VA disability compensation has increased substantially faster than inflation, both in total spending and on a per-recipient basis, a trend that CBO expects to continue. In 2021, VA paid about $110 billion in disability benefits, four times the amount that it paid in 2000 (after removing the effects of inflation), even though the number of veterans in the United States declined by more than 30 percent, from about 26 million to 19 million. Spending per recipient (after removing the effects of inflation) rose from about $11,000 in 2000 to nearly $22,000 in 2021.
Lawmakers could make several structural changes to VA's disability compensation program to limit future spending growth on the program. This option focuses on one approach: means-testing VA disability compensation.
Option Component. Under this option, VA would means-test all current and prospective recipients of VA disability compensation beginning in January 2024; after that date, veterans would receive full payments only if their gross household income in the prior calendar year was less than an inflation-indexed threshold for that year. Disability benefits would be phased out at a constant rate for veterans with income above the threshold: For every additional two dollars of gross household income, disability compensation would decrease by one dollar. Under that phaseout, veterans whose gross household income was $170,000 or higher in calendar year 2023 and who would have received the average annual payment would no longer receive any disability compensation from VA in calendar year 2024. There would be no adjustment in the income threshold for household size. The current eligibility requirements and benefits would not change for the surviving family members of a veteran or service member.
The income threshold below which veterans would receive full benefits in 2024 would be set at $125,000. That threshold corresponds to the 70th percentile of total household income for the entire country in 2019, according to data from the U.S. Census Bureau, with adjustments for inflation to reach the threshold value applicable to 2024 benefits. Roughly 1.5 million of the 5 million veterans receiving disability compensation had household income that exceeded the 70th percentile of income in the United States in 2019, excluding VA disability payments. (That value is also roughly triple the VA national income threshold, one of several limits VA uses to determine if veterans without special eligibility factors qualify for VA-provided health care.) After 2024, the threshold would rise with the consumer price index for urban wage earners and clerical workers.
For this component, gross household income is defined as the income (before deductions) received by the veteran, his or her spouse, and any dependents in the prior calendar year. Income includes wages and salaries as well as unearned income, such as Social Security benefits, investment income, or withdrawals from a retirement account, but excludes VA disability payments. Household income would be used to determine eligibility rather than individual income because household income is a more comprehensive assessment of all the financial resources available to a veteran.
To determine eligibility for disability compensation, income could be reported by the veteran, by other government agencies, or by a combination of sources. Similar to what it does for veterans who qualify for health care based on low income, VA could require veterans to submit a financial assessment to determine initial eligibility for disability compensation payments. Regardless of how income was reported, veterans would receive notice of any changes in payments and could appeal VA's determination. Verifying household income in the prior year would take time, and any adjustment to that measure of income could result in the need for VA to provide additional payments or recover overpayments.
Effects on the Budget. CBO estimates that reducing or eliminating VA disability benefits for households whose gross household income exceeded the threshold would lower mandatory spending by $253 billion between 2023 and 2032 relative to CBO's baseline. In 2024, the number of veterans who would no longer receive any payments would total 1 million, and the number receiving reduced benefits would equal about 500,000, CBO estimates. Those numbers would increase to 1.1 million and 550,000 veterans in 2032, respectively. Savings would total $33 billion in that year, a reduction of 19 percent in the program's spending.
CBO's estimates are based on two primary inputs. One is CBO's analysis of the distribution of household income for veterans receiving disability income. That analysis draws upon national survey data, which rely on respondents' self-reported income in 2019. The second input is CBO's analysis of the historical rates of growth in the number of recipients of VA disability compensation and in payments per recipient.
Uncertainty About the Budgetary Effects. CBO's estimate is uncertain for three main reasons. First, the national survey measure of household income may differ from VA's measure of gross household income because of differences in how income is measured—for example, the survey includes only regular sources of income, so it might understate household income—and because the survey data depend on respondents' recall and willingness to report income accurately. As a result, the actual percentage of veterans in households with income exceeding the threshold could be smaller or larger than CBO estimates. Second, the estimate relies on CBO's projections of the veteran population and disability compensation payments, which are inherently uncertain. Third, some veterans may choose to forgo disability payments because they would have to submit an income statement to VA when applying for benefits; if some veterans did so, outlays would decrease by more than CBO estimates. Because no veterans are currently required to submit an income statement to receive disability compensation and because of the unique properties of the program, there is no strong basis for determining how many veterans would opt out of receiving those payments.
Distributional Effects. Veterans in households with higher income would have less income after accounting for reductions in or the elimination of disability compensation benefits. Those reductions would vary considerably depending on the veteran's disability rating and income. Veterans in households with lower income would be unaffected.
Economic Effects. In addition to having the effects reflected in conventional budget estimates, such as the ones shown above, means-testing VA disability compensation could affect veterans' decisions about working, saving, and investing. Economywide, those effects would probably be small. Some people in households with income above the threshold might change how and to what extent they participate in the labor market—either by reducing their number of hours or weeks worked or by dropping out of the labor force—to keep full VA disability payments. That outcome would be more likely to occur if a member of the household already worked part-time or otherwise had low earnings. Other people might choose to work more to make up for lost VA income. Certain veterans would be especially unlikely to change their participation in the labor market: About 20 percent of veterans collecting VA disability compensation with household income exceeding the threshold in 2019 had a head of household who was 65 or older and was not employed.
Households that lost VA payments might save or spend less than they did before means-testing was implemented, particularly those households with higher income who previously received relatively large benefits. Veterans in higher-income households with low disability ratings and, therefore, relatively small payments, would be unlikely to change their behavior.
Other Considerations. VA's disability program could be considered compensation that recognizes the hardships of military service and special risks faced by service members. The program could also provide compensation for a diminished quality of life as a result of service-connected injuries. Such considerations could suggest that VA disability compensation be paid regardless of financial need.
There are other approaches to applying a means test to the VA disability compensation program, and they would have different effects than the ones outlined here. For example, means-testing could apply only to newly eligible veterans. Under that alternative, the savings over the 2023–2032 period would be much smaller, at $50 billion, but over a longer term, the annual savings for a policy that applied only to newly eligible veterans would approach the savings for a policy that applied to all veterans. Lawmakers could also decide to exclude from means-testing veterans with certain types of injuries or disability ratings or those of particular ages.
Applying a means test using the wages and salaries of the veterans rather than household income might better target benefits to veterans who have experienced a reduction in earnings. However, focusing on wages and salaries would deviate from the approach that VA currently uses to means-test for health care benefits. Additionally, means-testing earnings could have a disparate impact on certain groups of veterans. For instance, veterans who rely on earnings would be more likely to have a reduction in VA payments than older veterans who no longer work.
No matter how a means test was applied, it would be new for the Veterans Benefits Administration, the branch of VA that administers compensation programs, and it would create new administrative responsibilities. It is likely, however, that because VA has experience processing means-testing forms and determining eligibility (through the Veterans Health Administration), instituting similar procedures for disability compensation would be less difficult and less costly than if VA did not have such a system in place for health care. Managing overpayments and underpayments would also impose additional administrative costs on VA.
Reduce Spending on Income Security Programs
Numerous federal programs provide cash payments and in-kind benefits to enhance the security of people's income and alleviate some of the adverse consequences of having low income. This option component focuses on income security programs that do not affect revenues and do not have a dedicated trust fund.
The two largest programs affected under this option are the Supplemental Nutrition Assistance Program and Supplemental Security Income program, both of which are means tested. SNAP provides benefits to low-income households for the purchase of food, and SSI provides cash payments to people who are aged or disabled and who have low income and few assets.
The other income security programs that this option would trim are those that support foster care, those that provide family support, and those that provide child nutrition. Foster care and related programs partially reimburse states for the cost of providing foster care, adoption assistance, and kinship guardian assistance to children. Family support programs include Temporary Assistance for Needy Families, Child Support Enforcement, Child Care Entitlement to States, and other technical assistance, which fund a broad array of services for children and their parents. Child nutrition programs include the National School Lunch Program, the School Breakfast Program, the Child and Adult Care Food Program, the Summer Food Service Program, and the Special Milk Program, through which the government provides commodities and cash payments to reimburse participating schools and institutions for at least part of the cost of meals served to school-age children.
The option would not reduce spending on income security provided through the tax system. As a result, it would not reduce outlays for the refundable portions of the earned income tax credit or the child tax credit. The option also would not trim unemployment compensation because part of that program's financing comes from taxes dedicated to the program.
Spending on SNAP grew from $63 billion in 2019 to $149 billion in 2022 because of increased participation and actions taken by policymakers. The maximum benefit amounts for SNAP are determined by the price of the Thrifty Food Plan (TFP), a basket of foods selected by the Department of Agriculture that would provide a nutritious diet for a household of a particular size. The Department of Agriculture recently reevaluated the TFP, and, largely as a result of that reevaluation, the price of the TFP was about 23 percent higher in 2022 than it was in 2021. In addition, CBO projects that many SNAP participants will continue to receive emergency allotments as authorized by the Families First Coronavirus Response Act (Public Law 116-127) until the month following the end of the public health emergency declared because of the coronavirus pandemic. In CBO's May 2022 projections, the public health emergency ends in July 2023, and thus the emergency allotments would conclude in August 2023. The Pandemic Electronic Benefit Transfer program will also continue to add to spending on SNAP into 2023, CBO projects. Because of the expiration of those temporary allotments and an anticipated decline in participation, spending on SNAP is projected to fall from $140 billion in 2023 to $110 billion in 2024.
The other programs affected by this option component are smaller than SNAP. SSI is the second largest program: Spending held steady at about $60 billion per year from 2019 through 2022. Spending for programs that support foster care, provide family support, and provide child nutrition assistance rose from a total of $55 billion in 2019 to a total of $68 billion in 2022. That increase in spending was driven by pandemic-related policies.
In an average month during recent years, about 40 million people received assistance with purchasing food through SNAP, and about 8 million people received cash payments from the federal government through SSI. Under current law, the maximum monthly SNAP benefit in 2022 was $250 for a person living alone (excluding the emergency allotments that will expire once the current public health emergency declaration is lifted) in the contiguous 48 states and the District of Columbia. The maximum monthly SSI benefit is $841 for an individual in calendar year 2022. To be eligible for those benefits, people must have low income. As a result, the benefits received from income security programs are often a major source of income for recipients. Additionally, the amount of benefits received generally declines if earnings increase, which can deter recipients from working.
Option Component. This option would reduce the amount of mandatory federal funding for most income security programs by 15 percent. Most of those changes would take effect in October 2023. Changes to child nutrition programs would take place in July 2023 to coincide with the beginning of the school year.
Many approaches could be used to reduce spending by 15 percent. For programs for which federal law specifies eligibility criteria and benefit amounts, such as SNAP and SSI, spending could be reduced by tightening eligibility criteria, which would reduce the number of recipients. Alternatively, the reduction in spending could be achieved through a broader decrease in benefits levels and administrative costs.
Effects on the Budget. CBO estimates that cutting income security programs by 15 percent would reduce mandatory spending by $327 billion between 2023 and 2032. The estimated savings associated with other percentage reductions would be proportional to the size of the reduction. For example, if spending was reduced by 30 percent, the savings would double.
Uncertainty About the Budgetary Effects. The main source of uncertainty in the estimate over the next 10 years is the unpredictability of the number of people who will receive benefits from income security programs. Program participation depends on the number of people who meet the eligibility criteria and the percentage of those eligible people who apply, both of which are difficult to estimate accurately. For example, if participation in SNAP and SSI exceeded CBO's projections, then reductions to the benefits those programs provide per recipient would reduce spending more than CBO estimates because the costs of the programs would be larger than CBO projects.
Distributional Effects. Many of the programs included in this component are available only to people with income below a certain threshold, so households toward the bottom of the income distribution would see the largest decreases in average household income. For example, for SNAP, states must set their gross income limit no higher than 200 percent of the federal poverty guidelines, and many households have no cash income in the months they receive SNAP benefits. (Households with elderly or disabled members face different eligibility criteria.)
Economic Effects. In addition to having the effects reflected in conventional budget estimates, such as the ones shown above, reducing benefits for income security programs would affect the economy's output through several channels. During the first few years, overall demand would fall because beneficiaries would have less income to spend, which would reduce the economy's output. That reduction would be partially offset by an expansion of the labor supply; the benefit reductions would cause some people to work more and some to remain in the labor force longer than they would have otherwise. The loss of economic output from beneficiaries' spending less would dissipate in the longer term, but the expansion of the labor supply would continue to boost economic output.
Other Considerations. This component could lead to worse health outcomes, long-term reductions in earnings, and more crime. Researchers have found evidence that SNAP benefits lead to higher birthweights and better health in adulthood for child recipients. For females, receiving SNAP benefits during early childhood also appears to increase earnings in adulthood. (Those gains would not occur within the next 10 years.) Finally, recent research indicates that providing benefits through SNAP or SSI reduces the likelihood of the recipients' committing financially motivated crimes.