In all the talk about cutting Social Security and other board entitlement programs that are the bedrock of the federal budget, one important fact has been lost sight of: these programs are not just burdens on taxpayers.
They are important sources of income to about one American out of every four. Federal or federal-state income maintenance programs such as welfare, Social Security, veterans' benefits and unemployment insurance make up nearly 14 percent of personal income in America.
The growth of these programs has helped to reduce the proportion of people below the poverty line from 22.4 percent two decades ago to 11.6 percent in 1979, and any large cut would almost certainly reverse that downward trend, plunging more people into poverty.
Today there are 25,214,000 people in the United States below the poverty line, which the government calculates at about $3,600 annual income for a single person and $7,400 for a family of four.
But at least 1.9 million additional Americans would be thrown below the poverty line if real benefit levels in six major public income-support programs were cut 10 percent, according to computer calculations by a leading economic analysis unit here.
If this occurred, the portion of the U.S. population below the poverty line would jump to 12.5 percent.
The calculations assumed a 10 percent benefit cut across the board in Social Security, aid to families with dependent children (AFDC), welfare for the aged, blind and disabled (supplemental security income or SSI), unemployment insurance, veterans' pensions and federal employe pensions.
Neither President Reagan nor congressional leaders have proposed exactly this, but discussions on Capitol Hill and in the Office of Management and Budget suggest there may eventually be sizable reductions in several of these programs.
The calculations obtained by The Washington Post showed that even if the 10 percent cut were restricted to only three programs -- Social Security, AFDC and SSI -- the number of people in poverty would rise over 1.6 million and the poverty level would jump to 12.3 percent.
A 5 percent cut in these three programs would throw fewer additional people into poverty, 756,000, and raise the poverty level to 11.9 percent. And a 3 percent cut in these three programs would mean a 429,000 increase of those in poverty and a level of 11.8 percent.
"This could reverse the long-term trend and go back the other way," said Dean Mitchell Ginsberg of the Columbia University School of Social Work. "Since the 1960s, the theory has been that one objective has been to reduce poverty. I would be opposed" to any such large cuts, he said.
The economists who performed the calculations asked not to be identified, because the figures are preliminary and aren't based on specific proposals made so far by the Reagan administration. But several economists made these points about the impact of social program cuts:
A cut in public income programs such as Social Security, AFDC and SSI would fall much more heavily on blacks and Hispanics than on the general white population because far more of them are poor or nearly poor now and they depend more heavily on public income maintenance programs. Those already under the poverty line would become poorer. Those just above it would fall below it. (Today, although the national poverty level is 11.6 percent, it is about 31 percent for blacks and 22 percent for Hispanics.)
The elderly, whose poverty level (15 percent) is also higher than the national average, would be harder hit than the general population. Elderly people get a very high percentage of their income from Social Security. In 1977, it was estimated that about three-fifths of all aged persons got at least half their income from Social Security. If, through reductions in automatic cost of living increases and other Social Security changes being discussed, real benefits were reduced the elderly would feel it especially keenly.
The South would remain the region with the most poor people.
The national focus on poverty in recent times began with the administrations of John F. Kennedy and Lyndon B. Johnson (1961 to 1969) and their efforts to reduce poverty. Hte poverty index was developed in the mid-1960s by Mollie Orshansky and others at the Social Security Administration.
Basically, they calculated the poverty line at three times the cash value of the Agriculture Department's minimum market basket of food needed to sustain life. This figure has been updated annually for inflation. Today it is about $3,500 to $3,900 for a non-farm individual (the figures differ slightly depending on age and certain other factors), and $7,400 for a family of four. Only cash income is counted.
Using the index, the Census Bureau calculated that in 1959 nearly 40 million people, or about 22.4 percent of the population, were in poverty. The growth of Social Security, improvements in Social Security benefit levels and in welfare outlays has driven this down to the 11.6 percent figure at which it has hovered for the past few years.
Rudolph Penner, a respected economist and director of tax policy with the American Enterprise Institute, raised some objections to the use of the poverty index as a sole guide to the economic state of low-income people.
"Undoubtedly any cut you make is going to put more people below the poverty line," he said, but he added that the poverty line should be revised to take into account the fact that poor people receive benefits from in-kind programs.
Penner said the existing poverty index counts only cash income and excludes the value of food stamps, housing assistance, Medicare, Medicaid and all other "in-kind" income, programs that give tens of billions of dollars in aid to poor people and which have come into existence largely since the poverty ratio was first devised in the 1960s.
He called attention to studies of this subject by the Congressional Budget Office. A CBO study done by G. William Hoagland calculates that if in-kind benefits and certain tax benefits like the earned income tax credit are counted, the poverty level in fiscal 1980 would be 6.2 percent of the population instead of the Census Bureau's figure of 11.6 percent.
Using an index like the CBO calculations, Penner said, would provide a more accurate measure of who is really in poverty and of where some social programs might be cut with the least harmful impact on those really in need, in order to help rescue the economy from serious overall problems.
Martin Anderson, President Reagan's chief adviser on these domestic programs, has also criticized the failure of the current poverty index to count in-kind income, saying that the real incidence of poverty would be seen to be much lower than the Census Bureau figures if the index with in-kind income were used.
However, Orshansky, in an interview, disagreed. She said that if in-kind income were to be included in calculations, it should be included for everybody and the whole income concept should be recalculated on a different basis.
For example, she said, "Employers pay health insurance premiums for many young insurance premiums for many young workers and taxpayers get deductions for interest on housing loans." If these were included in definitions of income, a different notion of what everyone's income is and what constitutes poverty would appear. The poverty line might then be set higher than it is now.
Moreover, Ginsberg and others add, it may well be that some of the in-kind programs such as food stamps and housing will end up taking very substantial cuts.