Index of Dependency

The annual Index of Dependency, published by the Heritage Foundation's Center for Data Analysis, attempts to measure government expansion in America and the degree of reliance on social support programs. Though established in 2002, the index has been cited in other studies and reports analyzing government intervention, and its data has been used by policy analysts in forecasting trends and assessing how they might affect the politics of the federal budget.

Purpose of the Index

The "Index of Dependency" provides a way of assessing the magnitude and implications of the change in the form of dependency within American society. To do so, the index aggregates data drawn from a set of specific federally funded programs, selected in terms of their propensity to duplicate or substitute for support traditionally given by families, local organizations, churches, and communities. By compiling and condensing the data into a simple annual score (composed of the scores for the five components Heritage considers), the index provides a useful tool in analyzing dependence on government.

In recognizing a shift from localized to governmental aid throughout the 20th century, the index's analysts also attempt to study the consequences of the changing relationship between those receiving aid and those paying for it, as well as the institutionalization of the government as aid-provider. The study states that as Americans become increasingly dependent on federal support (specifically income support and health care), policy changes become much more difficult to enact while housing and other needs are addressed by government employees with no tie to the community or people receiving aid.

History

In 2002, The Heritage Foundation’s William Beach and its Center for Data Analysis, along with current Sen. Jim DeMint (R-SC) created the Index of Dependency. Since then, the index has come out at the end of each year and can be found at Heritage's website [http://www.heritage.org/Research/Budget/cda06-11.cfm] .

Methodology

The Index Components

Excluding most state programs and elementary and secondary education, the annual index consists of five general categories of social support that contain government programs meeting Heritage’s standards:

* "Housing". Since 1965, the Department of Housing and Urban Development (HUD) has handled two inittiatives — housing assistance and urban revitalization — centered on low-income households. Historically, low-rent public housing projects have been the most common form of such assistance, however vouchers and grants for communities have been growing. This changing mix of housing-based assistance can make measuring dependency difficult: trends in HUD spending suggest that dependency has been rising for many years, however other measures like the share of renters receiving some form of housing assistance indicate no change over the same period.

* "Health and Welfare". Public health programs, particularly Medicare and Medicaid, are contributing to the growing dependence on government programs. Medicare enrollment has increased steadily since the program’s enactment, which means that an increasing number of individuals depend on Medicare for their health care [U.S. Department of Health and Human Services, "Budget in Brief, Fiscal Year 2007", p. 51 (October 30, 2006) http://www.hhs.gov/budget/07budget/2007BudgetInBrief.pdf] , while loosening standards for Medicaid have increased enrollment and dependence there as well. The Department of Health and Human Services predicts that both federal and state government will account for one-half of all health care spending by 2015. [Sarah Lueck, "Health Spending Likely to Outpace Economy's Growth," "The Wall Street Journal", February 22, 2006, p. A6] The index also notes that today’s welfare system is a convoluted machinery of 70 programs, six federal departments, and a large collection of state agencies and programs. For instance, it cites that a typical welfare recipient family could be receiving assistance from six or seven programs administered by four different departments. [Robert E. Rector, "Means-Tested Welfare Spending: Past and Future Growth," testimony, March 7, 2001, (October 30, 2006) http://www.heritage.org/Research/Welfare/Test030701b.cfm] Despite recent reforms that redefine federal welfare programs from an entitlement to one based on work participation, the welfare state remains an overwhelming subsidy for the rising number of single parents. The index recommends a greater emphasis on a stable marital and family environment in reducing poverty and welfare dependence.

* "Retirement". Since 1935, Social Security has provided a significant proportion of most Americans’ retirement income. However, with shifts in the demographics that once made Social Security affordable, the program is now on path to fiscal crisis: starting in 2017, Social Security will not collect enough in taxes to pay all of the promised benefits. The index notes that this uncertain future is a large problem for roughly half of the American workforce with no other retirement program, and with little savings most will depend heavily on the government for their retirement income. Advised policy changes include simplified accounts, automatic investment choices, procedures that allow savings to follow the worker from employer to employer, and better annuity choices.

* "Higher Education". According to the College Board, federal student aid for higher education during the 2004–2005 school year totaled $90 billion — a real increase of 103 percent over the past decade – with increasing numbers of middle-income and upper-income families benefiting from these federal subsidies. [College Board, "Trends in Student Aid, 2005," "Trends in Higher Education Series", p. 7 (May 21, 2006) http://www.collegeboard.com/prod_downloads/press/cost05/trends_aid_05.pdf] Additionally, between 1982 and 2003 college tuition costs increased by 295%, outpacing health care (195%), housing (84%), and all items (83%). [Richard Vedder, "Going Broke by Degree: Why College Costs Too Much," (Washington, D.C.: AEI Press, 2004), p. 12.] The index's analysts argue that such large increases in government assistance has been a main force in driving up tuition and the increasing reliance on federal higher education subsidies affects students and families by discouraging saving for education.

* "Rural and Agricultural Services". A multitude of farm subsidy programs generally work together to compensate farmers for low crop prices. For example, conservation payments pay farmers to initiate conservation projects or simply to stop farming their land and export subsidies effectively lower the price of American products so that they can undercut international competitors. The index also argues that farm dependency will almost certainly continue: "Policymakers mistakenly see farm subsidies as the solution to (rather than a significant cause of) low crop prices. Expensive disaster payments are doled out whether the weather is bad (crops destroyed) or good (crop oversupply lowers prices). Finally, farm subsidies have created an entitlement mentality among a class of farmers who will likely punish any elected officials who pursue reform. Currently, there are no plans to move farmers toward self-sufficiency."

Programs Used to Calculate Index Values

• Housing
• Mortgage credit
• Housing assistance
• Community development block grants
• Urban development action grants
• Subsidized housing programs
• Health and Welfare
• Health care services
• Health research and training
• Consumer and occupational health and safety
• Unemployment compensation
• Food and nutrition assistance
• Other income security
• Disease control (preventative health)
• Health resources and services
• Substance abuse and mental health services
• Grants to states for Medicaid
• Child nutrition programs
• Food stamp programs
• Family support payments to states
• Social services block grants
• Children and families service programs
• Training and employment services
• Unemployment trust fund
• Retirement
• Medicare
• Social Security
• General retirement and disability insurance
• Higher Education
• Federal higher education
• State higher education
• Rural and Agricultural Services
• Farm income stabilization
• Agricultural research and services
• Community development
• Area and regional development
• Disaster relief and insurance
• Rural community advancement program
• Homeland Security disaster relief

How the Index is Constructed

Similar to other indices, the "Index of Dependency" takes the raw (or un-weighted) value for each program — that is, the yearly expenditures on that program — and multiplies it by its appropriate weight. The total of the weighted values is the index value for that year. The index is calculated using the following weights:

• Housing: 30%
• Health and welfare: 25%
• Retirement: 20%
• Higher education: 15%
• Rural and agricultural: 10%

As the study notes, "the weights are 'centered' on the year 1980. This means that the total of the weighted values for the index components will equal 100 for 1980, which gives the index a reference year from which all other index values can be evaluated."

Research

Based on the index, analysts at the Heritage Foundation have found that dependence on government has grown steadily in recent decades. More specifically, findings include the following:

• Using a benchmark index of 100 for 1980, the Dependency Index for 2005 stands at 238, a 6.42 percent increase over the 2004 score of 224. Since 1980, the index has more than doubled, increasing by 138 percent.
• Federal spending on educational subsidies has risen by 127 percent since 1980, growing by 21 percent in 2005 alone.
• The index's health and welfare component has risen by 200 percent since 1980 and by 36 percent from fiscal year (FY) 2000 through FY 2005.
• Finally, recovery spending for Hurricane Katrina increased outlays in the index’s rural and agricultural services component. Direct federal outlays and outlays to states for disaster relief drove increases in this component.

Criticism

One criticism of the index's efforts at measuring dependence is that the study does not take into consideration that free-rider effects could generally lead to a drastically decreased amount of charity if charity is left completely to the private sector. By diminishing the role of the federal government and focusing instead on private ways of providing assistance to needy Americans, many could go without appropriate care or any care at all.

Similar economic arguments state that in certain instances, the private sector may simply fail to meet social objectives or to deliver an adequate or effective product, due in large part to a focus on the bottom line and profit-making. As a result, important social issues like health care are not guaranteed. Economies of scale — or the notion that some services can be more efficiently paid for when bought "in bulk" by the government for the public, rather than purchased by individual consumers — may also prove that the government can do certain things more effectively.

Finally, another criticism is that social welfare programs often spend too much on the middle class in relation to the poor. According to this argument, lowering government dependence should first focus on getting rid of the large amount of middle-class recipients and wasteful spending if anything is to be achieved.

Current Rankings

* Base year
Source: Heritage Foundation calculations.

External links

* [http://www.heritage.org/Research/Budget/cda06-11.cfm 2006 Index of Dependency]
* [http://www.suntimes.com/news/feulner/145827,CST-EDT-FEUL22.article "Counting on government adds up to excessive dependency," "Chicago Sun-Times"]
* [http://www.heritage.org/cda/ Center for Data Analysis]

Notes