Means-Tested Transfers in the US: Facts and Parametric Estimates

How large and important are means-tested transfers to working-age households in the United States? Using microdata from the Survey of Income and Program Participation, we document that a substantial share of households, more than one-third of them, receive transfers in a given year. Conditional on receipt, transfers average about $17,000 in 2016 dollars, exceeding one-fifth of mean household income. For households with no income, total conditional transfers amount to $26,500, nearly one-third of the mean household income. Transfers decline sharply with income but remain surprisingly widespread even in the middle and upper portions of the distribution. The system substantially compresses inequality, and its redistributive role has grown over time, driven largely by the expansion of Medicaid. Non-medical transfers are strongly countercyclical, and benefit reduction rates (the implicit tax rates on the first dollar earned) are significant. We provide parametric estimates of effective transfer functions by program, household type, and income level, ready for use in quantitative work in macroeconomics and public finance. (Copyright: Elsevier)