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Council of Economic Advisers and Office of Management and Budget Issue Brief, "The Cost of Living in America: Helping Families Move Ahead" https://www.whitehouse.gov/wp-content/uploads/2021/08/Costs-Brief.pdf (9 pages)

Introduction:  

Over the last three decades, American families have experienced a rise in the costs of many necessities that has made it difficult for them to attain economic security. Researchers estimate, for example, that 80 percent of families saw the share of budgets dedicated to spending on needs such as housing and health care increase by more than 7 percentage points between 1984 and 2014, potentially crowding out spending on other categories like leisure, longer-term investments in education, and saving for retirement.

Further, a 2019 Pew survey found that 35 percent of middle-income families frequently worry about paying their bills; similarly, 37 percent worry about the cost of health care for themselves and their families. This issue brief examines some of the longer-run dynamics around the costs that U.S. families face. While prices of some services and goods have fallen substantially, especially when bearing in mind increases in their quality, others—particularly prescription drugs, childcare, and education—have risen substantially, and in many cases, faster than incomes over the last several
decades.

Although aggregate price indices track overall changes in the cost of living, some families spend a larger share of their budgets on necessities, depending on their income and needs. As a result, these families are more exposed to cost increases for necessities than others. This is especially true for those in the bottom and middle of the income distribution for whom incomes have risen more slowly than for those at the top. For example, Census estimates indicate that household incomes adjusted for the cost of living at the 95th percentile grew about 25 percent faster than incomes at the 20th and 50th percentiles between 1990 and 2019.

This brief concludes by highlighting proposals in the Biden Administration’s Build Back Better plan that aim to address these costs for families.
 
How to think about family budgets  
 
. . . Preferences, needs, and choices are fundamental to how markets work; they also interact with prices. As preferences or needs change, a family adjusts its spending on all sorts categories in order to maximize its well-being. Because families face budget constraints and typically have no control over prices, important questions to consider as we think about costs are whether people are able to afford options that meet their needs, and what kind of trade-offs they may make in order to do so. . . .
 
Different categories of expenditures will be more relevant for different types of families. Those with young children will likely spend more on housing and childcare than those without, and elderly families will likely spend more on home health care and prescription drugs than will younger families. In some of the worst-case scenarios, parents may go hungry in order to feed their children, and an elderly individual may delay filling a prescription in order to afford their monthly rental payment. Importantly, public policy can play a role in helping families afford the goods and services necessary to meet their basic needs by reducing family exposure to cost increases in areas like health care (through Medicare, Medicaid, and the Affordable Care Act), childcare (through the Child Tax Credit and subsidized preschool), and food prices (through the Supplemental Nutrition Assistance Program). . . .

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