Module 5 Ch 9 Welfare and Social Security Policy

Background (1 of 2) pg. 475

Poverty- relative terms (poorer than others) or in absolute terms (unable to meet essential human needs)

• American cultural and social perspective. The American cultural and social perspective that encourages individualism and promotes equality of opportunity leads to a tendency to blame the poor for their own circumstances. On the other hand, some say there really is inequality of opportunity that prevents many from increasing their standard of living.

• Poverty. Deep poverty is defined as a household case income less than half of the federal poverty amount. Over 6 percent of the population lives under these conditions.

(2016, the federal government placed a family of four below the poverty line if its annual income was less than $24,300 in the forty-eight contiguous states. This rate is adjusted based on factors such as the number of people in a family, the composition of a family, and inflation from year to year. According to the Census Bureau, in 2015, over 43.1 million people were considered to be impoverished. This was down from 46 million in 2012)

• War on Poverty. President Lyndon Johnson declared the War on Poverty. The government initiated a number of programs to deal with the problem. Between 1965 and 1973, the poverty rate fell from 17.3 percent to 11.1 percent, and it appeared that the nation was winning the war. Unfortunately, the United States has not achieved a poverty rate this low since 1973

• Minority populations, higher poverty rates. minority populations in the United States also suffer higher poverty rates than whites,4 which may indicate something about the weaknesses of government programs to reduce poverty as well as those aimed at improving the status of minorities.

Background (2 of 2)

Poverty

• Poverty as income distribution problem. a large number of people are living on limited resources, while a smaller percentage of people earn a large proportion of the nation’s combined income.

Gini coefficient-As a curve deviate away from the forty-five-degree line, it shows an increase in income inequality. The implicit interpretation of the curve is that if a few people are making a large percentage of the income, more people are put at risk of poverty

• Different definition could change rate. the Census Bureau has considered revising its definition of poverty, no real changes occurred until 2011, when the bureau introduced a supplementary measure of poverty.

• Poverty may not be same. Changing definitions can dramatically affect poverty statistics

• Culture of poverty. Some may also believe in the culture of poverty, meaning that those brought up in poverty learn how to be poor and work the current system to their benefit, and that they choose to remain poor as adults.

Social Security (1 of 5)

• Social Security. single largest federal government program today, providing money for retired workers, their beneficiaries, and workers with disabilities.

• Redistributive policy program. Money is being redistributed across generations—that is, from workers to nonworkers or young to old— rather than between economic classes.

• Who is entitled to program. if a person meets any of the eligibility requirements for Social Security, he or she is entitled to its benefits. The program is typically associated with payments to the elderly, and in fact this is the system’s largest outlay, but other people are eligible as well

• Five major benefits categories.

1. Retirement: Full benefits are currently provided at age sixty-six plus a few months. The minimum age will gradually increase to sixty-seven for those born in 1960 or later.

2. Disability: Benefits are provided to people who have enough credits and have a physical or mental condition that prevents them from doing “substantial” work for a year or more.

3. Family: If an individual is receiving benefits, certain family members, such as a spouse or children, may also be eligible for benefits.

4. Survivor: When individuals who have accumulated enough credits die, certain family members—for example, a spouse aged sixty or older—may be eligible for benefits.

5. Medicare: Part A (hospital insurance) is paid through part of the Social Security tax. Typically, if individuals are eligible for Social Security, they also qualify for Medicare

Social Security (2 of 5) 483

• Supplemental Security Income benefits

program. the Supplemental Security Income benefits program for low-income individuals who are at least sixty-five years old or disabled. The program is not financed through Social Security taxes.

• Social Security program, two goals. First, the level of benefits individuals receive is related to the amount they put into the system. Second, the program was supposed to ensure that lower-income individuals had at least minimal financial protection.

• Political “third rail.” Social Security is often referred to as the political “third rail” because of the potential political danger associated with attempts to reform it, a reference to the subway that receives its power from this rail. Politicians foolish enough to touch the issue of Social Security reform will likely find themselves voted out of office—in other words, “fried.”

• Two reasons for the controversial nature. First, the majority of the recipients are senior citizens, who are demographically the people most likely to vote in the United States. Politicians are necessarily wary about crossing such a politically active group.

Second, the power of AARP, the major interest group representing the concerns of seniors, is formidable. AARP claims a membership of more than thirty-seven million people, and it is one of the most influential interest groups in the nation. It also has a large professional staff involved in lobbying.

Social Security (3 of 5) 486

Social Security’s Changing Demographics

• More people living beyond 65. As more people live beyond the age of sixty-five, larger numbers are entitled to Social Security benefits.

• Impending retirement of baby boomers. Analysts are especially worried about the impending retirement of the baby boom generation. The first wave of Americans born between 1946 and 1964 started retiring in 2011

• Current revenue not enough. while the number of beneficiaries is growing larger, the number of workers contributing to the program is becoming smaller, leaving fewer workers per beneficiary

• Increase tax, raise retirement age. For younger workers today to receive full benefits, it might be necessary to increase the withholding tax. This issue will affect people not only in the long term upon their retirement, but also in the short term if Social Security taxes go up. Another option that has been raised primarily by Republicans would be to continue to raise the retirement age as high as seventy years of age.

Social Security (4 of 5)

Problems with Social Security

• Employment of retired workers. With the change, everyone sixty-six and over (the full-benefit or normal retirement age for those born between 1943 and 1954) can earn as much as they want without forfeiting part of their Social Security benefits.

• Fixed retirement age. Historically, the official age for collecting Social Security benefits was sixty-five, but changes to the law have gradually raised the age of eligibility to between sixty-six and sixty seven, depending on the year of birth, in recognition of the population’s longer life expectancy and people’s tendency to continue to work.

• Potential gender inequity. women generally earn about 20 percent less money than men,20 which will affect their benefits upon retirement. Second, women tend to stay at home for parts of their career to raise families, which again will affect benefits. Women also tend to outlive men by a few years, which can be a further financial disadvantage

Social Security (5 of 5)

Financing Social Security

• System running out of money. By 2033, the trust funds, which are in reality a promise to pay, will be depleted, and the revenue coming into the program will pay only about 75 percent of the benefits that are due to retirees and other recipients.

• Solutions to financing problematic. Congress always finds it politically difficult to raise taxes even to protect a popular program such as Social Security.

• Reduce expenditures, privatization. delay the cost-of-living adjustment (COLA). By not implementing the COLA for a period of time, the Social Security Administration could save billions of dollars. Another solution would be to decrease the COLA outright.

Privatization is another approach to Social Security financing. The idea here is that individuals would be allowed to invest some of their withholding tax in mutual funds of their choosing, or the government might be permitted to invest Social Security funds in the stock market or other private instruments to generate a higher rate of return than is now possible.

• Consequences of Social Security reform. In the absence of other policy changes, and with four percentage points of the withholding 490 tax going into individual accounts, the solvency of the current Social Security funds becomes even more fragile. The funds would be depleted earlier than under current projections.

Welfare (1 of 9)

• Means-tested programs. To qualify for a means-tested program, a potential recipient usually must meet an income test—perhaps better described as a lack-of-income test.

• Income test to be eligible.

• Differ from social insurance programs. Means-tested programs differ from social insurance programs such as Social Security: eligibility for these programs is based on need rather than contributions made to the program

Welfare (2 of 9)

The Supplemental Nutrition Assistance

Program

• Supplemental Nutrition Assistance Program

(SNAP).

• Formerly known as the food stamp program.

• United States Department of Agriculture

(USDA). administered by the Department of Agriculture (USDA).

• Financial resources to purchase food. The plan provides low-income households with financial resources to purchase food. Eligible recipients, who need to meet certain resource and income requirements, are allotted a dollar amount based on the size of their household

Welfare (3 of 9)

The Supplemental Nutrition Assistance

Program: Federal Assistance for Food

• National school lunch, breakfast programs. USDA also administers the federally assisted national school lunch and school breakfast programs, which provide well-balanced, nutritional meals at either no cost or reduced cost to children from low-income households.

• Assisting schools to purchase food. first aimed at assisting schools to purchase food for nutritious lunches.

• National School Lunch Act of 1946. The program a permanent funding basis and stipulated how funds would be apportioned to the states. The purpose of the law was to ensure the “safety and well-being of the nation’s children” through a program that encouraged consumption of nutritious commodities and assisted states in providing such food and necessary facilities.

• Children living below/near the poverty line. Today, children in a family at or below 130 percent of the poverty level ($24,300 for a family of four in fiscal year 2016) are eligible for free meals. Nearly thirty-one million lunches are provided or subsidized by the program.

Welfare (4 of 9) pg. 496

Aid to Families with Dependent Children

• AFDC, the nation’s major means-tested

program. (welfare) intended to provide financial aid to low-income mothers and children. The program benefited about fourteen million people in its last year in existence and cost about $14 billion annually

• Critics denigrated the program for years. AFDC provided funds to individuals but expected little in return. Widespread media accounts of people taking advantage of the system in various ways made the public angry. AFDC stigmatized the beneficiaries by requiring them to respond to personal questions, home inspections, and other administrative intrusions to qualify for the benefits

• Provided a disincentive to work. Under AFDC, beneficiaries could work only so many hours a month. If they earned more than the specified amount, they would lose a part of their benefits. The incentive therefore, was to work only up to the point of losing benefits.

• Minimum wage. By the time individuals paid for child care, transportation, and perhaps health care, they often had little money left, especially if they were being paid minimum wage. The smart financial decision, therefore, was to remain in the government welfare program.

Welfare (5 of 9) pg. 497

The Earned Income Tax Credit

• Earned Income Tax Credit (EITC). refundable federal income tax for low-income working individuals and families.

• Tax refund if EITC is greater. If the EITC is greater than the amount owed in taxes, the beneficiary receives a tax refund.

• Increases can raise budgetary concerns. While the program encourages work and is generally supported, an expansion of it could have budgetary effects. In the current political climate, some also raise the question of how much of a role government should play in ensuring that people do not live in poverty.

• Expansion could have budgetary effects. Increases in the EITC would raise budgetary concerns that the government would need to take into consideration, particularly in times of large deficits.

Welfare (6 of 9)

Child Tax Credit

• The Child Tax Credit (CTC).

• Families are eligible up to $2,000.

• Passage of the American Rescue Plan.

• Political advantage of potential changes.

Welfare (7 of 9)

Welfare Reform Options

• Reform calls, many ideological

perspectives.

• Liberals saw the program as inadequate.

• Conservatives, correcting disincentives to

work.

Welfare (8 of 9)

Welfare Reform Options

• PRWORA ended the old AFDC program.

• Block grant program TANF. provided state governments with additional flexibility to run their welfare programs.

• Deficit Reduction Act of 2005. Deficit Reduction Act of 2005, which became law in 2006, Congress reauthorized TANF and approved changes that made the program stricter, made it more difficult for states to meet the established goals, and took away some state flexibility.

• Congress reauthorized TANF, approved

changes.

Welfare (9 of 9)

Analysis of the Welfare Reform Law

• Public supports changes to Welfare. Most of the general public is wary of a program that gives benefits with no strings attached. The public also supported the work requirement that would provide people with the skills they needed to become self-sufficient, not to mention the reduction of the number of out-of-wedlock births that seemed to come as a result

• Law from an individual freedom perspective. Requiring work to receive benefits not only takes away part of an individual’s freedom but also imposes a different set of values—the government’s values—over how people should live.

• Evaluate success based on goals. (1) enforce work requirements, (2) reduce dependency, and (3) promote marriage. A fourth goal, to reduce poverty, would follow from the previous conditions.

• Questions of effectiveness are critical. Goals one and two relate very explicitly to the important question of whether PRWORA has been effective at removing people from the welfare rolls.

Focused Discussion: Can We Do

Better? Addressing Poverty (1 of 4)

• Poverty, major concern for Americans. Poverty continues to be a major concern for a significant percentage of Americans, many of whom are children.

• Solutions to looming problems.

• AEI and Brookings Institution report. A Consensus Plan for Reducing Poverty and Restoring the American Dream.” The report puts forward a series of recommendations to address the continued issue of poverty in America.

(1) To strengthen families in ways that will prepare children for success in education and work

(2) To improve the quantity and quality of work in ways that will better prepare young people—men as well as women—to assume the responsibilities of adult life and parenthood

(3) To improve education in ways that will better help poor children avail themselves of opportunities for self-advancement

• Family, work, and education.

Focused Discussion: Can We Do

Better? Addressing Poverty (2 of 4)

Economic and Effectiveness Issues

• AEI/Brookings’ report recommendations. “Make work pay more for the less-educated,” and within this area, two specific proposals are to expand the federal childless EITC and to raise the minimum wage.

• Expand EITC, raise minimum wage.

• Economic and potential deficit effects. The EITC is an appropriate item in the budget, and any expansion of the tax credit will have budgetary implications and potentially increase the federal deficit unless it is offset in some way

• Budgets at different government levels. Education funding is generally a discretionary expense within budgets; this is a decreasing portion of the federal budget. Changes in the overall budget spending priorities or revenue increases would likely be necessary to fund such programs. The states and local levels are also seeing much of their discretionary budgets reduced due to increases in Medicare and Medicaid budgets and spending in other areas.

Focused Discussion: Can We Do

Better? Addressing Poverty (3 of 4)

Political Issues

• Options related to work requirements. Both expanding the EITC and increasing the minimum wage have the political advantage of being related to work requirements, so they could have a bit more support than a traditional welfare program that may not have any requirements.

• Those stressing free-market economies. These groups and individuals would argue that government should not be involved, particularly in minimum wage policies. The National Small Business Association argues that increases in the minimum wage will force small businesses to cut their workforce because of the increased cost, not just of minimum wage workers but of all workers.

• EITC raises more budgetary issues. While the program encourages work and is generally supported, an expansion of it could have budgetary effects, particularly an increase in the federal deficit.

• Politics of education funding elements. question of whether the amount of money being spent is leading to positive outcomes (the effectiveness argument). Second, there are different opinions about whether education should be considered a public or a private good. Poverty can hinder efforts to provide a quality education, and less education increases the likelihood of poverty.

Focused Discussion: Can We Do

Better? Addressing Poverty (4 of 4)

Ethics and Equity Issues

• Promote delayed, responsible childbearing

recommendation. Research suggests that children born to unplanned pregnancies or to non-married people are more likely to be in poverty. The medical technology exists to address this issue, but its use is often met with ethical controversies.

• Increasing EITC, potential equity

concerns. Do programs such as the EITC and increases in the minimum wage provide individuals with additional opportunities to increase their income status and lead them out of poverty? Equity questions often arise regarding the role of government in the free market, and programs that require a specific minimum wage directly insert the government into matters of employer-employee contracts as they relate to a fair wage based on supply and demand.

• Lack of early childhood funding. Education funding at all levels continues to get crowded out due to other perceived priorities, with arguments very much turning to private benefits—why should I pay more for early childhood programs if I don’t have children or my children are older? Society needs to come to terms with the question of whether public education and its funding provide a societal benefit, in which we share the costs

• Addressing ongoing poverty in the U.S. While no one wants high levels of poverty, the individualistic perspective of our society and culture, along with the difficult politics surrounding poverty, make it a difficult problem to adequately address