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A.P. GOVERNMENT

Social Welfare Policy

Social welfare policies—programs that provide some form of assistance to groups of people; such policies often viewed negatively in public mind because erroneously associated with going overwhelming to the poor; but most money under social welfare policy goes towards programs that are universally available

Key distinction: entitlement programs vs. means tested programs

Entitlement programs: government benefits that certain people are entitled to regardless of need (“social insurance programs”—programs you or your employer contributed to in the first place)

Examples: Social Security and Medicare (biggest); unemployment

**These programs are popular and politically difficult to change

Means-Tested programs: provide benefits only to people with specific need; particularly those under the poverty line; people have to qualify for them

Examples: Medicaid (medical care for the very poor), food stamps, TANF, SSI, CHIP (see glossary)

**these are politically controversial and fodder for challenges; many people feel these are not needed because poverty is a problem that should be solved by the individual (because it’s caused by the individual—linked to American individualism)

Americans often distinguish between the ‘deserving’ and ‘undeserving’ poor; deserving are poor because of circumstances beyond their control; undeserving are responsible for their own plight—this affects what policies people will support

Income/Wealth Distribution:

Income vs. wealth

Income—basically your paycheck; how much you earn between 2 points in time

Wealth—total value of assets one owns (stocks, bonds, houses, etc)

U.S. high per capita income (not the highest), but also among the biggest extremes in income distribution (bigger gaps between rich and poor than other western countries)

**Significance to politics—greater polarization in politics, one issue is divided over ‘who gets what’ (liberals and conservatives answer this differently)—concerns about redistribution of wealth

Income Distribution—share of income earned by different groups

Disparity has grown since 1960

1960 richest 5th of population made 42% of all income, 2002 richest 5th made 49.7%; 1960 Lowest 5th made 4.9% of income, 2002: 3.5%

‘rich get richer, poor get poorer’

**In America, income distribution is NOT debated by politicians

Wealth is more unevenly distributed (1/3 wealth held by top 1%; 1/3 by next 9%; 1/3 by remaining 90%)

How does policy affect income? TAXES and EXPENDITURES

Taxes:

3 types of taxes:

1. progressive—takes higher percent from people with larger incomes

2. regressive—takes higher percent from those at lower income levels

3. proportional—takes same percent from everyone

Some taxes are regressive; like sales tax, which seems proportional, but since poor spend more on necessities, if they are subject to taxes, the poor pay higher percent of income in taxes than rich

FEDERAL taxes are primarily progressive; rich pay higher percent tax rate

Policy balances out progressive tax with tax expenditures for those with higher incomes (deductions, etc)—so, those taxpayers don’t end up paying as much as they would

Less is spent on many means-tested programs than is cost in revenue from deductions (for example, people who own homes can write off the interest payments on their mortgages, so they don’t have to pay as much in taxes; but the poor typically don’t own houses, so they don’t get that write-off; so $18 billion is spent on food stamps vs. $67 billion it costs in government revenues for tax breaks on mortgage interest)

Expenditures—money government spends on programs that benefit people

Example: transfer payments—benefits government gives directly to individuals

Like Social Security payments, food stamps, low interest school loans; in-kind payments—not cash directly given to the person, but something like loans or food stamps

Who’s poor? Relative poverty—compared to other nations, poor in America aren’t as bad off

Poverty line—used to count number of poor people; 2003 family of 3 fall below poverty if annual income is below $14,824/year

Underestimates number of poor, because some drop in and out of poverty; most of the poor actually work

Poverty is more common among African-Americans, Hispanics, unmarried women, and inner-city residents

Poverty now most common among women and children (rather than the elderly); feminization of poverty

WELFARE: (Public Assistance Programs)—different from social insurance programs because based on need and funded by general tax revenues; established by means test (must prove poor enough to qualify); much less support for these; most of these programs are established by federal law, administered through the states, funded by state and federal governments; cost much less than social insurance programs (are discretionary spending & can be cut in the budget; all of these programs make up 14% of the budget)

AFDC (Aid to Families with Dependent Children) = welfare system before the 90’s; federal government established uniform standards for states and subsidized their attempt to help families with no breadwinner (states given ability to set own benefit levels)

Johnson’s War on Poverty boosted federal and state support for means-tested programs (including food stamps)---programs collectively called welfare

**ISSUE divided Republicans and Democrats; over time many on both sides of the aisle suggest welfare was failing—many argued it created a system of dependency and he way it was set up discouraged people from getting off welfare

**became a media issue…depicted ‘deadbeat dads’ and ‘welfare queens-- people abusing the system; very negative public perception (PUBLIC OPINION POLLS PRESSURE TO REFORM); much of the media presentation focused on black welfare recipients creating the impression that poverty was a black problem (reality most participants over time have been white; they make up larger portion of overall population);

Reagan persuaded Congress to cut welfare benefits and lower the number of people receiving them

Welfare Reform:

Clinton in ’92 focused on reforming welfare in his campaign

Gingrich and Republican majority from ’94 also supportive of change

Democrats opposed the bill, Clinton relied heavily on Republicans

’96 Welfare Reform Bill

1. each state get fixed amount of money to run welfare programs

2. people on welfare get benefits for 2 years, then must find work

3. lifetime maximum of 5 years on welfare

***EXAMPLE OF DEVOLUTION—GIVING STATES FEDERAL MONEY TO RUN WELFARE PROGRAMS; GIVES THEM DISCRETION***

Replaced AFDC cash payments (benefit went directly to family from federal government) with Temporary Assistance for Needy Families

People on TANF average of $363/month; benefits have declined

Assessing the reform:

Worked in that it got people ‘off’ welfare; fewer people receiving benefits

Those who leave welfare often have very low wages; lack access to childcare

Current Public Assistance Programs:

• Medicaid—healthcare for poor already on welfare; based on need and funded by general tax revenues

• Food Stamps—assistance for purchasing food; in-kind benefit, qualify based on need; new restrictions under Welfare Reform of ’96 limited benefits

• Subsidized Housing—help for poor in paying for housing; typically rent vouchers (in-kind benefit); cost of this program is much less than tax breaks for homeowners cost the government in lost revenue (costs 3 times more than subsidized housing)

• Supplemental Security Income— benefits for disabled, blind, elderly (not typically criticized)

Social Insurance Programs

Social Security:

History of the program: Prior to its enactment in 1935, there were no federal provisions for the people who become or are born disabled, the elderly who didn’t have savings; so many under these conditions lived in poverty Social

Security Act of 1935: created Social Security and programs for some of the poor; post Depression became clear that poverty was a social problem that couldn’t just be handled by charities; there needed to be a safety net

Current Concern—‘Baby Boomers’ will break the system

**most expensive policy in U.S.

90% polled support Social Security; it has helped to get poor out of poverty (prior to Social Security, poverty among the elderly was a major problem); popular because people contribute into it & everyone receives it

How works: government taxes workers and employers; this is put into Social Security Trust Fund (payroll tax--FICA on paycheck)

Put in a certain percent up to a maximum (so someone making $90,000 pays same as Bill Gates); 2008 percent was 6.2% for both employee & employer (maximum was around $102,000)

The Trust Fund (where the money is put)—currently more going in than coming out, but that will change; money in trust fund can only be invested in US treasury bonds (not other stocks)

run entirely by federal government, they collect the taxes & distribute the checks directly to the individuals

As # of workers to recipients decreases, cost to each worker will increase

Average benefits increase over time to keep pace with cost of living increase

By 2038 payouts will exceed income AND Congress will have to use regular appropriations to pay beneficiaries; money that would have gone to other programs will HAVE TO go to Social Security (especially if don’t raise taxes)

Options: cut benefits to retirees or raise taxes on workers or raise retirement age—NONE IS POLITICALLY POPULAR

**elderly Americans are well-organized and politically active so hard to touch Social Security

Proposals: Bush and Republicans suggested take a portion of contributions (2% of the 6.2% individual contribution) and put it in private retirement funds—each individual would be given the chance to put that money into a retirement fund (private account, stocks, bonds)

‘privatization of social security’

Was a Presidential commission to Strengthen Social Security—its warnings about Social Security were serious and it suggested some privatization

Concern with privatization is that diverting money from the Trust Fund would merely bankrupt it earlier; concern also that if Stock Market falls then people would slip into poverty

When Stock Market did slump, support for privatization waned

**As noted in Budget Chapter—Social Security is a mandatory expenditure; people have

paid into the system and all who are eligible must get their checks

Medicare: another social insurance program

▪ Post-WWII, Truman proposed a government-paid health insurance program; the American Medial Association rallied against it; same thing happened to Kennedy when he proposed it

▪ ’64 election brought liberals to Congress (and Johnson had support), so Medicare passed in ‘65

▪ medical assistance for retirees—pays for hospital/nursing home, but recepient must pay portion of expenses (can apply for government to pay if can’t afford)

▪ most of program funded by payroll taxes

▪ like Social Security, is popular

▪ 2003—prescription drug program added (program began 2006), if eligible for Medicare, eligible for drug program (no income, health requirement); subsidizes (meaning government pays for) part of the person’s prescription drug costs; the person must enroll to get covered

▪ will run out of money without some changes, such changes are politically difficult

▪ new health care bill includes increase on Medicare taxes for people making more than $200,000 for individual, $250,000 for joint filers (.9% increase, making it 2.35%); will also allow taxation of investment income of those in the same bracket (investment income is money made from stocks, etc.—previously not taxed for Medicare)

▪ Medicare ‘donut hole’ refers to a gap in the Medicare Part D prescription drug program—plan covers $2,700 in prescription drugs/year & then stops until costs reach $6,100 (after which plan covers costs); so the person has to cover the costs between those thresholds out of pocket; this creates a big burden on those with fixed incomes

▪ run by federal government; a single-payer healthcare system for elderly

Other Programs:

• Unemployment Insurance—1935 Social Security Act provided for workers who lost job involuntarily; jointly administered by federal and state; federal government collects payroll taxes, states set tax rate, conditions of eligibility, benefit level; benefits are low & for limited time

• State Child Health Insurance Program (SCHIP)—matching federal funds to states for health insurance programs for kids; covers uninsured kids in families too poor for Medicaid, but in need of assistance; under Social Security Act, states have flexibility w/broad guidelines from federal government (dual & fiscal federalism); George W. Bush failed to reauthorize parts at end of his term, Obama passed in reauthorization & expansion in 2009

Compared to other Nations

Many other Western countries provide more benefits, have larger social welfare systems BUT their taxes are much higher

In America these problems often seen as individual responsibility/issue; Europeans see more as government responsibility

**The Welfare state is a tag line that can be used to criticize social welfare policies

Administration of Social Welfare Policy: How are these programs run? Who is responsible?

• Some are examples of dual federalism—federal government pays for some/all & states run (some states feel burdened when programs are expanded because costs don’t cover those expansions)

• Social Security Administration—an independent government agency (so not a cabinet position) administers Social Security, Supplemental Security Income

• Department of Health and Human Services administers Medicare and Medicaid

• Other cabinet departments have a hand in some programs

• Within Congress various committees would handle relevant legislation (policy area committees, ways & means, budge, appropriations)

• Legislation often establishes a program or expands it (or sets levels of eligibility) & then the bureaucracy creates ways of enforcing or carrying out that legislation (through regulations)

• Because of the impact of these programs on the budget, all policymakers are concerned about them

Terms:

‘feminization of poverty’- increasing concentration of poverty among women (especially single) and their kids

Unemployment Insurance—weekly payment, varies by state; for workers who’ve been laid off or can’t find work (from taxes on employers, states determine benefits); entitlement

Medicaid—medical and hospital for very poor (federal grants to state programs); means tested

Food Stamps—coupons for poor to buy food (general federal funds); means tested

TANF—Temporary Assistance for Needy Families—payment to families with children if parent is unemployed (breadwinner)’ partly state paid, partly federal government; means tested

SSI---Supplementary Security Income—cash payment for elderly, blind, disabled whose income is below a certain amount; general federal revenue; means-tested

CHIP (now SCHIP)—Children’s Health Insurance Program—subsidies for insurance for poor families with kids; federal and state revenues; means tested

Earned income tax credit—benefit for working people with low incomes; don’t pay taxes and sometimes get a check

In-kind payment—benefit that has cash value, but you don’t get cash (like food stamps, college loan)

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