WELFARE

1. WELFARE Kellen Schull Shannon Eklund Amanda Hong Presented October 25, 2006 Econ 4211

2. Definition of Welfare • Welfare -is financial assistance paid by the government to individuals and families who are unwilling or unable to support themselves alone, and/or are perceived by the government to be able to function more effectively with financial assistance. • Welfare in this context is not the same as the measure of economic well-being

3. Types of Welfare • Cash welfare are welfare programs that provide cash benefits to recipients. • In-kind welfare are welfare programs that deliver goods rather than cash to recipients. • Medical care, food, and housing are all examples.

4. Types of Participants in Welfare Programs in the U.S. • Categorical welfare means welfare programs are restricted by some demographic characteristic. • Single motherhood or disability are examples. • Means-tested welfare are welfare programs that are restricted only by income and asset levels. • For example, programs that restrict eligibility to those under 100% of the poverty line.

5. Justification for Government Intervention

6. Social Welfare: ‘‘Well-being’’ • Society cares about the well-being of all its members. • Social welfare may be maximized by redistribution from high-income individuals to low-income individuals. • Low income individuals have a higher Marginal Propensity to Consume (MRC) and thus may increase economic activity.

7. Utilitarian SWF SWF = U1 + U2 + … +UN -Utilities of all individuals are given equal weight; Summed to get total social welfare. Rawlsian SWF SW = min (U1, U2, …,UN) -Social welfare is determined by the minimum utility in society, maximized by maximizing welfare of worst off person. Social Welfare Functions

8. Why Government intervention? • Not likely to be an adequate market of redistribution in the Private sector. • Seen by many as the role of the government: The Welfare State. • Take the burden off of families and individuals and place it on society. • Increase and promote consumption and economic activity.

9. Why not Government Intervention? • Promotes “free riders and moral hazards.” • Decreases economic activity • Costs to society is enormous • Promotes rather than gets rid of social ills • Increases the size and power of Government

10. Comparisons of Government Intervention • Transfers and other social benefits in U.S. 11 % of GDP in 1999 compared with 20 % in Germany and France. • European Union average as a whole of transfers and other social benefits is 18 % of GDP

11. Reasons for Differences • Many Americans believe there is more social mobility in the US than in Europe, and if those with less income expect that in the future they will have more income, they will not value the protection that a safety-net or a developed welfare state provides compared to if their weren’t these expectations. • Also it has to do with societal views as a whole on those who are less fortunate. In America many view the poor as being lazy and having the ability to escape poverty if they wanted to. • For example, according to the World Values Survey, whereas 70 % of West Germans express the belief that people are poor because of imperfections in society, not their own laziness, 70 % of Americans hold the opposite view. • 71 % of Americans but only 40% of Europeans said ...poor people could work their way out of poverty.

12. History of Welfare Programs in the United States

13. Origins of Government Welfare • Welfare always in existence through charity and philanthropy. Many religions have aspects of charity ingrained within them. • Spurred by Industrialization and the socialist theory and the increasing power of organized labor.

14. The major Social Welfare programs in the U.S. started in the 1930’s as a result Great Depression. Aid to Families with Dependant Children-August 14, 1935 Food Stamp Program- May 16,1939 Social Security-1935 Beginning of Welfare Programs in the United States

15. Reasons for implementation of Social Welfare programs in the 1930’s US. • Unemployment at 25% • Large deflation • Drop in Production • Widening gap between poor and rich

16. Welfare and “The Great Society” • After the Great Depression the Economy was booming and prosperous. Not much attention was put on the poor and welfare. • Beginning in the 1960s with the election of JFK there was an emphasis towards social welfare and “The Great Society”. • The Social Welfare programs of the 1930s Depression era were revamped and reworked.

17. Two main goals of The Great Society programs were the elimination of Poverty and Racial Injustice. • Development of the Department of Health and Human Services • Food Stamp Act of 1964- purpose make the Food Stamp Program permanent and to strengthen the agricultural economy and provide for improved nutrition in low income households .

18. Medicaid established in 1965 • Supplemental Security Income (SSI) 1973 part of Social Security Agency. • More regulation on AFDC payments in 1960s and clearer guidelines for establishing need. • When first set up the AFDC was meant for children only, but progressed towards a more liberal interpretation.

19. Impact of Welfare Programs on the Economy of the U.S.

20. Food Stamp Program Participation and Costs http://www.fns.usda.gov/pd/fssummar.htm

21. Total Social Program Spending in relation to overall spending and GDP

22. Number of Individuals on Welfare Program AFDC/TANF

23. Costs • Medicaid is by far the largest categorical welfare program, with expenditure of $250 billion in 2003 about 10 times that of TANF. • SSI provides welfare to the aged, blind, and disabled. Expenditure was $31.6 billion in 2002. • Expenditure on TANF is $25.5 billion • Overpayment errors cost over 1.5 billion dollars a year

24. Current Legislation and Recent Reforms Focus: Food Stamp Program

25. Food Stamp Act of 1977 • The FSA made many changes to the FSP, including eliminating categorical eligibility, raising the general resource limit to $1750, establishing the fair market value (FMV) test for evaluating vehicles as resources. It also penalized households whose heads voluntarily quit jobs and eliminated the requirement that households must have cooking facilities.

26. Food Stamp Act of 1977 • The FSA also increased availability by allowing for several provisions: • Certification by mail, telephone, or home visits • Inception of the concept of expedited service • Outreach, bilingual personnel and materials, and nutrition education materials available • SSI joint processing and coordination with AFDC • The EPR caused participation to rise by 1.5 million one month after implementation.

27. Reforms of the Early 1980s • Legislators called for cutbacks to the large and expensive FSP in the early ’80s due to increasing budget deficits. Major cutbacks included: • Requirement of a gross income eligibility test to the net income test for most households • Required periodic reporting and retrospective budgeting • Increased disqualification periods for voluntary quitters. • Electronic Benefits Transfer (EBT) began in Reading, Pennsylvania in 1984.

28. The Mid to Late 1980s 1985 & 1987: New legislation brought about the elimination of sales tax on food stamp purchases, reinstitution of categorical eligibility, increased resource limit of $2000, eligibility for the homeless and expanded nutrition education.

29. The Hunger Prevention Act of 1988 and the Mickey Leland Memorial Domestic Hunger Relief Act of 1990 • Legislation included increasing benefits to Thrifty Food Plan, excluding advance earned income tax credits as income, making outreach an optional activity for states, establishing EBT as an issuance alternative, and authorizing nutrition education grants.

30. 1993 Mickey Leland Childhood Hunger Relief Act • Final legislation provided for a $2.8 billion increase in benefits. • Changes included: • Eliminating shelter deduction cap • Providing a deduction for legally binding child support payments made to nonhousehold members • Improving employment and training dependent care reimbursements • Participation hit a new high of 28 million in March 1994

31. The Personal Responsibility and Work Opportunities Reconciliation Act of 1996 • Removed the entitlement of recipients to AFDC and replaced that with a new block grant to states called Temporary Assistance to Needy Families (TANF). • Purpose of TANF was to promote work and do away with dependence on Welfare that were not mandatory in AFDC • Put time limit on benefits received at lifetime maximum of 60 months

32. Effects of Personal Responsibility and Work Opportunities Reconciliation Act of 1996 With welfare reform and Temporary Assistance to Needy Families (TANF), the caseloads fell dramatically. The number of people on Aid to Families with Dependent Children (AFDC) skyrocketed during the 1960s.

33. 2001 Agriculture Appropriations Bill • Two significant changes: • Increased excess shelter cap to $340 and then indexed the cap to changes in the Consumer Price Index for All Consumers. • Allowed States to use the vehicle limit they use in a TANF assistance program

34. The Farm Bill of 2002 • Restored eligibility for food stamps to qualified aliens and for immigrants receiving certain disability payments and for children • Adjusted the standard deduction to vary by household size and indexed each year for inflation • Replaced enhanced funding for states with low error rates with a performance bonus system based on several different measures of performance

35. Consequences of the Farm Bill • Food stamp participation increased from about 17.2 million in 2000 to 25.8 million people in August 2005. • USDA awarded $30 million to 16 states for their exemplary administration of the program in 2004 and 2005.

36. Discussion Questions • Is welfare an economically good or bad practice? • Should the U.S. government be intervening and redistributing income? • Are there better ways to reduce poverty? • Is the U.S. better off because of Welfare? • What are your thoughts about foreign aid and other welfare programs? • Other Questions?

37. Bibliography • Glazer, Nathan. “Why Americans Don’t Care about Income Inequality.” 12 February 2002. http://www.ksg.harvard.edu/inequality/seminar 2006 October 24 • Gruber, Jonathan Public Finance and Public Policy. Worth Publishers,  2005 • Professor Susan Clarke, Personal Communication • Rawls, John. A Theory of Justice, Cambridge, Massachusetts: The Belknap Press of Harvard University Press, 1971. • United States. Cong. House. Department Operations, Nutrition, and Foreign Agriculture Subcommittee of the Committee on Agriculture. Waste and Abuse in the Administration of the Food Stamp Program. Hearing, 30 Oct. 1997. 105th Cong., 1st session. Washington: Government Printing Office, 1997. • United States. Department of Agriculture. Food and Nutrition Service. A Short History of the Food Stamp Program. (2006). 24 October 2006 http://www.fns.usda.gov/fsp/rules/Legislation/history.htm#top> • United States. Department of Agriculture. Food and Nutrition Service. "Food Stamp Program Participation and Costs." National Level Annual Summary: Participation and Costs, 1969-2005. (2006). 24 October 2006