Welfare Programs Lecture 17 Today’s readings: Schiller Ch 12, Welfare Programs •Ehrenberg and Smith, “Supply of Labor to the Economy,” eReserves •House Ways and Means Committee 2004 Green Book, http://www.gpoaccess.gov/wmprints/green/2004. html •DeParle, Ch. 14: Golf Balls and Corporate Dreams: Milwaukee, 1997-1999
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Welfare Programs Lecture 17 Today’s readings: Schiller Ch 12, Welfare Programs Ehrenberg and Smith, “ Supply of Labor to the Economy, ” eReserves House.
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Welfare ProgramsLecture 17
Today’s readings:
Schiller Ch 12, Welfare Programs •Ehrenberg and Smith, “Supply of Labor to the Economy,” eReserves •House Ways and Means Committee 2004 Green Book, http://www.gpoaccess.gov/wmprints/green/2004.html •DeParle, Ch. 14: Golf Balls and Corporate Dreams: Milwaukee, 1997-1999
• Real spending for cash and non-cash programs increased by 523 percent from FY1968 to FY2002.
• Real spending for cash and non-cash programs increase 36 percent between FY1992 and FY2002.
• Average annual rate of growth over this 32 year period was 5.5 percent.
• The U.S. population increased by 43 percent over this period.
• Real total per capita spending grew from $416 in FY1968 to $1,826 in FY 2002.
Spending Trends by Type of Aid FY1968-FY2002
(Constant FY 2002 Dollars)
0
100
200
300
400
500
600
1968 1980 1983 1986 1989 1992 1995 1998 2001
Total $Medical AidCashFoodHousing
Medical+Cash+Food+Housing Aid=.88 x Total Spending
Trends in Spending by Level of Government, FY1968-FY2002
(Constant FY 2002 Dollars)
0
100
200
300
400
500
600
1968 1978 1983 1988 1993 1998
Total $Federal $State/Local $
Trends in Federal SpendingFY1968-FY2002
(Constant FY 2002 Dollars)
• Real Federal spending climbed from $60 billion in FY1968 to $373 billion in FY 2002, an increase of 529 percent.
• Cash aid was the leading form of Federal welfare until 1980 when medical aid overtook it.
Trends in State and Local SpendingFY1968-FY2002
(Constant FY 2002 Dollars)
• State and Local real spending climbed from $24.5 billion in FY1968 to $149 billion in FY2002, an increase of 508 percent.
• Medical assistance overcame cash aid as the leading form of income-tested assistance in1976.
Share of Federal Budget used for Income-Tested Aid, FY1968-2002
02468
101214161820
1968 1978 1988 1992 1996 2000
TotalMedicalCashFood
Participation in Means-tested Programs, 2002
• We do not have an unduplicated count of welfare beneficiaries
• Average 2002 monthly numbers:– Medicaid: 50.9 million persons– Food stamps: 20.2 million recipients– SSI: 6.9 million recipients– TANF: 5.1million recipients
• EITC: 16.8 million tax filers
Source: CBO Economic and Budget Issue Brief, “Changes in Participation in Means-Tested Programs” http://www.cbo.gov/ftpdocs/63xx/doc6302/04-20-Means-Tested.pdf
• Assuming no legislative changes, future levels of participation in means-tested welfare programs will depend on:– Demographic trends– Distribution of income– The state of the economy
Participation in Means-tested Programs by Poor Persons, 2002• Census Bureau found 23 million poor persons
(two out of every three with pre-tax money income below the poverty threshold) lived in a household that received means-tested assistance.
• Percent of the poverty population living in a household that received:– Medicaid: 53 percent– Food Stamps: 33 percent– cash assistance: 22 percent– Subsidized or public housing: 18 percent
Participation by Total Population, 2002
• Percent of the total population living in a household that received:– Medicaid: 19 percent– Food Stamps: 6 percent– cash assistance: 7 percent – Subsidized or public housing: 4 percent– Some form of major means-tested aid: 25 percent
Eligibility vs. Participation
• To be eligible, a person, family or household must satisfy conditions regarding– Citizenship– Demographic characteristics (children present?)– Countable income– Accumulated wealth (assets including cars,
homes, insurance policies, bank accounts)– Employment status
Eligibility vs. Participation
• Participation refers to actual receipt of cash, non-cash benefits, or services.
• Not all eligible persons participate.– Participation rates = participating
• In the previous example, the mother would not receive a benefit. Negative benefits are raised to $0.
• At the level of work hours (30) required by Federal law for a TANF mother to qualify as a work recipient, our Texas mother is not eligible for benefits. At what level of earnings could she receive benefits?
Calculating Break-even Level of Earnings
• Recall that B=G - t(E-DE) - (U-DU).• Set B=0, and solve for E:• Generally, EB=G/t + D, when U=0.• In our example, the Texas mother would be
eligible for cash benefits if her earnings were less than $330.
– EB=201/.67+30– EB=$330She loses eligibility if she works more than 15.25 hours
per week.
Source: House Ways and Means Committee 2004 Green Book, pp.36-37, http://www.gpoaccess.gov/wmprints/green/2004.html
Source: CBO Economic and Budget Issue Brief, “Changes in Participation in Means-Tested Programs” http://www.cbo.gov/ftpdocs/63xx/doc6302/04-20-Means-Tested.pdf
• We can gain insight into the difficulty of reforming welfare by considering the implications of the break-even earnings formula:
EB=G/t + D
Why is welfare so hard to reform?, cont.
• Traditionally, policy makers heed three goals:– Adequacy– Cost minimization – Encouraging independence through work
Why is welfare so hard to reform?, cont.
• Policy makers have three parameters they can alter to achieve these goals:– G, maximum guarantee– t, marginal tax rate– D, the earnings disregard
• Given the relationship of G, t, and D, at most two of the three goals can be achieved at any one time.
Why is welfare so hard to reform?, cont.
G t D
Adequacy
Cost Minimization
Work incentives
Why is welfare so hard to reform?, cont.
• Welfare is so difficult to reform, that is it is difficult to find a long-lasting policy equilibrium, because our political parties differ in the emphasis they give the three goals. Traditionally,– Republicans pursed cost minimization and
promoting work above adequacy, while Democrats championed adequacy.