Welfare Programs Lecture 17

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Welfare ProgramsLecture 17

• Todays 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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Todays Questions

• What means-tested welfare programs are available
  for poor people in the United States?
• How much do these programs cost?
• How many people are helped by these programs?
• How are welfare benefits determined?
• Why is welfare so hard to reform?

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What means-tested welfare programs are available
for poor people in the U.S.?

• Federal and State governments funded 85 welfare
  programs in FY 2002 at a total cost of 522
  billion.
• Federal Share 71
• State and Local Share 29
• The means-tested programs fall into 8 different
  categories.
• Source for Slides 3-24 House Ways and Means
  Committee 2004 Green Book, http//www.gpoaccess.go
  v/wmprints/green/2004.html

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Eight Categories of Welfare Programs and Total
Costs, 2002

• Medical Aid 282 billion, 54
• Cash Aid 102 billion, 20
• Food Aid 39 billion, 7
• Housing Aid 36 billion, 7
• Education Aid 30 billion, 6
• Other Services 22 billion, 5
• Jobs and Training Aid 8 billion, 2
• Energy Aid 2 billion, 0.3

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Medical Aid--282 billion
6
Cash Aid--102 billion
7
Food Aid--39 billion
8
Housing Aid--36 billion
9
Housing Aid, cont.
10
Education Aid--30 billion
11
Other Services--22 billion
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Jobs and Training Aid--8 billion
13
Energy Aid--2 billion
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Analysis of spending

• 54 cents of every welfare dollar went for medical
  assistance
• 80 of State and Local dollars went to medical
  aid
• Spending in each of 6 programs exceeds 10
  billion and accounts for 77 percent of total
  spending.

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7 largest programs by amount spent

• Medicaid (258 billion)
• SSI (39 billion)
• EITC (28 billion)
• Food Stamps (24 billion)
• TANF cash, ,services, child care, and work
  activities (24 billion)
• Section 8 low-income housing assistance (18
  billion)
• Pell Grants (11)

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Trends in Spending

• 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.

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Spending Trends by Type of Aid FY1968-FY2002
(Constant FY 2002 Dollars)
MedicalCashFoodHousing Aid.88 x Total
Spending
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Trends in Spending by Level of Government,
FY1968-FY2002 (Constant FY 2002 Dollars)
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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.

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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.

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Share of Federal Budget used for Income-Tested
Aid, FY1968-2002
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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

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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
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Predicting Future Participation

• 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

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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

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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

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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

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Eligibility vs. Participation

• Participation refers to actual receipt of cash,
  non-cash benefits, or services.
• Not all eligible persons participate.
• Participation rates participating
  population/eligible population
• Participation levels/rates depend upon
• Demographic trends, labor market conditions,
  distribution of income, health care costs, and
  the level of benefits.

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Eligibility vs. Participation, cont

• An individuals decision depends on the net
  benefits of participation
• Net benefitsGross Benefits-Costs
• Gross Benefits include
• Primary benefits (cash, non-cash, services)
• Secondary benefits (eligibility for subsequent
  programs depends on enrollment in the primary
  program
• Costs include
• Hassle
• Transportation
• documentation
• Stigma

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How are benefits determined?

• Generic formula
• BG - t(E-DE) - (U-DU), where
• BBenefit level
• GMaximum benefit (other income0)
• Tmarginal tax rate
• Egross earnings
• DEearnings disregard
• Unon-earnings incomes (pensions, interest)
• DUnon-earnings disregard

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Source House Ways and Means Committee 2004
Green Book, pp. 38-39 http//www.gpoaccess.gov/wmp
rints/green/2004.html
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How are benefits determined?, cont.

• Note that in the preceding table grants vary with
  family size up to 6 persons.
• Example using Texas
• Assume a mother of two works 30 hours a week for
  4.2 weeks at the minimum wage 5.15 per hour.
  She has no other income.
• B201-.67(649-30)201 - 415-214
• Source Work Related Provisions of State TANF
  Plans http//www.acf.dhhs.gov/programs/ofa/WRKREL.
  HTM

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Benefit Calculation, cont.

• 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?

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Calculating Break-even Level of Earnings

• Recall that BG - t(E-DE) - (U-DU).
• Set B0, and solve for E
• Generally, EBG/t D, when U0.
• In our example, the Texas mother would be
  eligible for cash benefits if her earnings were
  less than 330.
• EB201/.6730
• EB330
• She loses eligibility if she works more than
  15.25 hours per week.

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Source House Ways and Means Committee 2004
Green Book, pp.36-37, http//www.gpoaccess.gov/wmp
rints/green/2004.html
41
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
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Source House Ways and Means Committee 2004
Green Book, pp.45-47, http//www.gpoaccess.gov/wmp
rints/green/2004.html
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Source House Ways and Means Committee 2004 Green
Book, p. 89 http//www.gpoaccess.gov/wmprints/gree
n/2004.html
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Why is welfare so hard to reform?

• We can gain insight into the difficulty of
  reforming welfare by considering the implications
  of the break-even earnings formula
• EBG/t D

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Why is welfare so hard to reform?, cont.

• Traditionally, policy makers heed three goals
• Adequacy
• Cost minimization
• Encouraging independence through work

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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.

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Why is welfare so hard to reform?, cont.
G t D
Adequacy ? ? ?
Cost Minimization ? ? ?
Work incentives ?? ? ?
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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.