IV.

Forms of Welfare in the United States

The U.S. government provides welfare in a number of basic ways. Some programs distribute direct cash assistance that recipients may spend as they choose. Other programs provide specific goods, such as public housing; or the means to obtain them, such as subsidized rents, vouchers to offset private housing costs, or coupons to purchase food. Still others provide services or the means to obtain services. Welfare services include health care, childcare, and help coping with drug or alcohol dependency. Goods and services, as opposed to direct cash assistance, are known as in-kind benefits. Other welfare programs create or subsidize jobs for the unemployed. In addition, the government also provides a tax discount to the poor, known as an Earned Income Tax Credit (EITC), which some people consider a welfare program. If calculated as an expenditure—although it is in part actually money the government does not collect—EITC is one of the more costly U.S. welfare programs, with expenditures exceeding $30 billion annually.

In the United States, as in many other nations, the government decides how much welfare support to provide, and to whom, based on measures of economic well-being. These measures are themselves based on national mean income figures. Mean income is an estimate of how much a typical person earns over a given period of time, usually a year. People whose incomes are less than a determined amount below the national mean are considered to be living in poverty. Welfare programs targeted to people with relatively little income and few assets are called means-tested welfare programs. Other forms of income support are referred to simply as non-means-tested.

In virtually all cash welfare programs and many in-kind programs, benefits rapidly fall as a recipient’s income increases. These programs are said to be targeted, or restricted, to people with little or no income and few assets. Some programs further restrict benefits to those meeting additional, nonincome requirements, known as categorical targets. For example, benefits might depend on a recipient being a single parent with dependent children or a juvenile in foster care.

Eligibility for certain forms of welfare is based on membership in specific groups. The elderly and people with mental or physical disabilities, for example, receive several types of support that the government provides specifically to them. Eligibility for social insurance programs, meanwhile, depends upon individuals having made prior financial contributions to a fund, which can be drawn on later. The most prominent examples of this form of welfare in the United States are social security programs. These programs provide support to workers and their families when they lose employment, retire, or become disabled.

In theory, welfare targets make sense, since they direct support to those most in need. Targeting, however, creates problematic incentives. For example, if welfare recipients begin to earn money, or more money than they had been earning, their benefits may fall and their taxes rise. This can be a powerful incentive for recipients to remain on welfare and not seek work. In effect, this situation creates a penalty for welfare recipients who take work, especially in any of the many low-wage jobs typically available to them. Working at a minimal wage, minus taxes, often cannot offset the loss of welfare benefits. Targeting welfare benefits to certain groups also creates incentives for people to change their behavior in order to become eligible for benefits. A young parent may be less inclined to marry or stay married if single parenthood makes it easier to claim welfare benefits. The dilemma of balancing compassion for the poor with a desire to promote socially approved behaviors—work and marriage, for example—has defined public policy debates over welfare for several centuries.

A.

Cash Assistance Programs

In the decades following the passage of the Social Security Act, the scope of the United States’s social welfare safety net grew, modestly at first and then more rapidly beginning in the 1960s. By the beginning of the 1990s, there were about 75 means-tested welfare programs. This collection of programs came to be symbolized, however, by the one known as Aid to Families with Dependent Children (AFDC), which provided cash assistance to parents and children in need of economic support due to the death, continued absence, or incapacity of the family’s primary wage earner (typically the father).

For a quarter-century AFDC remained a relatively small, obscure program. In 1960 fewer than 4 percent of children received AFDC benefits in a typical month, even though about 25 percent would have been considered poor by today’s standards. In 1996, 7.9 million children, almost 13 percent of all children, and about 3.9 million adults received help from AFDC in any given month. As the program grew, it became increasingly unpopular. Critics argued that AFDC discouraged work, encouraged births outside of marriage, and failed to take low-income families with children out of poverty.

In 1996 AFDC cost about $22 billion per year, about 55 percent of that cost covered by the federal government and the rest by state and local governments. This expenditure was a minor part of the U.S. annual budget. Remarkably, although AFDC caseloads rose, the overall costs of the program remained the same from the early 1970s, even after considering inflation. This was possible only because typical benefits fell in value, by about half, after 1970. The average monthly benefit in 1995 was $377, about 60 percent below poverty-level income for most families. Moreover, the size of the typical AFDC family fell from about four members in the late 1960s to less than three in 1994. Larger families received higher benefits than smaller ones, but only marginally so. Some critics of AFDC claimed, however, that this could have been an incentive for parents on welfare to have more children.

In the first half of the 1990s, a national debate raged about how to reform welfare, and particularly AFDC. Finally, in August 1996, President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which replaced AFDC with the Temporary Assistance to Needy Families (TANF) program. Among other things, TANF ended the guarantee of cash benefits to eligible families, established a fixed federal contribution to the program, imposed time limits and strict work requirements, and transferred most program decisions to the states. (For more information on these reforms, see the Welfare Reform section of this article.)

Low-income families with children are not the only group eligible for cash assistance. Adults who are not able to work because of age, blindness, or disability, as well as some disabled children, can receive cash assistance through Supplemental Security Income (SSI). SSI provides more generous assistance than TANF. In 2003 individuals received $552 monthly, roughly 25 percent below poverty-level income, and couples received $829 monthly, or about 18 percent below poverty level. The number of people receiving SSI payments had grown to about 6.5 million by 1995; participation has since remained stable. The federal government spent $33.3 billion on the program in 2001.

B.

In-Kind Assistance Programs

Most people on welfare receive more than just cash assistance. For example, many low-income families receive some form of food or nutritional assistance from the government. Cash welfare recipients often participate in programs that provide health services, particularly for their children. More than one-fourth of cash welfare recipients have received housing assistance or live in public housing, and an increasing proportion now participate in programs designed to help them find work.

Medicaid provides medical assistance for people who live in low-income families with dependent children and for individuals with low incomes who are elderly or disabled. Between 1986 and 1991, Congress extended Medicaid coverage to support pregnant women and some children who have no other ties to the welfare system. In 2001 Medicaid covered approximately 34 million people, or about 12 percent of the total U.S. population. Nearly 50 percent of Medicaid enrollees were children. The cost of the program has grown faster than the rate of inflation and was estimated to be $228 billion in 2001. Slightly more than half of that was paid for by the federal government, with the rest covered by state funds.

In 1965 U.S. president Lyndon B. Johnson declared a War on Poverty in his domestic reform program called the Great Society. As part of this program, Congress established Medicare, a social insurance counterpart to Medicaid. Medicare provides medical pensions for all retired U.S. citizens and a small segment of the disabled. The program cost $242 billion in 2001 and covered about 40 million people.

The Food Stamp program, administered by the U.S. Department of Agriculture and financed through the Social Security Administration, provides families with vouchers or electronic benefit cards to purchase food. This benefit is available to both low-income families with dependent children and households without children. The food stamps supplement what participants would normally spend on food, thereby enabling them to obtain an adequate diet. In a typical month in 2001, more than 17 million households participated in the Food Stamp program. Millions of low-income children also receive nutritional help through the National School Lunch Program and the School Breakfast Program, which provide low-cost or free meals to eligible children each school day.

The federal Department of Housing and Urban Development offers a number of programs that provide housing assistance to low-income families. Unlike some other welfare programs, there is no entitlement to this kind of assistance. An entitlement is support that the government must provide if a person qualifies as eligible according to income, assets, and categorical eligibility standards. People who meet eligibility requirements must formally apply for housing assistance, but have no guarantee they will receive it. The government provides eligible applicants with various housing options. They may be provided with apartments in housing projects specifically built for low-income families or adults. Alternately, they may receive subsidized rent in apartments or housing complexes where some of the units are reserved for the poor, or they may receive vouchers that they can use to offset housing costs.

The federal government sponsors a number of other programs for various poor and disadvantaged groups. These include the Women, Infants, and Children (WIC) program, which provides supplemental food and nutrition information primarily to pregnant women and infants who are at risk of nutritional deficiency; various job-training and job-seeking assistance programs; the Head Start early education program for disadvantaged children; the Low Income Home Energy Assistance Program (LIHEAP); supports for former war veterans; and many others.

C.

General Assistance

No federal cash welfare programs exist for people who are clearly able to work—single adults and couples who have no dependent children and who are not eligible for a disability program. However, some states or local governments may provide help for such people under what are called General Assistance (GA) programs. Where they exist, GA programs commonly provide limited economic supports and subsidies for medical care.