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Chapter 8 Trends in Income Support John Karl Scholz, Robert Moffitt, and Benjamin Cowan A ntipoverty programs are designed to mitigate the most pernicious aspects of market-based economic outcomes—unemployment, disability, low earnings , and other material hardship. These programs compose society’s “safety net,” and each has different eligibility standards and benefit formulas. While the programs can be aggregated and categorized to summarize trends in coverage and generosity , a consequence of their patchwork nature is that the safety net may appear different to a family in one set of circumstances than it does to a family in another. Social insurance programs—Social Security, Medicare, unemployment insurance , and workers’ compensation—are costly programs with much larger numbers of recipients. Despite the fact that they are not antipoverty programs per se, they have had a significant effect on poverty, particularly among the elderly. The antipoverty programs that constitute the safety net are collectively much smaller and have had varied support over time. As noted in previous work (Burtless 1986, 1994; Scholz and Levine 2002), there has been a sharp reduction in cash entitlements for poor families and a very large increase in social insurance payments, particularly for the elderly, in past decades. The nature of programs has changed as well. Cash welfare benefits, for example, have been linked with work requirements, partly in response to evolving views about the nature of the poverty problem. Responsibility for antipoverty policy has broadened from the antipoverty agencies of the federal government (the Department of Health and Human Services and the Department of Labor) to the states (through their administration of Temporary Assistance for Needy Families [TANF] and Medicaid) and the tax code, as evidenced by the Earned Income Tax Credit (EITC) and the refundable child credit. We have three primary goals in this chapter. First, we provide updated information on expenditures and recipients for a range of antipoverty programs, describing the evolution of the safety net over the past thirty-five years. Second, we use data from the Survey of Income and Program Participation (SIPP) to calculate the antipoverty effectiveness of federal programs for families and individuals in different circumstances. Third, we explore changes in the characteristics of recipients of means-tested transfers, tax credits, and social insurance. Robert Moffitt (2003a, / 203 2007) documents a large increase in total per capita means-tested transfers, even in the decade following the 1996 welfare reform. He notes, based on aggregate data, that the shift in expenditures for different programs suggests that more transfers now go to workers and fewer to nonworkers, more to married couples and fewer to single mothers. Because aggregate transfers have increased, one can argue that society has become more generous over time. But as the safety net has evolved, some families have lost benefits while others have gained benefits. SOCIAL INSURANCE Social insurance programs provide near-universal coverage since any individual (or his or her employer) who makes the required contributions to finance the programs can receive benefits when specific eligibility requirements are met. These programs have dedicated funding mechanisms through which, at least in an accounting sense, social insurance taxes are remitted to trust funds from which benefits are paid. It is often inefficient for individuals to self-insure for contingencies like an unexpectedly long life, end-of-life health shocks, or extended unemployment spells. Because of adverse selection problems—the tendency for the riskiest individuals and families to seek insurance, which makes the pricing of products unattractive to less risky families and individuals—private insurance markets are unlikely to work well. Social insurance programs, which are government-run, near-universal, and uniform in their rules and benefits, provide the welfareenhancing benefits of insurance while overcoming the problems (through mandatory pooling) that arise in private insurance markets. Social Security and Medicare The largest social insurance program is Social Security, formally known as the Old-Age, Survivors, and Disability Insurance (OASDI) program. Founded in 1935 as one of President Franklin Roosevelt’s New Deal programs, Social Security was designed to meet the unmet social needs of older workers leaving the workforce without sufficient postretirement income to be self-supporting.1 Figure 8.1 plots the time series of real (inflation-adjusted) Social Security (OASI) payments from 1970 to 2006. (Disability insurance benefits are not included in this series but are discussed later.) Real Social Security payments tripled between 1970 and 2006, to $474 billion, because of three factors. First, the number of retired workers covered by Social Security has steadily increased as...

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