Transcript Social Policy

Social Policy
History of Social Policy
• Prior to the Great Depression it was pretty rare for the Federal
government to distribute subsidies, effectively redistributing wealth
in our system.
• Rather, redistribution of wealth was through the tax system.
• Of course, protective tariffs and excise taxes were a mechanism for
redistributing wealth from the masses to the patrician class.
Tariffs were a primary mechanism for funding the government
before the Income Tax amendment in 1913.
• Check out the following graph of the effective tariff rate in the
United States from 1860 through 2000.
10 20 30 40 50 60
Post 16th
Amendment
0
Tariff as Percent of Dutiable Imports
FIGURE 3.2: Tariff Percent, 1860-2000
1860
1900
1940
1980
Year
Note: Calculated from Table Ee424-430, Historical Statistics of the United States
• It is easy to see from this graph that tariffs were much higher
in earlier times.
• And, they were a highly partisan issue, with Republicans
consistently supporting high tariffs to support big business,
and Democrats consistently opposing them because they were
effectively a tax on consumers and the poor.
• The Income Tax Amendment in 1913 changed this, so that the
relative progressiveness of the tax system became the
predominant issue. Direct taxation became an issue that
divided Americans along partisan and class lines.
• The Smoot-Hawley tariff of 1930 was a contributing cause to
the Great Depression.
Social Policy and the Great
Depression
• A plethora of social programs flowed from the Great
Depression intended to benefit various segments of the mass
public that were suffering. Consider the following from our
earlier discussion.
Uneven Economic Benefits
through the 1940s and 1950s
• Economic growth was very robust through the 1940s and 1950s.
White Americans became better off than ever before. Home
ownership rates increased as never before in American history.
People got automobiles, televisions, and grew less concerned about
just being able to survive, as had characterized most of the 19th
Century and during the Great Depression.
• However, economic benefits were unevenly dispersed in the
American system. Generally, those who did not rise with the rising
economic tide were racial minorities, women, and the elderly.
• Consider the following evidence on inequality from 1940 through
1960.
FIGURE 5.3: White, Black, and Latino Poverty
100
White
Black
Latino
Poverty Rate
80
60
40
20
1960
1950
1940
0
Source: Decennial Censuses with pre-1960 data extrapolated by Katz and
Stern (2001)
FIGURE 5.4: Poverty Female Householders
White
Black
Latino
100
Poverty Rate
80
60
40
20
1960
1950
1940
0
Source: Decennial Censuses with pre-1960 data extrapolated by Katz and
Stern (2001)
FIGURE 5.5: Poverty by Age Cohort
80
1940
1950
1960
Poverty Rate
60
40
20
> 60 Years
55-59 Years
50-54 Years
45-49 Years
40-44 Years
35-39 Years
30-34 Years
25-29 Years
20-24 Years
15-19 Years
0
Source: Decennial Censuses with pre-1960 data extrapolated by
Stern (1991)
FIGURE 5.6: Geographic Distribution of Poverty
a. Poverty Urban-Rural
b. Poverty Regional
80
100
Rural
Central City
Suburbs
North White
North Black
South White
South Black
80
Poverty Rate
Poverty Rate
60
40
60
40
20
20
Source: Decennial Censuses with pre-1960 data extrapolated by Katz and Stern (2001) and Stern (1991)
1960
1950
1940
1960
1950
0
1940
0
The Great Society and Beyond
• Flowing from what was widely perceived as economic injustice
in the American system came the Great Society.
• A plethora of new social policies were intended to lessen
poverty and inequality across various groups, including racial,
gender, and age related economic inequality.
• Consider the social programs directed toward these ends in
the following table.
Reagan’s Attack on Social
Programs
• Ronald Reagan ranted against “welfare queens” during the
1976 and 1980 presidential campaigns.
• What did he do to change things
• As recommended by the Heritage Foundation, Reagan entered
office with the intention of shifting budget priorities away
from social programs and toward national defense. This goal
was accomplished through an important law, the Omnibus
Budget Reconciliation Act (OBRA) of 1981.
• OBRA sharply cut spending for programs directed at the
economically disadvantaged.
• Unemployment insurance was reduced by $17.4 billion
(Midgley 1992).
• Spending on employment and training programs fell from
about $28 billion to about $8 billion (in 1992 dollars) between
1979 and 1982.
• OBRA authorized states to convert the Work Incentive (WIN)
program into a block grant administered by state welfare
agencies and to use workfare as a requirement for eligibility.
While OBRA gave states flexibility to shape their AFDC
programs, less money also became available.
• The major federal funding source for these programs, WIN,
experienced annual budget cuts, with funding falling 70
percent between 1981 and 1987 (Caputo 2011, 31).
• AFDC participation was also cut drastically by increasing
eligibility requirements and changing benefit calculations.
• OBRA also reduced spending for the Food Stamp Program, the
School Lunch Program, and social services. OBRA changed
eligibility requirements for both Food Stamps and the School
Lunch Program (Schuldes 2011, 342-373). The Congressional
Budget Office estimated that the new OBRA eligibility
standards would reduce participation in the Food Stamp
Program by 20 percent, and in the School Lunch Program by
35 percent by 1983 (Hoagland 1984, 43-71).
• By 1983, the law had reduced funding for “child nutrition
programs by 28 percent, food stamp expenditures by 13.8
percent, and the Community Services Block Grant program by
37.1 percent” (Midgley 1992, 25)
• The inevitable result of all this was an upward trend in poverty
in America and a trend that continues to this day, since the
funds were never fully restored.
• Here is a graph containing the number of people living in
poverty from 1960 through 2012.
40
35
30
OBRA
1981
20
25
Number in Millions
45
50
FIGURE 6.6: Americans Living in Poverty
1960
1970
1980
1990
2000
Source: DeNavas-Walt, Proctor, and Smith (2013) Table B-1
2010
• Other Reagan administration policies affected another
dimension of poverty, homelessness. OBRA reduced the
eligibility rate for public housing from 80 percent to 50
percent of the local area’s median income. Ceiling rents were
eliminated, thereby making housing less affordable for many
(Popkin 2000, 200). Federal funding for subsidized housing
assistance fell from $26.6 billion in 1980 to $7.4 billion in
1989, a decline of almost 80 percent (Rubin et al. 1992).
• Coupled with changes in welfare programs, these changes in
housing assistance led to a dramatic increase in the number of
homeless Americans. Homeless rates tripled between 1981
and 1989 (Burt 2010). By the late 1980s, the number of
homeless in the cities of America had swollen to 600,000 on
any given night – and 1.2 million over the course of a year
(Dreier 2004).
• Homelessness was made even worse by Reagan administration policies toward
the mentally ill.
• Before Reagan assumed office, President Carter had signed the Mental Health
Systems Act of 1980. The legislation passed the House by 277-15 and the Senate
by 93-3. However, the Reagan OMB announced within one month that it would
curtail the budget of the National Institute of Mental Health (NIMH), phase out
training of clinicians, interrupt research, and eliminate services.
• Subsequently, OBRA repealed the Mental Health Systems Act and consolidated
alcohol, drug abuse, and mental health programs into a single block grant that
enabled states to administer the allocated funds.
• With the repeal of the community mental health legislation and the
establishment of block grants, the Federal role in services to the mentally ill
became one of providing technical assistance only (National Institute of Mental
Health 2014).
• State mental health institutions lost federal support, and lacked state funding.
Without funding, state mental health institutions dumped their patients onto
the streets, leading to a sharp increase in mental health related homelessness in
America. About 26 percent of all homeless people are mentally ill (Substance
Abuse and Mental Health Services Administration 2011).
Polarization over Social Policy
Continued after Reagan
• In 1995, a government shutdown occurred as President Clinton vetoed the
budget passed by Newt Gingrich and the Republican Congress .
•
They proposed sharp spending reductions that fell heavily on New Deal and
Great Society programs. They initially proposed a total redesign of Medicare,
converting it to a voucher system and encouraging seniors to move into a
system of managed care (Chen 1995).
• Their 1995 budget would have cut federal Medicare spending by $270
billion. Stating their intentions, Speaker of the House Newt Gingrich spoke to
the Blue Cross/Blue Shield Association on Oct. 24, 1995.
• He said, “Now we didn’t get rid of it in Round 1 because we don't think
that’s politically smart and we don’t think that’s the right way to go through
a transition. But we believe it’s going to wither on the vine …” (MacDonald
1995)
• The vetoed 1995 Republican budget would also have included
deep cuts in other entitlements such as Medicaid, farm
programs, food stamps, child nutrition and school lunches,
and AFDC. It would have ended guaranteed welfare for poor
children, cut funding for education, drastically reduced the
Headstart program, eliminated Americorps, cut student loan
programs, limited health care guarantees for the disabled, and
reduced funding for the environment. The Republican plan
would also have cut taxes by $245 billion, with families
earning more than $100,000 per year the main beneficiaries
(CQ Almanac Online 1995; Rankin 1995).
• The 1995 Gingrich budget is very similar to the budget outline
passed by the Republican Congress in 2015. It will be
interesting to observe the politics associated with Trump
administration proposals, as well as those by Paul Ryan who
also proposes massive cuts in these programs.
The Post New Deal Era is Not
Just About Welfare
• Question: Does it matter whether government money is
placed in people’s pockets through manipulation of the tax
system, or directly through subsidies.
• Think of the earlier income loop model. Reducing taxes
increases the money people have to spend. Increasing
government spending puts money into specific people’s
pockets to spend.
• Taxing and spending policy in the United States are applied
differentially, with taxes low on some groups and higher on
others. Spending is also applied differentially directed toward
some groups and away from others. The differential nature of
taxing and spending achieves particular social results that
determine who benefits and who loses in American socieity.
Subsidies and Tax Expenditures
• Everyone in our system gets subsidies, from the very poor to
the middle class to the extremely wealthy.
There are many types of subsidies, both direct and indirect.
Direct Subsidies: Who gets
them?
• Cash Payments-Farmers and selected industries, welfare
recipients, Food Stamps, Social Security, etc. The largest
discretionary component of the federal budget.
• Training and Educational Grants-Workers and the Businesses
that employ them, CETA, JPTA, PELL, etc.
• Research Funds- Businesses, research institutes, colleges and
universities.
• Loans and Loan guarantees- Bailout of Lockheed, New York
City, AIG, the auto industry, banks,, etc..
Indirect Subsidies: Who gets
them?
• Program Grants and Block Grants to states who then pay out fundsMedicaid, highways, sewer grants, education, etc.
• Payments to providers of services – Medicare, Medicaid, etc.
• Tariffs-Though less than in an earlier era, domestic producers are
being subsidized by tariffs.
Consumers are penalized through higher prices.
• Regulatory subsidies (licensing, production limits, minimum wage,
etc.)-Businesses, farmers, workers.
• Contractors often get subsidies to produce things that wouldn’t
ordinarily be profitable. Example: influenza vaccine, terror vaccines.
Biggest Indirect Subsidy Category is Tax Expenditures. See
http://www.taxpolicycenter.org/briefingbook/background/shelters/expenditures.cfm
• Tax expenditures, meaning tax breaks, are subsidies delivered through the
tax code.
• Tax expenditures are revenue losses to government attributable to tax
provisions that often result from the use of the tax system to promote social
goals without incurring direct expenditures. How tax expenditures are
structured affects both who benefits from them and how much they will
reduce federal revenues.
• Generally, deductions and exclusions are most valuable for high-income
households because their value is the amount deducted or excluded times
the taxpayer’s marginal tax rate. Thus, a $100 deduction or exclusion
typically saves $35 for someone in the 35 percent top income tax bracket,
but only $10 for someone in the 10 percent bracket.
• Most deductions are itemized deductions as opposed to
above-the-line deductions. Itemized deductions have
value only when listed and claimed; they thus are worth
nothing for the roughly two-thirds of households that
claim the standard deduction. Examples: home mortgage
interest deduction, medical expenditures, business
expenses, etc.
• Only three tax credits—the earned income tax credit
(EITC), the child tax credit (CTC), and the small Health
Coverage Tax Credit (HCTC)—are refundable, so
households in the bottom half of the income distribution
reap relatively little benefit from tax expenditures.
Debunking the Welfare Culture Myth:
• Three quarters of entitlement benefits in the United States go
toward the elderly or disabled. And a big chunk of the rest
goes to working households.
• Only about 9 percent of all entitlement benefits go toward
non-elderly, non-disabled households without jobs (and much
of that involves health care and unemployment insurance).
This ratio doesn't change if you include low-income
discretionary programs (such as rental assistance or the
Women, Infants and Children program) that have to be
renewed each year.
• The bulk of entitlement program spending goes toward the
middle class. By "entitlements," we include Social Security,
Medicare, Medicaid, children's health insurance, food stamps,
school lunch programs, welfare, unemployment insurance, the
Child Tax Credit and the Earned Income Tax Credit. It does not
include a few discretionary programs (like rental assistance or
low-income energy subsidies) which are aimed more directly
at the poor. Those programs, however, are a lot smaller in
comparison.
• If you expand the definition of "government benefit" to
include tax expenditures, many more Americans benefit.
There's a long-standing debate about whether to count tax
breaks like the mortgage-interest deduction for homeowners
or the employer health deduction as a government "benefit."
Some economists say that these tax expenditures are no
different from actual spending. Others contend that these
deductions merely allow people to keep more of their own
money.
• Yet these tax expenditures added up to about $1.2 trillion in
2015. And they tend to flow disproportionately toward
wealthier households, with a much less proportion going to
corporations.
Rationale for Social Programs
• Some social programs can be justified on the basis of the
economic analyses in our preceding discussions. For example,
positive externalities are a good rationale for educational
loans and grants, subsidies for health care research, and
subsidies for developing new technologies. We might also
justify them based on conceptions of dynamic efficiency.
• Other social programs are economically inefficient and are
justified on normative grounds. As a polity, we sometimes
value equity over economic efficiency.
• And, we have a right to do that, as we are a sovereign polity
that is not subservient to either economics or some ideology
that would dictate against promoting greater equity.
How Does the U. S. Compare with Other Countries?
• The Organization for Economic Cooperation and Development (OECD)
collects a vast array of economic data across nations.
Their data are widely used and trusted. See https://www.oecd.org/
• One dimension of their effort is collecting cross-national data on social
expenditures.
• In 2014, many OECD countries devoted more than one-fifth of their
economic resources to public social support. Public social spending-to-GDP
ratios are highest at over 30% of GDP in Denmark, Belgium, Finland and
France (highest at almost 32% of GDP), with Italy, Austria, Sweden, Spain
and Germany also devoting more than a quarter of their GDP to public social
spending.
• At the other end of the spectrum are such non-European countries as
Turkey, Korea, Chile and Mexico which all spend less than 15% of GDP on
social support.
• The U. S. falls somewhere near the bottom, devoting about 18.7% of GDP to
social support.
quarter of their GDP to public social spending
1 Public social spending is worth 22% of GDP on average across the OECD
Public social expenditure as a percent of GDP, 2007, peak level after 2007, and 2014
Note: Throughout this document, (↗ ) (or ↗ ) in the legend relates to the variable for which countries are ranked from left to right in
increasing (or decreasing) order.
“Peak level after 2007” refers to the highest level social spending-to-GDP-ratio over the period 2007-2014, i.e. to 2009 except for the
United States (2010), Japan and Slovenia ( 2011), Greece and Mexico (2012), Belgium, Denmark, France, Italy, Poland, Portugal, the
Slovak Republic, Spain, Switzerland(2013), Australia, the Czech Republic, Finland, Korea and the Netherlands (2014).
2 Comprehensive social welfare systems were developed over a long period of time
Public social expenditure as a percent of GDP in 1960-2014
30
Mexico
Japan
Korea
United States
EU-21
OECD
25
20
15
10
5
0
1960
1965
1970
1975
1980
1985
Social spending is coming down in some countries, but
in many countries it remains high.
1990
1995
2000
2005
2010 12 2014
ratios declined by 1.5 to 2.5 percentage points in
Canada, Germany, Hungary, Iceland, Ireland, the United
• Bottom Line: The U. S. is not among the most generous countries at
using public expenditures to help its citizenry.
The U.S. health care system is largely market based. How do we fare vs other countries?
factors also may be at play.5
Note: Includes all spending, public and private in these countries.
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