What is Welfare?

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Definition:

Welfare, in the context of government programs, is financial support provided to people below a defined income level — Which assures that basic needs can be met.

🤔 Understanding welfare

When people talk about welfare, they are usually referring to the government programs that assist the poor. Welfare programs help people that would otherwise have a hard time maintaining a minimal standard of living. Some programs provide money for food or rent. Other programs provide things like health insurance, child care, or transportation. Federal, state, and local taxes fund all of these programs. By taking money from people with higher incomes (through taxes) and providing financial support to people with lower incomes, welfare programs bring the quality of life of the population closer together.

Example

During the fiscal year 2019, the United States federal government spent $4.45T. Within that budget, $515.4B went to a category called income security. Subtracting $149.7B of retirement payments to federal employees leaves $365.7B of spending on welfare programs. These programs included refundable tax credits, direct transfers to needy families, money for food and housing, and other programs. The government also appropriated $651B for Medicaid payments. Combined, welfare spending represented about 23% of the federal budget in 2019.

Takeaway

Welfare is like your parent’s basement…

For most of your adult life, you will likely earn a steady paycheck. It provides you enough financial security to rent an apartment, pay utilities, and eat what you want. If something happens and your job goes away, you won’t be able to pay the rent anymore. But rather than ending up on the street, maybe your parents have a basement you can use until you get back on your feet. Since your parents care about your welfare, they are willing to ensure that you have a minimum quality of life.

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What are the U.S. welfare programs?

There are six major welfare programs in the United States. Three offer specific assistance with food, housing, and medical care. The others provide direct cash payments to low-income Americans.

Supplemental Nutrition Assistance Programs (SNAP)

SNAP is the program people often refer to as food stamps. It's run by the Department of Agriculture, which provides benefits to low-income individuals, and recipients can only use the money to purchase food.

The program now offers recipients a type of debit card rather than paper bills. However, the card doesn’t work to buy alcohol, tobacco, vitamins, prepared foods, pet food, personal care items, or any other nonfood items.

Housing Assistance

The Department of Housing and Urban Development provides housing assistance in a few ways. It offers support in purchasing a home in some cases and money to help with rent in others.

One program is called Section 8, which provides a housing choice voucher that tenants can use to pay landlords. In some places, the government might own a public housing complex and offer the units to low-income individuals.

Medicaid

Medicaid provides healthcare for people who cannot afford health insurance and don’t have coverage through their work. It should not be confused with Medicare, which provides health coverage for people over 65 years old.

While Medicaid is a welfare program (because it has a maximum income for eligibility), Medicare is an entitlement program (which is eligible to anyone who paid into the program, regardless of income level).

There is also a subcomponent of Medicaid that exclusively covers children. It is called the Child’s Health Insurance Program (CHIP).

Temporary Assistance for Needy Families (TANF)

If you’ve ever heard of someone getting a welfare check, they are probably talking about TANF. This program provides cash assistance to people in need. TANF funds are issued to state governments as grants. Federal funds must be used to support low-income families with at least one child.

The program, benefit amounts, and criteria differ from state to state. These welfare benefits act like a safety net if someone falls on hard times.

Supplemental Security Income (SSI)

Americans with disabilities may qualify for financial assistance through the supplemental security income program.

Refundable Tax Credits

After you calculate how much you owe in taxes, a tax credit acts like a coupon that reduces your bill. For example, if you earned $30,000 in taxable income, you might owe about $1,950 in federal income taxes, as a single filer, depending on your deductions. But if you qualify for a $1,000 tax credit, it would reduce your tax bill to $950.

Most tax credits only let you bring your tax bill down to zero. But two specific tax credits allow someone’s tax liability to go negative, which turns into a tax refund. Because these tax credits have income limits, they are considered welfare programs.

The first credit is called the Earned Income Tax Credit (EITC). It is specifically designed to reduce the tax burden on low-income individuals. The second is the child tax credit. With this credit, a parent can reduce their tax liability by $1,000 per child. However, there are limitations on income — The credit can only become refundable if the taxpayer’s income is low enough.

How does the U.S. welfare system work?

Most welfare programs were created by the federal government, but are run by state or local governments. Congress appropriates money for the programs, which gets passed on to improve the social welfare in each area. Each state is usually required to match a portion of the federal funds.

It becomes the state’s responsibility to process applications from its residents and to distribute the money to those who qualify. This funding can come in the form of direct payment for the programs or as block grants that assist states in their efforts. Some places add another layer of support on top of the federal program. Of course, the federal government doesn’t help pay for such additions.

What qualifies you to apply for welfare?

Each welfare program has its own set of rules, and each state runs its welfare programs differently. The Federal government supports state programs with grants. However, all welfare programs have some form of income limit. That is what separates a welfare program from an entitlement program.

For example, Social Security and Medicare are entitlement programs. Anyone that paid into the program is eligible for the benefits, regardless of income.

Most welfare programs have additional eligibility requirements. For instance, you must be a United States citizen to qualify in most cases. Only people with children can receive TANF assistance. And people are not eligible for some benefits beyond a specified amount of time.

How have welfare programs grown in the U.S.?

There are multiple chapters to the welfare saga in the United States.

The Great Depression

While historians can point to social programs dating back further, the United States began its welfare programs in earnest in 1935. When the stock market crashed in 1929, it dramatically changed the financial landscape for most Americans.

The collapse in stocks wiped out the life savings that people had counted on to pursue the American Dream. It cleaned out the pension funds of people who had worked for a lifetime with a company that was suddenly out of business. And it eliminated the jobs that provided the income for many people to pay the bills.

Poverty quickly grew to be more than a local issue managed by nonprofit groups, churches, and charities. It rapidly became an issue of national importance.

The New Deal

President Franklin D. Roosevelt (FDR) told America that it had been dealt a bad hand. He believed it was time to reshuffle the cards and start a new deal. The implications were far-reaching.

It created the Works Progress Administration, which directly created jobs for out-of-work Americans. It passed the Fair Labor Standards Act, which set a minimum wage and other labor regulations. It even included economic relief for farmers to support the agriculture industry, along with several other initiatives to create jobs and stimulate the economy.

In 1935, FDR signed the Social Security Act into law. The Act would provide a fixed income to the elderly, which would replace those lost pension payments. It would also create an unemployment assistance system and provide Supplemental Security Income (SSI) to the disabled and blind.

In the context of welfare, a relevant provision is found in title IV of the Act. It established the Aid to Dependent Children (ADC, later changed to AFDC) – A grant to state governments to develop and maintain a way to provide financial aid to children without a breadwinner in their home.

The Great Society

The New Deal legislation moved the political ideology of the United States considerably away from the laissez-faire (hands-off) mentality that dominated before the Great Depression.

Although there was considerable pushback, the Supreme Court allowed most of the New Deal legislation to stand. Over the next 30 years, the public came to accept the expanded role of the federal government.

Then, in the 1960s, President Lyndon B. Johnson (LBJ) declared a “war on poverty” as part of an effort to build what he called the Great Society. LBJ asked all Americans, as part of the wealthiest country on earth, to chip in and help those that were left behind.

As part of the Great Society building efforts, Medicaid, Medicare, Food Stamps, and Head Start came into being.

Reaganomics

The 1980s brought a wave of change in western politics. It elevated people like Margaret Thatcher (British Prime Minister) and Ronald Reagan (U.S. President) into power.

Each campaigned on promises of cutting back the growth of government and the “creeping communism” that was taking over the free market foundation upon which western society was built. Concern that the USA was becoming a welfare state struck fear into many politically conservative minds.

The 1980s were a time of pulling back on the funding for welfare programs and making it more challenging to qualify for public assistance. President Reagan used one example of welfare fraud to paint a picture of widespread abuse of the programs.

His “welfare queen” example became a symbol of inefficiency and inequity in the system, leading many people to believe in a community of people living lavish lifestyles without going to work.

Clinton Welfare Reform

President Bill Clinton pushed hard to fix the welfare system. In 1996, he signed the Personal Responsibility and Work Opportunity Reconciliation Act into law. With that act, the old Aid to Families with Dependent Children (AFDC) was replaced with the Temporary Assistance for Needy Families (TANF).

The new welfare program was designed to encourage people to get off of welfare while providing them with some temporary financial support. Families receiving TANF funds cannot continue getting cash for more than five years.

The Great Recession

When the financial markets melted down in 2008, the global economy was thrown into a deep recession. As businesses closed, employees lost their jobs. The increased unemployment pushed many Americans toward seeking government assistance to replace their lost wages.

At the same time, President Obama pushed economic relief legislation through the Congressional process.

First, the American Recovery and Reinvestment Act of 2009 expanded the benefits of some welfare programs. For instance, it increased the amount of food stamps available to an applicant until 2013.

Additionally, the Affordable Care Act of 2010 expanded Medicaid eligibility to millions of Americans who were not covered by health insurance.

What are some myths about welfare programs?

Over the last 40 years or so, welfare programs have become a punching bag for some politicians and their supporters. Unfortunately, that has led to a few myths becoming accepted as valid within those circles. For example, the number of people receiving welfare is often exaggerated.

First, when people think about welfare, they usually envision a person getting a welfare check from the Temporary Assistance for Needy Families (TANF). According to the most recent data, about 2 million people received TANF payments (less than 1% of the population). Of those, only 420,211 were adults.

Participation in the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) is higher. Approximately 40 million Americans (11% of the population) receive assistance from this program. Of those participants, 17.6 million are children, 5.6 million are over 60 years old, and 3.6 million are adults under 60 with a disability.

Many welfare beneficiaries can’t get a job due to a genetic disease or physical disability. Roughly 8.1 million Americans receive Supplemental Security Insurance (SSI) payments, of which 1.1 million are children, and 2.3 million are at least 65 years old.

The most extensive welfare program is certainly Medicaid. Nearly 71 million Americans (19%) were enrolled in government-provided health insurance as of December 2019. However, over 35 million were children.

Combined, an estimated 21% of Americans receive welfare in some form. But most are not people that can support themselves. Well over half of the welfare recipients are children, elderly, or disabled. On average, a person participating in at least one welfare program received $404 per month in benefits in 2018.

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