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Discretionary spending: Congress can adjust
the amount spent on different programs
through changes in annual appropriations bills.
Mandatory spending: the federal government
is legally required to spend the money.
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Social Security was founded in 1935 as part of
the Franklin D. Roosevelt Administration’s
New Deal
Provides financial assistance to senior citizens,
people with disabilities, and children whose
wage-earning parents have died (the original
intention was to take care of “widows and
orphans”)
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Social Security is an entitlement program.
Everyone who is eligible is legally entitled to
receive benefits regardless of their means (even if
they don’t need the money for their
retirement/survival) – this differs from meanstested programs such as welfare.
The amount of benefits is determined by a
formula, and the amount determined by the
formula is legally required to be paid out.
Social Security and Medicare accounted for 36% of
federal spending in 2011 and 43% in 2013.
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Social Security is funded through a payroll tax.
Up to $118,500 of your income is subject to this tax.
Your employer pays 7.65% of your income in
payroll taxes.
An equal amount is deducted from your check.
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6.2% goes for Social Security and 1.45% for Medicare.
If you’re self-employed, you pay the whole thing
yourself (15.3%).
The trust fund took in $590 Billion in payroll taxes
in 2012.

Source: Social Security Administration at
socialsecurity.gov.

Workers pay in (currently 167 million people)
85% goes to retirement trust fund
 15% goes to disability trust fund
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Retirees collect
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59 million current recipients
You can begin to collect at age 62, but can’t collect full
benefits until later
Benefit level is based on what you paid in, based on your
average income over 35 years of your career
Higher-income workers eventually collect higher SS
benefits
Because of Cost-of-Living Adjustments and interest, you
get out more than you paid in
Average Social Security monthly benefit is $1328 as of
January 2015.
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Never intended to be your sole source of retirement income
Supplemental Security Income (SSI) for those with
disabilities who are unable to work
Federal SSI benefit is $733 per month for an individual
and $1100 for an eligible couple; states may
supplement this with their own money.
Social Security benefits are not subject to federal
income tax unless your income is above a certain level
The practical effect of this is that if SS is your primary
source of income, you don’t pay federal income taxes
The program currently takes in more than it pays out.
 The trust fund currently contains $2.5 Trillion.
 BUT this money is borrowed from to fund other
federal programs (makes the deficit look smaller
than it actually is)
 And there’s another problem…
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76 million Americans born 1946-1964
In the recent past, all of these people were at
the peak of their earning capacity and paid
large amounts into the trust fund over time
First boomers turned 65 in 2011 and are now
drawing benefits (even though some of them
are still working and paying into the system)
Eventually, this large group of people will be
drawing benefits out instead of paying in.
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Without changes, the system will no longer be
able to pay full levels of benefits after 2033
Without changes, the Medicare system will no
longer be able to pay benefits after 2034
Without changes, the retirement system will no
longer be able to pay benefits after 2036
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Fixing Social Security requires short-term pain
(raising taxes) for long-term gain (benefits that
won’t be realized for decades)
It’s easier for politicians to do nothing and kick
the can down the road for future generations to
solve.
The bad news: It’s YOUR problem.
The good news: You have 20 years to figure out
how to fix it.

Means testing (benefits only if you need them)

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Politically controversial – people have paid in with
the expectation that they will receive benefits
Decrease Cost-of-Living Adjustment (COLA)
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Benefits increased by 1.7% in 2015. It was announced
that benefits will not increase in 2016 because there
was no increase in the Consumer Price Index.
A slower rate of growth than the increase in the cost
of living (e.g., 1%) would prolong the life of the
system.
It’s easy to portray this as a “cut” in benefits.

Raise age at which you can begin to collect full
benefits – going up incrementally
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Born prior to 1937: age 65
1937-1942: 65 and some months
1943-1954: age 66
1954-1960: 66 and some months
1960 or later: age 67
May eventually be increased to age 70
Raise/eliminate cap on amount of income subject
to payroll tax
Bill Gates only pays Social Security payroll taxes on the
first $118,500 of his income.
 Extremely high-income workers do pay a higher
percentage of the Medicare payroll tax.
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Privatization: Proposal by GW Bush and others
to allow people to pay less into the SS trust
fund and more into private individual
retirement accounts that could be invested in
the stock market
Potential for much greater return on
investment than SS pays out
What if the stock market goes down? (This
proposal hasn’t been discussed much since the
recession began in 2008)

While an entitlement program such as Social
Security is available to all who meet certain
criteria (age 65 and older), a means test
requires recipients to prove a lack of assets in
order to qualify for benefits from a program.

Traditional conservative view: Most
poverty is caused by behavioral
characteristics: laziness, stupidity,
irresponsibility, bad choices
(substance abuse, promiscuity,
dropping out of school).
Government can’t fix this.

Traditional liberal view: Private
enterprise cannot by itself provide
enough jobs, opportunity or resources
for everyone; historical discrimination
and social structures exacerbate poverty
and limit opportunity, so some people
will be left out through no fault of their
own. Government has an obligation to
help these people.

Eventual consensus: Government
has a responsibility to provide for
the truly needy, while behavioral
dependency has to be addressed and
personal responsibility has to be
developed
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“Social safety nets (SSNs) are noncontributory
programs that target the poor and vulnerable
and are designed to reduce poverty and
inequality, enable better human capital
investments, improve social risk management,
and offer social protection.” (World Bank)
In the US and other developed countries, social
safety nets generally refer to welfare programs
for the poor.
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The US Constitution gives the
Congress power to “provide
for…the general Welfare of the
United States,” but many social
programs have been state-centered
or coordinated between state and
local governments.
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Social welfare programs either transfer income
or provide services to individuals to improve
the quality of their lives
Technically, public education qualifies as a
social welfare program
Social Security and Medicare are not targeted
specifically at the poor
31% of female-headed households in US are
below the poverty line (down from 44.3% in
1996)
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Direct cash transfers (money, in the form of
government checks, to individuals) – AFDC
was a direct cash transfer program, TANF, SSI,
EITC, some state programs
In-kind programs provide goods and services:
food stamps, Medicaid, child nutrition (WIC,
school lunch)
Social insurance: Social Security, Medicare,
Unemployment compensation, Worker’s comp

Medical programs are biggest category

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We’ll talk about Medicare, Medicaid, etc., when we
discuss health care as our next topic
Cash assistance programs are second biggest
category

Less than one-quarter of state welfare expenditures
go to cash assistance programs (TANF, SSI, general
assistance)

2014 federal poverty guideline for a family of
four is $23,850 (poverty level is defined as three
times the cost of food).
15% of total population is poor
 21.8% of children
 9.1% of senior citizens

Sources: familiesusa.org; University of Wisconsin
Institute for Research on Poverty at irp.wisc.edu

FY 2012:
21.2% in Louisiana
 7.4% in New Hampshire
 White 11.7%
 Black 27.2%
 Hispanic 25.6%
 Asian 12.7%
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States received $525 Billion in federal funds in
2011 for health, education and welfare
Trends: Health care costs and expenditures are
growing as welfare spending is shrinking
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Benefits tend to be higher in wealthier states –
greater tax base and fewer needy people,
greater political control by those whose
interests are not served by generous welfare
spending
More politically conservative states spend less,
even though many of them are poorer
(Mississippi); states with larger African
American populations tend to have stricter
eligibility requirements for social programs
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Aid to Families with Dependent Children
(AFDC) was established in 1935.
Assistance to widows and orphans (most
women weren’t in the paid workforce and the
assumption was that they needed to be
provided for)
Eligibility criteria: Single-parent family or twoparent family where primary wage earner is
unemployed, child under 18
Income eligibility was set by states
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No time limits, so welfare became a
multigenerational way of life when it was
intended as temporary assistance (if your child
under 18 had a baby, the family was eligible
until the baby turned 18)
Emphasis on single-parent families (almost all
of which are female-headed) discouraged
marriage and promoted illegitimacy and
poverty
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No expectation of improvement
No incentive to get off welfare
No job training or skill development to achieve
economic self-sufficiency
Greater benefits for larger families led to
irresponsibility in having children
More than two-thirds of recipients got it for
more than eight years
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In the early 1990’s, several states were granted waivers
from federal AFDC requirements to experiment with
different types of welfare programs.
Wisconsin developed “workfare” requirements
South Carolina Family Independence Act of 1995
The success of these experiments led to the federal
Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (PRWORA)
“Reconciliation” is a budget term
Replaced AFDC with Temporary Aid to Needy
Families (TANF)
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“The four purposes of TANF are:
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Assisting needy families so that children can be
cared for in their own homes
Reducing the dependency of needy parents by
promoting job preparation, work and marriage
Preventing out-of-wedlock pregnancies, and
Encouraging the formation and maintenance of twoparent families” (US Dept. of Health and Human
Services)
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AFDC was primarily a federally-administered program
with benefits direct to individuals, while TANF is
primarily administered by the states, funded by block
grants from federal government to states
Time limits: 24 months consecutively, 60 months
lifetime unless certain criteria are met for a waiver
Work, school or job training requirements as a
condition of receiving benefits
Unmarried teenagers and their children, and children
born while their mothers were receiving benefits, may
be denied coverage
Recipients may be required to complete high school

Most recipients must work in order to receive
benefits
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Single parents: 30 hours per week, or 20 hrs./wk. with a
child under 6
Two-parent families: 35 hrs./week or 55 hrs. if they
receive federal child care assistance
Work activities: job, work experience, training, job search
and coaching, vocational education, community service,
secondary school attendance, providing child care to
individuals participating in community service.
Teenaged parents must live with their parents or in an
adult-supervised setting
TANF Block Grant $16.5 Billion to states in FY 2009.
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Less than 2% of families nationally
Approx. 1% of population of SC (41,000); this is
up substantially since the beginning of the
recession in 2008, but about one-sixth the
AFDC caseload prior to welfare reform in 1996
Average monthly benefit varies by state
States may exempt parents of infants from
work requirements
Mother of two in SC: $163-$205 a month in
benefits
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Child support enforcement
Marriage initiatives
Fatherhood initiatives
Child care initiatives
Abstinence Education
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Medicare (1965)
Medicaid (1965) and SCHIP (1995)
Head Start (1965) and Early Head Start (1995):
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Head Start: Comprehensive child development
services for eligible low-income children from birth
until mandatory school attendance.
EHS is for pregnant women.
Other social programs – some states have
General Assistance programs
Health care and Affordable Care Act – impact
on poverty (to be discussed next time)
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Food Stamp program established 1964
Now called SNAP (Supplemental Nutritional
Assistance Program)
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Funded by US Department of Agriculture and administered by
states
“Food stamps” replaced by EBT cards which can only be used
for certain staple foods
46 million people received benefits at some point in 2014,
generally about 16 million at any one time
Maximum benefit for an individual is $194/month (larger for
couples and families)
Able-bodied recipients under 60 without dependents are
eligible for three months of assistance over a three-year period
Eligibility requirements make it difficult for many to apply
SC EBT program

WIC (Women, Infants and Children)
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Target population is pregnant and breastfeeding
women, infants and children under 5.
Administered by USDA, state agencies and local
providers
Means-tested, eligibility requirements vary by state

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Community Development Block Grant (1974)
$4.7 Billion in federal funding in FY 2006, down
to $3.02 Billion in FY 2014
Also federal aid for housing and development
projects
Section 8 rent subsidies
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Enacted 1975
Offsets burden of Social Security payroll taxes
paid and can reduce the federal tax burden for
low-income families
Total income limits to qualify in 2014:

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$14,590 for single, childless taxpayer
$20,020 for childless couple filing jointly
Limits increase up to $52,047 for married couple
with three or more children, filing jointly
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People are worse off if they can’t remain
eligible for things like food stamps once they
get jobs
What if you have no transportation or child
care – how can you work then?
Are the jobs where the needy live?
Fraud: As a practical matter, either you let
people cheat in order to make sure that no truly
deserving person gets left out, or you let truly
deserving people get left out in order to make
sure that no one cheats. Which is worse?