Social Welfare Research

What is the impact of home ownership?  

Home ownership continues to be a significant source of net worth to owners. According to the same 2016 Consumer Finance Survey, the primary residence accounted for 25% of all assets held by households in 2016, larger than other financial assets, business interests, and retirement accounts. 64.2% of American households own their own home and have a net worth that is significantly greater than the net worth of renters.

Does the gap between the richest 1% and the bottom 90% matter?  

This is obviously a complicated question, subject to varying points of view. We will make two observations here, one economic and one political.

Economically, there is an argument that the actual wealth gap does not matter as long as the least wealthy Americans are able to achieve sufficient financial security. A second and related argument is that a growing gap does not matter as long as the least wealthy Americans are better off today than they were in the past. In other words, “a rising tide lifts all boats.” Unfortunately, this has not been the experience over the past 30 years in the US. As we have shown, the bottom 90% are no wealthier today than they were in 1987, and the least wealthy Americans are not financially secure.

With respect to the political observation, there is a reasonable argument that democracy only functions successfully amongst populations that have basic shared values. It is arguably easier to have shared values when you have similar economic circumstances, opportunity, community, etc. In this respect, the growing difference between the lives of wealthy Americans and the lives of the least wealthy will strain our ability to share values and reach consensus on important issues.

Is it the “fault” of the rich that the bottom 90% is not getting richer?

While many on the left scapegoat the wealthy, Wall Street, and the big banks, arguing that the system is “rigged,” this is a hard argument to support factually. In our view, it is more likely that the gap has continued to grow for two more basic but equally intractable reasons. First, wages have not grown on a real basis in the past 20 years for the less educated and those in lower-wage jobs. In the meantime, the resources necessary to escape poverty have increased. For example, early childhood daycare and education, competitive schools, access to after-school activities, freedom from the burden of hunger and cold, freedom from the allure of gangs, and college are now all far more expensive on a real basis and are all requirements of escaping poverty. In less expensive and less complicated times, these hurdles were not so prevalent, non-working mothers and neighbors supplied many of the required services, and college and healthcare were more affordable.

What are the various social welfare programs, ranked by size, in the US today?

The federal government provides welfare in three fundamental ways. The first is through programs like Social Security and Medicare, in which Americans pay specific taxes designed to fund them. The second is through programs funded by general tax revenues, such as Medicaid. The third is through tax deductions designed to subsidize and encourage behavior, such as home ownership and retirement savings. These programs are referred to as “tax expenditures.” Each of these programs is described below.

Social Security—$955 billion

Overview: The largest of all social welfare programs is Social Security, providing $955 billion in benefits to 62 million Americans in 2017, 43 million of whom were retired. Retired workers and their dependents account for 72% of total benefits paid (about $687 billion), disabled workers and their dependents account for 16% of total benefits paid (about $153 billion), and survivors of deceased workers account for 12%.

Background: The Social Security Program was formed pursuant to the Social Security Act of 1935. At the outset, it was thought of as “old age” insurance, until a 1939 amendment added child, spouse, and survivor benefits. The original act provided for monthly retirement benefits, payable to persons 65 and older who were no longer working. The benefit formula was based on cumulative wages (earned since 1937) in covered employment (initially covering only about half the jobs in the country, which were in commerce or industry). Specifically, monthly benefits equaled 1/2 of 1% of the first $3,000 of cumulative wages, plus 1/12 of 1% of the next $42,000, plus 1/24 of 1% of the next $84,000. So, for example, someone who retired in January 1942 (when benefits were scheduled to begin) after earning a total of $6,000 during the five-year period from 1937 to 1941 would receive a benefit equal to $17.50 a month. This can be thought of, loosely speaking, as a typical benefit because the average worker at the time earned about $100 a month (which totals $6,000 after five years). Under the 1935 Act, retirement benefits were to be paid only if the individual was no longer engaged in regular employment. The 1939 amendments created the retirement earnings test. Under this standard, earnings of more than $15 a month precluded payment of benefits.

Also under the 1935 Act, benefits were to be based on payroll tax contributions that the worker made during his/her working life. A five-year gap between when these contributions started being taken and when they became available made this possible. It was not until the 1950s that this shifted to become a universal program, with contributions being paid into a pool that could be accessed regardless of how much the worker paid into the system.

The amendments of 1939 also led to the creation of dependent and survivor benefits. A wife of a retired worker was eligible for a 50% benefit, provided she was at least 65. Aged widows (and those caring for dependent children) were eligible for benefits paid at a 75% rate. Dependent children of retired or deceased workers received a 50% benefit. In 1957, the Disability Insurance Program was enacted. Initially, to hold down costs, disabled-worker benefits were limited to persons between the ages of 50 and 64 and were received by a relatively small number of persons (around 330,000 in 1959).

Today, disabled workers can be of any age (under the full retirement age), and they number more than 5.5 million.

What percentage of retiree income does Social Security represent? Among elderly Social Security beneficiaries, 50% of married couples and 71% of unmarried persons receive 50% or more of their income from Social Security. Among elderly Social Security beneficiaries, 23% of married couples and about 43% of unmarried persons rely on Social Security for 90% or more of their income. The average retiree receives an average of $1,369 a month, whereas disabled workers receive an average of $1,172 a month.

How is Social Security paid for? Workers and employers pay for Social Security. Workers pay 6.2% of their earnings up to a cap, which is $12,200 a year in 2017. Employers make a payment equal to their employees’ payments.

Does it benefit the wealthy? Yes. As indicated above, Social Security is not means tested and is available to anyone who has contributed, or is the spouse of a contributor, based on his or her lifetime earned income. Given that, it follows that the wealthy benefit as do the non-wealthy. For example, one in six retirees have a net worth above $1 million, which is about 7.2 million Americans. Assuming they each receive the highest possible benefit, total payments to them would approximate $216 billion per year.

Medicare—$672 billion:

Medicare is a federal program that provides health coverage if you are 65 or older or have a severe disability, regardless of your income. 44 million people currently receive Medicare, a number that approximates the population in America over the age of 65.  

Background: Like Medicaid, Medicare was created in 1965 during the administration of Lyndon B. Johnson. Medicare originally included only hospital and medical insurance. In 1972, these benefits were expanded to cover people with disabilities, people with end-stage renal disease (ESRD) requiring dialysis or kidney transplant, and people 65 or older that select Medicare coverage. Individuals under 65 with a disability who receive Social Security cash payments can also receive Medicare. Medicare also now covers prescription drugs.

How is it funded? Medicare is funded in several ways: general revenue (41%), a payroll tax of 1.45% of all employee earnings that is matched by an equal employer contribution (38%), through the collection of premiums from participants (13%), and through various state payments and miscellaneous sources.

Does it benefit the wealthy? Yes. Like Social Security, Medicare is not means tested and is available to anyone over the age of 65, meaning that Medicare benefits the wealthy and the non-wealthy. Following the same method used for Social Security, if the average American with net worth above $1 million receives an average benefit of $15,300 per year, total payments to them would approximate $110 billion.

Medicaid—$566 billion:

Medicaid is a program funded and administered through federal and state partnerships that provides health insurance to low-income Americans. It was started by President Lyndon Johnson in 1965.

Who qualifies for Medicaid? Since the states administer and contribute to Medicaid, eligibility and benefits vary by state. Most states set the income limit for receiving benefits between 106% ($14,691) and 138% ($19,127) of the poverty level, depending also on the number of people in the household. In  2017, 68 million Americans received Medicaid.

How is it funded? Medicaid is funded by the general income tax.

Does it benefit the wealthy? No.

Health Benefit Tax Expenditure—$242 billion:

The government subsidizes the employer-provided healthcare of Americans. Although most forms of compensation are taxable, the provision of healthcare insurance is not. This constitutes a benefit to Americans with W2 income and employer-provided healthcare.

What is the cost? This benefit is not a direct outlay, but rather an estimated cost to the US government of forgone revenue. The US Treasury estimates that this benefit cost $242 billion in 2019.

Does it benefit the wealthy? Yes. This program benefits employed Americans with W2 income, regardless of net worth or income. It does not benefit the unemployed, retired people short of Medicare eligibility, students, independent contractors, or employees of small companies that do not provide healthcare as a benefit.

Savings Tax Expenditure—$208 billion:  

The government subsidizes the savings of employed Americans by allowing the deductibility of employer and employee contributions to defined benefit ($77 billion) and defined contribution ($80.4 billion) retirement plans, IRAs ($21 billion), and self-employed savings programs ($30 billion). Such contributions are also tax free to the employee.  

What is the cost? Like the mortgage deduction, the annual cost to the US of this policy is not measured as a direct expenditure, but rather is an estimated amount of forgone tax revenue.

Does it benefit the wealthy? Yes. According to the Federal Reserve, 95% of families in the top 10% of earnings participate in a retirement account of some kind (401k, IRA, or defined benefit plan), whereas only 40% of the bottom 50% of earners have a retirement account.

Home Ownership Tax Expenditure—$121 billion:

For many decades it has been the policy of the US to encourage home ownership. This is done in three ways. First, the government supports the principal mortgage lenders, Fannie Mae and Freddie Mac. This support results in below-market interest rates for mortgages.  Secondly, the government allows a tax exclusion on the sale of homes of $250,000 per individual and $500,000 per married couples. And thirdly, the government allows for the deduction of interest expense on first and second home mortgages up to $750,000 each (grandfathered up to $1,000,000 for mortgages existing before the tax reform of 2017).

How much do these subsidies cost? The cost of supporting Fannie and Freddie is not easy to estimate, and we will ignore this subsidy for now. The costs of the two tax deductions, however, are directly quantifiable from IRS data. The US Treasury estimates that the interest deduction alone results in $76 billion in lost taxes (2019) on primary residences. The capital gain exclusion is estimated to cost the US treasury an additional $45 billion.  

Does it benefit the wealthy? Yes. As discussed above, home ownership is most common amongst higher-net-worth Americans, and large mortgages and mortgages on second homes and the related interest deductions are exclusively incurred and claimed by high-net-worth Americans. Again, according to the Joint Committee on Taxation, households in 2017 with incomes greater than $100,000 received 84% of the mortgage interest deduction benefit.

Supplemental Nutrition Assistance Program (SNAP)—$80 billion:

SNAP was previously known as the food stamp program and is often still referred to in that way. SNAP provides food vouchers to those in need that can be exchanged for certain foods at grocery stores. Included in SNAP are the Special Supplemental Food Program for Women, Infants, and Children and the Child Nutrition Program that provides free or reduced-cost lunches to children. The program benefits approximately 47.6 million people, or 23 million households. An average participant received food vouchers worth $133 a month.

How is it funded? SNAP benefits are funded through federal taxes. The administrative costs are split 50-50 between federal and state taxes.

What is the history of SNAP? In 1961, President John F. Kennedy used his first executive order to initiate the food stamp pilot program. In 1964, Lyndon Johnson signed the Food Stamp Act, making the program a permanent fixture. By 1974, the program had been expanded to all 50 states and territories. In 1984, the Electronic Benefits Transfer program began, which allowed food stamp beneficiaries to use food stamps through an EBT card. By 2004, EBT use was nationwide.

Who qualifies for SNAP? To qualify for SNAP, your total household income cannot be more than 130% of the federal poverty level. For 2017, this would mean that your household’s monthly income could not exceed $2,665. Furthermore, a household receiving SNAP cannot have financial holdings of over $2,250. If at least one person in the household is over the age of 60 or is disabled, the household may have $3,500 in financial assets.

There is also an employment requirement for SNAP. While you don’t have to be employed, you can lose your benefits if you intentionally lose your job or decrease your hours. Also, you must be registered to work, and must take a job if it is offered. “Recipients deemed to be Able-Bodied Adults without Dependents (ABAWDs) are limited to 3 months of benefits over the course of 36 months, unless they prove they are working or participating in education or training activities at least 80 hours per month, or participating in a workforce program.”

Does it benefit the wealthy? No.

Earned Income Tax Credit (EITC)—$65 billion:   

The Economic Policy Institute provides a good summary of this program, which consists of a tax credit for families with at least one child. They must earn less than $51,567 a year to qualify. The EITC was part of the Tax Reduction Act of 1975, which was passed into law during the Ford Administration. Originally, the EITC was supposed to be a temporary refundable tax credit for lower-income workers to offset the Social Security payroll tax and rising food and energy prices. The credit was made permanent by the Revenue Act of 1978. The EITC was considered both an anti-poverty program and an alternative to welfare because it created an incentive to work.

The Reagan Administration substantially expanded the program with the Tax Reform Act of 1986. Reagan called it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” Since 1978, Congress has enacted several smaller changes, with the maximum credit for a worker with three children increasing from $400 in 1978 (about $1,400 in 2012 dollars) to $5,891 in 2012.

How many people participate? In 2015, 28 million people received some sort of tax relief from the EITC. Because of the credit, an estimated 45% of taxpayers pay no tax.

Who is eligible to participate? To qualify for and claim the Earned Income Credit in 2017, you must have earned income; have been a US citizen or resident alien for the entire tax year; not have investment income exceeding $3,450; and both your earned income and Adjusted Gross Income (AGI) may not exceed $15,010 per year with one child or up to $48,340 with three children.

Does it benefit the wealthy? No.

Supplemental Security Income Program (SSI)—$57 billion:

SSI provides cash to help the aged, blind, and disabled to buy food, clothing, and shelter. SSI originated as part of the Social Security Act of 1935. In 1972, President Nixon modernized the program. Under the new arrangement, SSI would provide “a uniform Federal income floor while optional State programs supplemented that floor.” This means that each state created a basic level of assistance that they were willing to give to those receiving SSI, and then the federal government gave enough funds for all states to meet federal standards.

Who is eligible? To quality for SSI, you must be age 65 or older, be totally or partially blind, or have a medical condition that keeps you from working and is expected to last at least one year or result in death. SSI eligibility is derived by taking “countable income” (wages, other benefits) and subtracting it from the amount of SSI benefits available in your state. Also, you cannot receive SSI if you have assets worth more than $2,000.

How many people participate? In 2015, approximately 8.4 million people received SSI. Of these, 7.3 million were blind or disabled. The average person receives about $750 a month from SSI. For couples who are both eligible for SSI, the average monthly payout in 2018 is $1,125.

Does it benefit the wealthy? No.

Municipal Bond Interest Tax Expenditure—$29 billion:

The IRS does not tax “tax exempt” municipal bonds. The cost of this exemption is estimated by the US Treasury to be $29 billion.  

Does it benefit the wealthy? The benefit of this goes entirely to the wealthy, as it only makes financial sense for those in the highest tax brackets to invest in such bonds.

Farm Subsidies—$25 billion:

The US provides support to 39% of the country’s 2.1 million farmers with subsidies designed to protect them from fluctuation in price, yields, revenue, and weather. They also receive assistance with insurance, marketing, exports, and research. Such support has a long history in America, and continues to this day, despite the fact that farming is no riskier than many other industries in the US that are not protected.

Does it benefit the wealthy? Yes. The average income of all farm households was $117,918 in 2016, 42% higher than the average of all US households. In his 2019 budget proposal, President Trump proposed eliminating subsidies to farmers with incomes over $500,000, which would save $6 billion.

Temporary Assistance for Needy Families Program (TANF)—$20 billion:

The federal government provides grant funds to states and territories to provide families with temporary financial assistance and related support services. State-administered programs may include child care assistance, job preparation, and work assistance, usually in the form of cash assistance. In 2016, the TANF program provided income to 2.8 million recipients. Of these, 2.1 million were children. On national average, a three-person family received $429 a month.

What is the history of TANF? TANF was established as part of the 1935 Social Security Act as the Aid to Families with Dependent Children program. In 1996, it was amended during the Clinton administration welfare reform effort through the Personal Responsibility and Work Reconciliation Act (PRWORA). The most important restructured elements of the revisions were the conversion to financing through block grants to the individual states, the imposition of strict work requirements in order to qualify, and lifetime limits on the number of years of benefit receipt that could be paid out of federal funds.

Who qualifies for TANF? In order to qualify for TANF, applicants must be either pregnant or responsible for a child under 19 years of age. They must be a US national, citizen, legal alien, or permanent resident; have low or very low income; and be under-employed (working for very low wages), unemployed, or about to become unemployed. Families who receive TANF must get a job within two years. They cannot own more than $2,000 in total assets. Participants may only receive TANF for five years within their lifetime, or less in some states.  

Does it benefit the wealthy? No.

Housing Choice Voucher Program—$18.4 billion:

The Housing Choice Voucher Program gives certificates to rent approved units. The subsidy is available to low-income Americans who spend at least 30% of their income for said housing. This voucher can also sometimes be used to purchase a “modest” home.

Background: Federal tenant-based rental assistance was established as part of a major restructuring of federal housing assistance for low-income families in 1974. Since 1996, Congress has authorized HUD to award about 700,000 additional vouchers, but about half of these have simply replaced public housing or other federally subsidized housing that has been demolished, or is no longer assisted. In the past 12 years, additional HUD grants have only been made available to certain groups, such as veterans and Native Americans.

Who is eligible to participate? The Housing Choice Voucher Program has an income eligibility cap of $68,000. Applicants must be a citizen or eligible immigrant. Applicants cannot have been evicted from any previous public housing or Section 8 program.

How many people participate in the program? In 2015, 2.2 million families utilized this program, with a total of 5 million adults and children.

Does it benefit the wealthy? No.

ChildREN’s Health Insurance Program (CHIP)—$14.5 billion:

CHIP provides additional medical support to families with children up to 19 years of age who have incomes too high to qualify for Medicaid, but who nonetheless can't afford private coverage. In November of 2017, 9.4 million children were enrolled in CHIP.

Background: CHIP was passed into law in 1997. It covers hospital care, medical supplies, and tests. It also provides preventive care, such as eye exams, dental care, and regular check-ups.

Who is eligible? Because CHIP is financed through federal block grants that are matched by the states, coverage is determined by the states and varies somewhat. Almost every state, however, provides coverage for children in households that earn up to 200% of the federal poverty level.

Does it benefit the wealthy? No.

Low-income Home Energy Assistance Program (LIHEAP)—$4 billion:

LIHEAP provides energy assistance and weatherization programs for low-income households. The program provides assistance with heating or cooling bills, emergency services in cases of energy crisis such as utility shutoffs, and low-cost home improvements, known as weatherization, designed to make homes more energy efficient and lower utility bills.

Background: Rising housing prices in the 1970s led to the creation of LIHEAP in 1980. The act was packaged as part of a much larger bill named the Crude Oil Windfall Profit Act. In 1984, the Human Services Reauthorization Act added a new goal to provide funds for cooling costs of low-income households.

Participants: 6.8 million households (approximately 23 million people) participate in the program. Of these, 1.8 million are military veterans.

Does it benefit the wealthy? No.

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