Overall plan for this section:
* Study the public assistance system that was in place in the U.S. between 1935 and 1996, with a special focus on AFDC and child support enforcement.
* Study the public assistance system put in place last year--Temporary Assistance to Needy Families, or TANF
* Study alternatives to this system, including European examples and the negative income tax
I. Basic Concepts
A. Poverty Line
B. In-Kind Benefits
C. Entitlements vs. Targeted Programs
D. Implicit Tax Rates
E. Insurance and Moral Hazard
II. AFDC
A. History
B. Work Disincentives
III. Child Support
Historical background: As children have become more costly, a greater proportion of the costs of raising them has been shifted to mothers.
Example of the "it’s women’s problem" argument--Charles Murray and chocolate cake
* In 1991, 56% of custodial mothers were awarded child support. Only one-half of these actually received the amount they were due.
* This poor enforcement has contributed to high rates of poverty among mothers and children.
* Stepped-up enforcement since 1990s: withholding from payroll; "Deadbeat Dads" posters; limited success.
* Under TANF--threat of punitive sanctions--women must assign paternity or they will not receive assistance (a waiver is available if they can prove domestic violence)
IV. TANF
Temporary Assistance for Needy Families
* "devolution" of authority to states through block grants
* reduced spending by $56 billion over six years
* imposed work requirements and time limits
* welfare rolls ARE falling
--booming economy, low unemployment
--increased work incentives
--people dropping off and out
Details on work requirements and time-limits:
* federal guideline--must work for pay after 2 years
Mass. rule--must work at least 20 hours a week for pay after 60 days or perform community service
* lifetime limit of 5 years assistance
(states can except up to 20% of their case load)
* variation among states...
some are providing job training and childcare
but some are not....
THREE BIG QUESTIONS
* should "community service" jobs pay minimum wage or "prevailing wage," and include benefits?
* will the jobs that these mothers take provide a sustainable source of income?
* why not include successful college/university enrollment as a form of work?
Pages in the War on the Poor that are especially relevant to material covered in class
10-The War on Poverty
12-Poverty Defined
16-Living High off the Hog
18-Wealthfare
20-Aid to Dependent Corporations
22-Welfare Elsewhere
48-Families Around the World
50-Child Support
62-Incentives
64-Every Mom a Worker
82-Inheriting Poverty
96-Whose Responsibility
121-122 Welfare as we need it
123-125 Help for Working Parents
128-129 Why we need a guaranteed minimum income
Homework Hints:
* assume a wage of $6 an hour
* cash welfare benefits initially $4800
* reduced dollar for dollar as wages increase
* in-kind benefits=Medicaid, food stamps, and housing aid $1000 each while on welfare
* food stamp benefits reduced by 30 cents for every dollar earned
What is the implicit marginal tax rate on earnings at each level of employment?
calculate the CHANGE in earnings and the CHANGE in total real income from one level of earnings to another;
This is the amount "taxed away" by benefit reduction.
Calculate what percentage this amount is of the original
earnings (amount taxed away/original earnings). This is the IMPLICIT MARGINAL TAX RATE.
implicit tax: a reduction in government benefits that lowers disposable income in the same way as an explicit tax on earnings