How the Social Safety Net Helps Makers and Takers
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The Fiscal Times
December 20, 2013

To many people, “redistribution” is a dirty word. To those on the right, it implies punishing the successful merely for being successful while giving something for nothing to others who suffer from social pathologies such as substance abuse, failure to use birth control, dropping out of school and other self-inflicted causes of poverty and joblessness. Those on the left are more inclined to view redistribution not as punishment of the rich or subsidization of the undeserving, but as a social insurance system that helps everyone by maintaining social order.

From the progressive point of view, it makes no more sense to talk about redistribution in Robin Hood terms as taking from the rich and giving to the poor than it would be to talk about life insurance as redistribution from the living to the dead, or car insurance as a subsidy to careless drivers from the careful.

Related: The Social Safety Net Redistributes Income—That’s Why It Works

To be sure, there are what economists call “moral hazards” in all insurance systems. That is, to some extent they encourage the very behavior they are designed to protect against. Some drivers may well take chances on the road that they wouldn’t if they didn’t think their auto insurance would protect them from the consequences. But it’s hard to believe that this is more than a trivial problem, the danger of irresponsible actions on the highway are too unpredictable.

The same is true with social insurance programs such as Medicare, Medicaid, Social Security, food stamps, unemployment compensation and others. We all know there is a chance that we may need these programs at some point in our lives no matter how well we may be doing at the moment. We’ve all known peers who fell on hard times when their employers went bankrupt, when their marriages fell apart or a family member fell victim to substance abuse or a chronic health problem.

Furthermore, we all understand that as Americans we have some responsibility to lift up regions of the country that are overburdened by poor people for historical or geographical reasons. While illegal immigration may be something many people believe should be stopped at the border, it is nevertheless a fact that there are many noncitizens who live primarily in states bordering Mexico and the Caribbean. It would be unfair to expect those states to bear the full cost of illegal immigration as if it was a policy choice they made for themselves.

Lastly, we all know that there are negative consequences to living in a society with many people who may be starving or freezing to death or living perilously close to it. Such people have nothing to lose by fomenting revolution, organizing into criminal gangs or engaging in sabotage of basic services such as the water and power supply that everyone depends upon.

There are many countries like this. Even the moderately well to do must live behind walled communities and travel only with bodyguards, ever fearful of assassination and kidnapping. No American wants to live that way.

Related: 5 Years After the Crisis—Why the Income Gap is Widening

Therefore, we support redistribution and oppose a survival-of-the-fittest ideology. Even the novelist Ayn Rand, who advocated a society in which everyone would sink or swim with no help from government, applied for Social Security and Medicare. In the case of Medicare, she qualified for benefits while having paid almost no Medicare taxes—she turned 65 in 1970 and the program was only created in 1965, with the first Medicare taxes collected in 1966.

According to a recent study from the Federal Reserve Bank of San Francisco, most redistribution between the states is from the coastal states, especially those in the Northeast, to those in the interior, especially the South, which has long been our poorest region despite long following policies advocated by Republicans—low and regressive taxes, little government spending, especially on welfare, and pro-business regulatory policies. To Republicans, states like New York and California are socialist hellholes, but year in and out they remain our most prosperous states.

Net State Contributions to the Federal Government

 

Net contributions are calculated as taxes paid minus means-tested transfers received. Means-tested programs are generally considered welfare and only benefit the poor. The dark states pay a lot of taxes and get very little in terms of transfers, while the light states pay little in federal taxes and get a lot of benefits.

A new report from the Bureau of Labor Statistics looks in detail at the population of people receiving means-tested benefits. It found that in 2009, 19 percent of U.S. families participated in such programs. One-parent families headed by women were the largest recipients, with almost half of all such families receiving benefits. Only 12.3 percent of married-couple families with children did so.

Related: Americans in Poverty at 12 Percent Thanks to Safety Net

The BLS report shows that families receiving assistance spent 77 percent of their budget on basic necessities. Their options were limited by the fact that few own a car. Among those receiving assistance, 37 percent didn’t own a car versus just 3 percent of families not receiving assistance.

Families receiving assistance tend to have more children under 18 than those not receiving assistance, are more likely to lack a high school diploma and be African American or Latino.

But only 20 percent of families on assistance don’t have at least one member earning income; 57 percent have one worker, 21 percent have two earners and 2 percent have three or more. Thus it is not an unwillingness to work that is the primary reason families need assistance, but low wages or other factors.

The data also show that 27 percent of those receiving assistance are homeowners and two-thirds of them have mortgages. Since banks don’t typically write mortgages for people on welfare, this suggests that a considerable portion of those receiving assistance were doing much better in the recent past and may have only temporarily fallen on hard times.

Although the stereotypical welfare program is direct aid or public assistance, only 11 percent of those receiving means-tested benefits received this form of benefit and the total annual amount received was just $2,713 in 2011. Of those receiving means-tested benefits, 70 percent used Medicaid, a health program, and 61 percent received food aid. Close to 26 percent got housing assistance and 12 percent were the elderly participating in the Supplemental Security Income program.

In short, while some of those receiving government benefits may well fall into the “undeserving” category, it is obvious that many, such as children, are suffering through no fault of their own or have fallen on hard times because of macroeconomic conditions beyond their control.

On balance, it appears that government benefits are reasonably well targeted and serve exactly the purpose for which they are intended.

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Bruce Bartlett’s columns focus on the intersection of politics and economics. The author of seven books, he worked in government for many years and was senior policy analyst in the Reagan White House.