Chapter 3.4 Providing a Safety Net

1. Chapter 3.4 Providing a Safety Net Shea Carrington 5th period

2. The Poverty problem • The free market economic system has proven that it is better at generating wealth than has any other economic system, but that wealth is spread unevenly throughout society. This system leaves some people below the poverty threshold leaving them unable to support their families. • Poverty threshold – an income level below that which is needed to support their families

3. The Welfare System • Since the 1930’s, the main government effort to ease poverty has been to collect taxes from individuals and redistribute some of those funds in the form of welfare. • Welfare payments soared in the 1970s and the 1980s. Then in the 1990s, critics of welfare voiced increasing concern about people becoming dependent on welfare and being unable or unwilling to get off it. In 1996, Congress made sweeping changes in the welfare system Welfare– is a general term that refers to government aid for the poor.

4. Redistribution Programs Cash Transfers – direct payments of money to poor, disabled, and retired people. Programs: • TANF – Temporary Assistance for Needy Families – Launched in 1996 as part of comprehensive welfare reform, TANF discontinues direct federal welfare payments to recipients. Instead, federal money goes to the states which design and run their own welfare systems. States must adhere to federal rules that create work incentives and establish a lifetime limit to benefits. So basically this system tries to get people to be less dependent on welfare. Also this program replaced the earlier welfare program, Aid to Families with Dependent Children (AFDC) in 1966. • Social Security – The Social Security program was created in 1935, during the Great Depression, when many of the elderly lost their life savings and had no income. This program provides direct cash transfers of retirement income to the elderly and living expenses to the disabled. The program collects payroll taxes from current workers from current workers and redistributes them to current recipients.

5. Redistribution Programs Cont. • Unemployment insurance – another cash transfer is the unemployment insurance program, which is funded jointly by federal and state governments. Unemployment compensation provides money to eligible workers who have lost their jobs. The workers must show that they have made efforts to get work during each week that they receive benefits. • Workers’ compensation – This program provides a cash transfer of state funds to workers injured on the job. Most employers must pay workers’ compensation insurance to cover and future claims their employees might make. This insurance has become more expensive as medical expenses and the number of reported on-the-job injuries have increased.

6. Other benefits • The government also provides people with In-kind benefits, goods and services provided for free or at greatly reduced prices. Example – Food stamps. http://www.youtube.com/watch?v=dg6L24_4v20 • Another social service that the U.S. government provides is health insurance for the elderly, disabled, and the poor. Medicare covers Americans over the age of 65 as well as the disabled. Medicaid some poor people who are unemployed or not covered by their employer’s insurance plans. Administered under the under the Social Security program, Medicare and Medicaid are enormously expensive programs. • Federal, state, and local governments all provide educational opportunities to the poor. The federal government funds programs from preschool to college. And improved education and technology can make an entire economy more productive. • In 2001, President George W. Bush announced an initiative to rely on non-government support for people in need. This administration looked for faith-based organizations, charities, and community groups that have shown the ability to save and change lives. Bush proposed as a next step in the welfare reform that faith-based organizations be allowed to compete for federal funds.

7. Quiz • What is an example of an In-kind benefit? • What is a cash transfer? • Who announced an initiative to rely on non-government support for people in need? • What is one type of health insurance that the government provides? • What is welfare?