POL 321 Lecture Notes - Lecture 12: Social Security Trust Fund, Earned Income Tax Credit, Tax Credit

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Lecture 12
Defining Poverty & Policies
Poverty is defined by the Federal Poverty Level which is set by U.S. Department of
Health and Human Services at 3 times the cost of groceries in a year (having income
above/below that)
Percent of number of people above or below the poverty line is done using the same rate
for every state
Senior citizens (65+) have seen greatest decrease in poverty rate
Children have highest rate of poverty
o 1/5th of children in poverty since 2012, based on household income
Those who are single & never married with high school education have seen poverty rate
increase
Policies on addressing poverty tend to focus on: income, food, & housing
Government uses 2 tools: subsidies & direct provisions
Need policies to: provide minimum standard of living to help people meet basic needs
(food, water, housing) & create opportunities for viable employment
U.S. has reduced poverty 1966-2012
Policies: Income
Social Securityfor the elderly & disabled, 67+, income-focused, & some help for
children of disabled or whose parents died
o Not means tested
o Cash benefit tied to your earnings
o Individuals currently working support the individuals currently retired
o Social Security Trust Fundsaves money from payroll tax that is more than is
needed to pay out
o Worker-to-Beneficiary Ratio is declining, which is causing concern about the future
of the program
o Benefits vary to individuals by income
o Average of $1400, max is $3770
o Social Security was put in place to provide income to senior citizens since they are
less likely to be able to work
o Has dropped the seniors poverty rate (significantly)
o Major concern: when money coming in from payroll tax doesn’t cover money going
out
o This is a very politically popular program, so any modifications to be more
sustainable are critiqued heavily:
Increase age
Increase tax percentage
Increase cap
Adjust monthly benefits calculation
Adjust costs of living calculation
Privatize social security (responsibility transferred to self)
o All unpopular because either someone pays more or gets less
Means Tested Income Programmonetary support if meet eligibility requirements
Earned Income Tax Creditrefundable tax credit to low & moderate income workers
designed to incentivize work (earned income)
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o Mostly for families, but some for individuals
o 97% of benefits go to households with children
o To pull people out of poverty with direct cash back
o Must have earned income though
o Phases out by income (less as you earn more)
Temporary Assistance to Needy Families (TANF)aid based on a work or work-
seeking requirement
o Originally AFDC from Social Security Act in 1935, but replaced in 1996 with TANF
o Aid to Families with Dependent Children had some stigma, disincentivized work
o TANF included some work or work seeking requirement
o 2 years to get work or do community service, unless child under 6
o Is a block grant that goes to states, & states set own requirements
o Average family of 3 gets $500/month
o Incentivizes work
o Benefits will vary a lot by state, but maximum of 60 months (5 years) getting benefits
o Challenging to qualify for
Unemployment Insurancenot offered by private market, assists people who lost job
through no fault of own (layoff, closure, etc.)
o Joint federal & state program
o Each state has own eligibility & benefit formula
o Often there is a max number of weeks eligible
o Small amounts, for example, FL max benefits of $275/week
o Temporary holdover for those who lost job while seeking new work
Policies: Food
Supplemental Nutrition Assistance Program (SNAP)"food stamps"
o Administered by states
o Currently 47 million people on it
o Average of $130-140/month/person
o Must be either seeking employment or currently employed
o Lots of work/hoops to get benefits
o Electronic card with money to spend at certain stores on it
Free & Reduced Lunch Programwhere benefit goes directly to the child
o Part of National School Lunch Act 1996
o Students eligible by family income can get free/reduced price lunch
o Free if family makes up to 130% of poverty line
o Viewed as a positive externality to provide children with 1 meal per day
o Government provides it directly to the student so the target of policy is children
Policies: Housing
Addressing housing is important since it is the number 1 expense of households
Also need to avoid homelessness which can impede employment
Housing affordability is getting worse, bot building as many apartments with lower rent
Section 8 Housing VoucherHousing & Urban Development (HUD) provides money to
local housing agencies that determine how to allocate funds
o About 1 in 4 eligible people get vouchers, there isn't enough for all
o Families income, in general, can't exceed 50% of median county income, in order to
be eligible
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