15-Poverty and Welfare

  1. Defining poverty (in 1963 it was anyone making under $3000/year
    1. Mollie Orshansky was assigned the task of defining poverty
      1. What’s the cost of a basic food diet
      2. Food=1/3 of budget, so poverty line=food budget *3
    2. Criticisms
      1. Amount spent on food has declined in terms of percentage of budget
      2. Cost of living fluctuations from region to region
      3. What else should be able to be bought?(cable/cars/etc)
      4. What about complementary benefits(e.g. food stamps, Medicaid, wic)
      5. National Academy of Sciences states, food/shelter/clothing should be taken into account and take a percentage
    3. Projected back to the 1950’s the poverty rate has been measured since
      1. The poverty rate fell dramatically from the 1950’s to the early 60’s and has basically leveled off since
      2. The composition of the poor has shifted from the elderly to primarily single mothers and children
  2. Incentive problems
    1. Teach to fish vs. give a fish
      1. May never learn if always given fish
      2. If he’s not given a fish, he may starve while learning
    2. Negative income tax reduces welfare benefits as the recipient earns additional income, but creates a trap as there is no real incentive to earn income
      1. A negative income tax of 100% or even more does not incentivize work
      2. But one that is less than 100% could and would
      3. EIC is a refundable tax credit aimed at helping low income workers, especially ones with children
      4. Another good way to provide incentive is including a work requirement to any form of aid
      5. There are about 80 federal programs to help those with low incomes
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