Poverty, Work and Welfare
What are the sources of "market failure" in healthcare? (Hacker)
- Agency - The relationship between a doctor and patient. The patient delegates authority and decision making thinking the doctor has the patient's best interest in mind. However, profit often outweighs interests - Moral Hazard - People may engage in riskier behavior because they are covered by insurance and they may consume excessive services - Adverse Selection - Those who purchase health insurance are most likely to need it.
Briefly explain Hacker's critique of Pierson's work on welfare state retrenchment (from the Hacker article, not the book). How and why does Hacker think Pierson's analysis was limited?
- By looking at affirmative choices, retrenchment analyses downplayed the ways in which actors may have shaped and restricted the agenda of debate and prevent some kinds of collective decisions altogether. - Most critical in this regard are deliberate attempts to prevent updating of existing policies to reflect changing social circumstances. - Retrenchment is more than just eliminating or reducing welfare programs. - Ways to create privatization of risks/other forms of retrenchment - Drift: Changes in the operation or effect of policies that occur without significant changes in those policies' structure - Layering: proponents of change work around institutions that have fostered vested interests and long-term expectations "by adding new institutions rather than dismantling the old" (i.e. creating private counterparts to public programs) - Conversion: Policies are adapted over time rather than replaced or eliminated.
What role did high marginal income tax rates play in the development of healthcare policy in the US? (Hacker)
- High marginal tax rates made tax-preferred benefits more attractive in the 40s and 50s - Employers used these "fringe benefits" to attract and keep workers
LONG ANSWER: List and briefly explain the five tax expenditures that are part of the "hidden" welfare state
- Mortgage interest deduction - Allows taxpayers to deduct the amount of interest paid on their mortgage from their tax liability - State and local property tax deduction - Deduct the amount paid in local taxes from tax liability - Pension (deferred taxation) - Do not pay any tax on the pension benefits until the individual retires - Health insurance exemption - Individuals do not pay a tax on the cost of their health insurance plans - Charitable deduction - Taxpayers can deduct any charitable donations from their tax liability.
What is a "qualifying child" and how does this relate to EITC eligibility?
- Must be a sin, daughter, stepchild, foster child, brother, sister, stepsister, stepbrother, niece, or nephew - Must live with you majority of the year in the US - Only one parent can claim qualifying children - The more qualifying children you have, the more you receive in benefits
List and briefly explain three of the special conditions that apply to the EITC eligibility when you do not have a qualifying child
- Must be between 25 and 65 years old - You cannot be the dependent of another individual - Earned income must be less than $14,280 ($20,330 if filing jointly)
What methods did Gilens use to investigate white opposition to welfare?
- Phone survey and mail back questionnaire - Economic self-interest was measured by family income - Individualism was measured by the question, "The government in Washington tries to do too many things that should be left up to individuals and private businesses." - Perception of work ethic of the poor was measured with two quesitons: (1) "most people who don't succeed in life are just plain lazy" (2) "most poor people are poor because they don't try hard enough to get ahead, or because they don't get the training and education they need." - Views of welfare measured by asking whether federal spending for welfare should be increased, decreased, or kept the same. - Measured partisanship by asking how strongly they identified as a conservative or liberal - Assessed how people felt about blacks with the question, "now I'll read a few words that people sometimes use to describe blacks. Of course, no word fits absolutely everybody, but as I read each one, please tell me using a number from 0 to 10 how well you think it describes blacks as a group. If you think it's a very good description of most blacks, give it a 10. If you feel a word is a very inaccurate description of most blacks, give it a 0." Gave them words like "lazy."
What is policy feedback? (foundational definitions from Hacker and Pierson)
- Policy "causes" politics through the development of interests and institutions shaping behavior and expectations - Policy feedback creates resistance to change - Policies can endure even when they no longer "make sense" - Policy feedback creates a "path dependent" process
Briefly explain the development and evolution of the student loan marketplace for higher education?
- Private markets would normall not make student loans because students are poor credit risks (usually not employed or unemployed, little or no wealth, no credit history) - Government creates a market for student loans through the Guaranteed Student Loan Program in 1965 to encourage private lenders to make student loans. - Government offered two benefits to encourage more creation and participation in student loans - Loan subsidies: government agreed to pay one half of the interest due therefore encouraged borrowing by reducing costs. - Loan guarantees: government repayment of the loan therefore encouraged lending by removing risk. - Resulted in banks offering student loans, making college more affordable. - Sallie Mae created in 1972 as a secondary market for student loans - Buy student loans from banks (the direct lenders) and package them into bonds that were re-sold to investors (securitizing) - Fully privitized in 2004 - Split into two companies in 2014
When effects did ERISA have on pension policies in the private sector? (Hacker)
- Pushed defined benefit contribution plans by regulating defined benefit plans - Pt. 153: employer pension contributions have significantly decreased as a share of compensation - Defined contribution plans became more common - Risk of retirement income is shifted from corporations and employers to individuals
What state tax policies tend to make state tax burdens more regressive?
- Sales and excise taxes are the most regressive forms of taxation, followed by property taxes, followed by income taxes. - States that rely on sales and excise taxes for revenue rather than a progressive income tax tend to be the most regressive.
What are the characteristics of a path dependent process? (Hacker)
- Self-reinforcing process - Early choices are more important as they shape and constrain current policy - Inertia is crucial - Non-decisions are important - Even dysfunctional policy is vital
Name and explain three cost-control strategies that firms adopted in the face of rising health care costs? (Hacker)
- Shift from "community rating" to "experience rating" - ACA combats this, but this is a source of controversy - Shifting insurance costs to workers - Co-pays and deductibles - Excluding preconditions - ACA disallows this - Hire employees based on health experience, expectations - Dropping coverage altogether
What characteristics distinguish the Earned Income Tax Credit (EITC) from the other means-tested programs we have described?
- The EITC is unique in that it is the ONLY benefit that goes up with your income - It is a fully refundable tax credit - People who receive the EITC cannot receive the CTC because the CTC is non-refundable - BUT people can receive the Additional Child Tax Credity (ACTC) because it is refundable
What is the "revisionist" school? (Rehm, Hacker, and Schlesinger)
- The fundamental basis for the welfare state is not redistribution, but demand for insurance that cuts across class lines. - The largest welfare state programs represent social insurance that protects people from major economic risks. Although social insurance is redistributive, its core goal is to protect people from major economic dislocations induced by interruptions to income or unpredictable non discretionary expenditures. - Social insurance programs are attractive not just to those with low incomes but also to those facing higher risks. This creates a basis for cross-class coalitions in support of social protection. - Demand for social protection crosses class lines ... not only low-income people, but also people with substantial risk or unemployment favor a generous welfare state. - Rooted in self-interest. - Regarding popular support for welfare state
What does Hacker mean by "privatizing" risk
- To privatize risk is to fragment and undermine collective insurance pools that offer reduced cost protection to higher-risk and lower-income citizens in favor of arrangements that leave individuals and families responsible for coping with social risks largely on their own. - Essentially, shifting risk away from public and private institutions to families and individuals
Howard says the welfare state in America has three components. What are they?
- Upper tier: Social Insurance -- universal, financed by special taxes, earned benefits, no stigma - Lower tier: welfare -- means tested, general revenues, stigma attached - Hidden welfare state: Tax expenditures are essentially means-tested entitlements from general revenues but no stigma
Under what circumstances is welfare state retrenchment more likely (Pierson)
- When a party enjoys "electoral slack" - That is, wide popularity and safe electoral margins may be conditions that permit a political party to advocate retrenchment. - Budgetary crisis - Moments occur in which critical decisions must be made may be occasions for reform. - Social Security financial crisis in 1980s - Coming shortfall in 2030s? - Retrenchment is more likely when policy visibility can be lowered, but there is a dilemma - In societies where government power is concentrated, it will be difficult to avoid blame - However, concentrated power may help lower the visibility of reforms - In societies where government power is more diffuse, blame is easier to avoid. - However, such societies are likely to have trouble developing low visibility strategies that can pass through multiple veto points.
How do Rehm, Hacker, and Schlesinger explain the extent to which support for welfare programs is broad or narrow?
- When income and risk are highly correlated (all correlations are negative), there is less support for unemployment benefits - Higher correlations between income and risk lead to more polarized opinion and more intense opposition - When the correlation between risk and income is lower, there is less opposition to unemployment. - Lower correlations between income and risk lead to less polarized opinion and less intense opposition
What are subterranean politics? How (if not all) are subterranean politics different from the submerged state? (Essentially, a comparison of Mettler and Hacker)
- Whereas the submerged state is traceable and politicized, especially among elites and interest groups aware of the submerged state, subterranean politics refers to the politics of private benefits that are hard to trace and depoliticized. - Subterranean politics are the politics of social policy that are swept under the radar.
What possible explanation for white opposition to welfare did Gilens consider?
- White attitudes towards blacks are the single most important factor influencing their attitudes about welfare. - Factors: - Economic self-interest - Individualist beliefs - Party identification - Ideology - Attitudes toward the poor - Racial attitudes
Identify and explain the four modes of policy change included in Hacker's article
1: Drift - The transformation of stable policy due to changing circumstances. - Occurs when barriers to internal policy conversion are high and barriers to authoritative policy change are high. - Example: Erosion of the scope of protection of existing public social programs and private benefits. 2: Conversion - Internal adjustment of existing policy - Occurs when internal barriers are low and authoritative barriers are high - Example: Employer's restructuring of publicly subsidized workplace benefits 3: Layering - Creation of new policy without the elimination of the old. - Occurs with high barriers to internal conversion and low barriers to authoritative change. - Example: Creation and expansion of tax subsidies for retirement accounts 4: Revision - Formal reform, replacement, or elimination of existing policy. - Occurs when both barriers to internal revision and authoritative revision are low. - Example: 1996 welfare reform PRWORA
Which tax expenditures are currently the most costly according to CBO (in terms of government revenue sacrificed)
1: Exclusions from taxable income - Employer sponsored health insurance - Net pension contributions and earnings - Capital gains on assets transferred at death - A portion of Social Security and Railroad Retirement benefits 2: Itemized deductions - Certain state and local taxes - Mortgage interest payments - Charitable contributions 3: Preferential tax rates on capital gains and dividends 4: Tax credits - The Earned Income Tax Credit - The Child Tax Credit
List and explain four reasons why affluent people are more likely to receive more benefits from the hidden welfare state
1: Higher marginal tax rate increases the value of tax expenditures. 2: Affluent people are more likely to have jobs that provide benefits through hidden welfare state (healthcare and pensions) 3: Affluent people have money to purchase goods favored by the hidden welfare state (education and homes) 4: Affluent people can hire agents to assure they receive their benefits
Describe the eligibility conditions for the EITC
1: Must be under the income caps on the bases of marital status and number of qualifying children in household 2: Investment income is $3,400 or less 3: Have earned income (and cannot be a dependent if filing independently) 4: Must be 25-64 years old (without child)
What attributes of the submerged state policies help them to overcome partisan differences and institutional gridlock (according to Mettler)?
1: Republicans and conservative Democrats find it attractive 2: It has been proven that other Democrats have gone along with such policies 3: Based on the institutional features (and processes) of Congress, it is easier to enact submerged state policies than spending and direct spending programs 4: Overtime, submerged state policies have received support from interest groups that defend the preservation and expansion of these programs vigorously.
What is "community rating" and why is it significant to health insurance? (Hacker)
A rule that prevents health insurers from varying premiums within a geographic area based on age, gender, health status, or other factors. Requires health insurance providers to offer health insurance policies within a given territory at the same price to all persons without medical underwriting, regardless of their health status. - Different from the usual method of determining premiums through risk taking. - In a risk rated market, the insurer may not calculate premium on the basis of the risk factors attaching to the particular person wishing to purchase an insurance contract, but rather the risk factors applying to all persons within the market as a whole. Thus, in a community rated market, the insurer evaluates the risk factors of market population, and not those of any one person when calculating premiums.
What is the difference between an income tax credit and an income tax deduction?
Difference between an income tax credit and an income tax deduction: - Tax credits provide dollar-for-dollar reduction of your income tax liability - Tax deductions lower your taxable income and they are equal to the percentage of your marginal tax bracket - A tax credit is always worth more than a dollar-equivalent tax deduction, because deductions are calculated using percentages.
What factors did Gilens argue are the most important in explaining white opposition to welfare?
Gilens argues the factors that explain white opposition to welfare stems from racial attitudes towards blacks, associating them with characters of being impoverished, lazy, prone to manipulate the system. Other recognized reasons were individualism, party identification, political ideology, age, income, and education.
What is pension "integration" and how did it influence the development of pension policy in the US? (Hacker)
Pension "integration" is when an employee's private pension includes the Social Security benefits (paid by both the employer and employee). It reduced pension compensation from employer since Social Security is paid for by the employee. More people relied on Social Security for old age insurance.
What is the "power-resources school" (Rehm, Hacker, and Schlesinger)
Popular support for welfare is brought about by the political power of the working class, as less affluent citizens are expected to favor more generous redistribution policies
How did President Obama's strategy to develop healthcare differ from President Clinton's?
President Obama decided to accommodate the submerged state interests, rather than battle them, if he wanted to pass any reform in healthcare. He did this by building on the existing healthcare system by expanding Medicaid, forcing people to buy insurance (IM) and protected financial risk of insurance companies.
Compare and contrast public and private benefits. How are they different? How are they similar? (Hacker)
Private welfare benefits include tax expenditures and government regulations. According to Hacker, private benefits do not merely substitute for public benefits, they provide for more benefits for affluent people. Tax expenditures increase for wealthy individuals, and government regulation shapes private benefits by creating opportunities. Private benefits also create "policy feedback." Private benefits are more politically viable.
What role did economic regulation during WWII play in the development of healthcare policy in the United States (Mettler and Hacker)
Revenue Act of 1942 1: Imposed 80-90 percent tax on company profits during wartime that were higher than pre-war levels (wages froze) 2: Employee benefits (healthcare) and compensation (pensions) were exempted from the tax. - Labor unions advocated fiercely for the increase in employee's benefits. IRS policies 1: Considered employer contributions to finance group insurance (which extended to healthcare) was a business expense: in essence, employer contributions to employee benefits became tax deductible.
According to Rehm, Hacker, and Schlesinger, there are two natural political constituencies for the welfare state ... identify and define them.
Social policy has two natural constituencies, those who are low income who benefit from redistribution and those who are high risk people who may lose their means of material support due to economic dislocation. The structure of public opinion regarding the welfare state reflects the interrelationship of these factors and the most intense polarization to welfare is found in states where being poor and economically vulnerable are closely related.
What state tax policies tend to make state tax burdens more progressive?
State income taxes and property taxes are more progressive tax burdens imposed on individuals. Most state with an income tax have a progressive tax structure, rely on the income tax for most of their state revenue, and many also allow for refundable tax credits.
What are tax expenditures? Be prepared to name and describe at least three different types and provide an example of each.
Tax expenditure: hidden benefits for the taxpayer, decreasing their income tax liability; hence, decreasing tax revenues the federal government receives. - Exclusions: Health insurance, pension income (deferred) - Deductions: Housing (Mortgage Interest Deduction), state and local property taxes, charitable contributions - Credits: EITC (Earned Income Tax Credit), ACTC (Additional Child Tax Credit) - Exemptions: Personal exemptions (claiming children or dependents) - Preferential rates: Capital gains tax rates C
What is the "destructive competitive logic of private insurance"? (Hacker)
The "destructive competitive logic of private insurance" is the underlying reasons that provoked reform of health insurance. Companies wanted to minimize healthcare expense by shifting the responsibility of issuing health benefits to HMOs (Health Maintenance Organization) or other "managed care" plans or shift the burden of healthcare costs to the employee. This prompted Americans, especially those in marginal employment and newly employed, to be uninsured and increased the uncertainty of health insurance security for those who did have plans.
How did the fact that the Employee Retirement Income Security Act of 1974 (ERISA) preempted state regulation of self-insured health plans influence the development of health care benefits? (Hacker)
The ERISA preempted state regulation and taxation of self-insured health plans. This provision reshaped private insurance because it encouraged employers to self-insure. As costs began to rise significantly, businesses were highly sensitive to increases. This created an impetus for reform and business cost control measures that exacerbated many of the problems related to access health insurance. Employers would introduce cost controlling measures such as increasing costs for employees or hiring employees that had low health risks.
What is the significance of whether or not a tax credit is refundable?
The Earned Income Tax Credit (EITC) is a fully refundable tax credit that creates a "negative tax liability" - Only means-tested benefit that increases as income increases (during phase-in) - 8 different benefit structures - Based on filing status (single or married) and number of children - Investment income must be $3,400 or less - To receive the EITC, you must only file your tax return and the IRS will calculate the credit
Name and briefly explain two refundable federal income tax credits we covered in class.
The Earned Income Tax Credit (EITC) is a fully refundable tax credit that creates a "negative tax liability" - Only means-tested benefit that increases as income increases (during phase-in) - 8 different benefit structures - Based on filing status (single or married) and number of children - Investment income must be $3,400 or less - To receive the EITC, you must only file your tax return and the IRS will calculate the credit The Additional Child Tax Credit (ACTC) is also a refundable tax credit and can be received in addition to the EITC - Refundable beyond your tax liability - Provides negative liability in some cases - Depends on family size (larger families get more benefits) - Requires you to have children - Is means-tested, people earning more than $110,000 (married, filing jointly) cannot receive benefit.
Describe the Earned Income Tax Credit benefit structures. How many benefit structures are there? What is the phase-in? The phase-out? The plateau? How do children affect the generosity of EITC benefits?
The Earned Income Tax Credit is a fully refundable tax credit created for low income individuals. Benefit structures for the EITC are divided by filing status, with different structures for heads of households and single individuals, and married couple filing jointly. The EITC also has benefit structures for persons filing with one, two, and three or more children. The phase-in refers to the initial increase in benefits as income goes up. Depending on filing status and number of children, there is a breakpoint in income, where the benefit plateaus. The benefit then stays the same until the second income breakpoint, when the benefit then goes down. More children increase the breakpoint levels and the maximum credit. - Review chart.
How it the submerged state (Mettler) different from the hidden welfare state (Howard)?
The hidden welfare state focuses primarily on tax expenditures, whereas the submerged state includes tax expenditures AND government regulation, such as government regulation on student loans.
What is the difference between a "marginal tax rate" and an "average tax rate"?
The marginal tax rate is the amount paid on the last dollar of income. The average tax rate is the total tax divided by the total income.
What is the submerged state?
The submerged state refers to the government policies that are important in social policy but occur outside of the view of the average citizen.
What is the "privatization of risk" in pension policy? (Hacker)
To privatize ris is to fragment and undermine collective insurance pools that offer reduced cost protection to higher-risk and lower-income citizens in favor of arrangements that leave individuals and families responsible for coping with social risks largely on their own. Increasingly policy provides incomplete protection against the key social risks that Americans confront