(Bloomberg) -- There’s a common misperception that the U.S. is the land of small government, where the poor receive little assistance. To many on the left, the U.S. is a uniquely bad actor, eschewing the enlightened social democracy of Western Europe and leaving the economically unfortunate to suffer. Those on the right tend to take a more positive view of the same notion, trumpeting the U.S.’s small welfare state as evidence of a commitment to free markets and self-reliance.
As with most myths, there is a grain of truth to the idea. With the repeal of the individual health-care mandate, the U.S. has returned to its status as one of the only developed countries not to provide some form of universal health care. The U.S. spends a bit less of its gross domestic product on social spending than the Organization for Economic Cooperation and Development as a whole:
But already it’s apparent that the U.S.’s reputation as a bastion of cutthroat capitalism is exaggerated. Its social safety net is only a couple of percentage points below the OECD total, and larger than that of Canada, Australia and South Korea.
Furthermore, U.S. government transfers have been increasing over time. The U.S. system of taxation and spending has become more progressive during the past two decades. Per-capita government transfers were about $8,567 a person in 2016, up from about $5,371 at the turn of the century (adjusted for inflation) — an increase of 60 percent:
The increasing generosity of the U.S. safety net in the 21st century began under President George W. Bush. Although mostly remembered for the war in Iraq, Bush in many ways fulfilled his promise to be a compassionate conservative. Major expansions of the Supplemental Nutrition Assistance Program, commonly known as food stamps, were carried out in 2002 and 2008. Bush’s Medicare reform added prescription-drug benefits to the government’s premier health-care program. And Bush’s so-called housing-first policy reduced homelessness dramatically during his second term. Overall, real per-capita government transfers increased by about 38 percent during the eight years of the Bush administration.
Under President Barack Obama the pace of welfare expansion slowed a bit, probably as a result of the Great Recession. But it didn’t stop. Food stamps continued to expand, extended unemployment insurance helped many during the recession, and homelessness kept declining. Obama also implemented a number of tax credits for low-income families and passed the Affordable Care Act, which subsidizes health insurance.
After 16 years of expansions in the safety net under Republican and Democratic presidents alike, the U.S. has a much more robust welfare state than people seem to realize. The left-leaning Center on Budget and Policy Priorities, using the U.S. Census Bureau’s new comprehensive poverty measure, estimates that government transfers have driven child poverty to a record low. Thanks mostly to government aid, the number of American children in poverty has fallen from more than one in four in the early 1990s to about one in seven today.
Meanwhile, recent research shows that U.S. antipoverty programs are more effective than had been realized. In a new paper, the University of Chicago’s Bruce Meyer and Derek Wu analyze five major means-tested programs — Social Security, food stamps, public assistance, the earned income tax credit and housing assistance — in terms of how much they actually increase poor people’s income.
It turns out to be a lot. The authors find that most of the money from these programs goes to people who would be poor without them:
They find that Social Security’s old age, survivors and disability insurance tax is by far the most effective of the programs in terms of poverty reduction, while food stamps and the EITC are also important.
This analysis doesn’t take into account the ways that antipoverty programs change people’s behavior. Opponents of welfare often claim that it gives poor people an incentive to work less, making the overall impact on poverty much less than might be expected. But Meyer and Wu survey the literature and conclude that this effect isn’t large — government transfers really do fight poverty effectively.
So the U.S.’s social safety net is both very effective and considerably stronger than in the past. That doesn’t mean it’s adequate. With about 15 percent of American children still in poverty, much remains to be done. The country’s patchwork system of programs lets many poor people fall through the cracks. It’s important to identify and help those people, by adding additional programs, extending additional programs to cover more of the needy and improving program enrollment.
But the myth that the U.S. leaves its poor to their own devices needs to be retired. The U.S. isn’t the developed world’s most generous nation, but it isn’t the stingiest either. The trend toward a stronger safety net has made the country a better place to live, and there’s every reason to keep that trend going over the next decade.
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net.
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