Entitlement Program Research Paper: Negative Income Tax

Entitlement program
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Entitlement programs
Entitlement programs have played a significant role in alleviating poverty and raising living standards of low-income families. Entitlement program is a government initiative that guarantees members of a specific group access to some benefits. The specific group of people who benefit from the program are determined by legislation or based on established rights. Furthermore, entitlement programs are divided into non-contributory and contributory programs. Non-contributory program is one where benefit is given without regard to any prepayment, while contributory program is one in which recipient must pay something to receive benefit of the program. Non-contributory programs in U.S include welfare programs and Medicaid programs that target low-income earners in America. On the other hand, contributory programs include Social Security, Medicare, and unemployment insurance. This paper will focus on non-contributory programs, especially welfare programs. The paper will analyze the efficiency and social justice basis for public finance on the welfare programs, conduct a comparison between the welfare programs of U.S. with that of other countries, and highlight the pros and cons in terms of meeting social objectives (U.S. Welfare programs, 2015).
The U.S Welfare programs that provide benefits to low-income people and families fit into thirteen large categories. The programs include negative income tax, SNAP, housing assistance, SSI, Pell grants, TANF, child nutrition, head start, job training programs, WIC, childcare, LIHEAP, and lifeline (U.S. Welfare programs, 2015).
Negative income tax
This is a tax credit programs governed by the Internal Revenue Service (IRS) to distribute money to low income Americans. The tax programs include Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The tax credits include a refundable portion, which is paid to individuals and families that owe no income tax for that year. Hence, this portion of the tax credits acts as a negative income tax and acts as a welfare program to assist low-income working families with children. EITC that is offered to individual or family is based on a complex calculation that includes the family size and the sum of qualifying earned income. Furthermore, some individuals or families who have earned income do not pay income tax because their earnings are less than allowable deductions. In 2015, annual EITC payments were limited according to family size. Individuals without children received $503, while families with one child received $3,359, families with two children received $5,548, and families with three or more children received $ 6,242. Families with annual earnings between $10,000 and $20,000 get the maximum payments, depending on the number of children. The program phases out to families with earnings of $39,131 to $52,267 per year. However, for individuals or families to qualify for EITC program they must have less than $3,400 in investment income (Oden & De Lopez, 2011).
On the other hand, CTC sums up to $1,000 per qualifying child under 17 years old. The credit phases out for married couples with adjusted gross income of $110,000 and single parents with adjusted income of over $75,000. If individual or family credit exceeds taxes owed, they are eligible to receive a refundable portion. Furthermore, refundable portion is usually available to taxpayers with earned income above $3,000 (Procter, 2011).
The tax credit program has shown to be effective in promoting work and reducing poverty. Its expansion in 1990s contributed to a significant increase on the number of single mothers and female heads working. Furthermore, promotion of employment among single mothers reduces cash welfare caseloads considerably. The program has induced several families to shift from cash welfare assistance to work. The tax credits programs have shown the ability of distributing privileges within a society. EITC program targets working families with children and working poor people who have no children. While, CTC benefits low and moderate-income working people raising children. In 2015, the average EITC was $3,186 for a family with children, which boosted their wages by about $256 a month. Furthermore, EITC assist most families to pay for necessities and repair homes. The graph below depicts the negative income tax expenditure between the year 1960 and 2015. The graph shows that expenditure increased sharply between the year 1990 and 2010, then it remained constant. Moreover, more than $80 billion was spent in 2015 in the negative income tax program (Muennig, Rosen & Wilde, 2013).
Source; (U.S. Welfare programs, 2015).
Housing assistance
The Department of Housing and Urban Development (HUD) is responsible for overseeing various housing assistance programs. The main initiative of HUD is the Housing Choice Voucher Program administered by local Public Housing Agencies (PHA).The voucher amount is calculated based on a standard rental for the locality set by the PHA and it is lowered by a participation amount per family. The participation of the family amounts to 30 percent of the family’s monthly income. Moreover, the voucher program aims to restrict family’s rental expense to 30 percent of their outside income. For tenants to qualify for the program they must have income lower than 50 percent of the median income for the county or metropolitan area, but most beneficiaries of the program have income of 30 percent or less of the median. In 2014, the median annual income for the entire U.S. was $53,657. Conversely, 50 percent of the median annual income summed up to $26,828, while the 30 percent totaled to $16,097. Once the voucher is awarded families are often free to select their own place to live provided the dwelling meets the HUD standards for health and security. When the tenant gets a house and the lease is signed, HUD pays the voucher amount directly to the property owner and the family pays its share directly with the property owner. In addition, HUD and the PHA’s also manage a Project Based Rental Assistance program in which they offer apartment owners subsidies in order to reduce rents to low income tenants (Leopold, 2012).
The Housing Choice Voucher Program has assisted families move to higher quality neighborhoods, improve the socio-economic diversity of neighborhoods, and reduce exposure to crime. The program has effectively reduced overcrowding, homelessness and enhanced nutrition, greater food security, and increased household stability. Furthermore, housing vouchers for low-income families reduce the costs of emergence shelters, the child welfare system, and the health care system, and diminish use of institutional care facilities for aged individuals or those with disabilities. The federal Housing Choice Voucher Program plays a vital role in helping to tackle housing needs for extremely low-income households. The program has helped low-income families to relocate to better neighborhoods that have lower unemployment rates, fewer people living in poverty, and fewer households receiving public assistance. In addition, the program supplements rent payments for 1.7 million low-income families and individuals, making it the nation's biggest housing assistance program. The pie chart below shows the money spent in 2013 in housing assistance program. A bigger percentage of $18 billion was spent on tenant based rental assistance, followed by community development and others. While, lowest expenditure of $1.7 billion was spent on homelessness (Ross, Shlay & Picon, 2012).
Source; (U.S. Welfare programs, 2015).
SSI (Supplementary Security Income)
The Social Security Administration is responsible for administering the SSI program. The program pays cash on monthly basis to low income Americans who are over the age of 65 years and those who are under 65 if they suffer from physical or mental disabilities. In 2015, greatest benefits to an individual living alone and without any source of income totaled to $733 a month, while a couple maximum benefit totaled to $1,100 per month. Countable income reduces the benefit by fifty cents per dollar of income from wages or self-employment and dollar for dollar from other benefit programs, including social security. For individuals with wages or self-employment income to be eligible for the program they ought to have income less than $18,612 per year and couples at $27,420 per year (U.S. Welfare programs, ...