Taxes, Transfers, and Inequality at the Bottom of the Income Distribution

• In Event: Strengthening the U.S. safety net and transfer programs for low-income families

Abstract

Much has been made of the so-called “Work-Based Safety Net” in the US–the increasing benefits paid to workers and declining (in real or relative terms) benefits paid to nonworkers. In this paper, we focus on inequality at the bottom end of the income distribution, where social assistance and transfers play an important role, and take a new, comprehensive look at the development of the safety net system, with a particular focus on its work-based aspects. There has been large variation over time in terms of which groups have been targeted by transfer programs; some developments have provided more benefits to workers, while others have benefitted nonworkers (for example, expanded Medicaid eligibility for nonworking single parents, higher real SNAP benefits for nonworkers, more subsidized housing for the lowest earners, etc.) In light of this, we use 1998 to 2021 data from the Survey of Income and Program Participation and the Medical Expenditure Panel Survey to explore how inequality at the bottom end of the distribution has changed over time for all major safety net programs, particularly after the Medicaid and Child Tax Credit expansions that occurred in the 2010s.  We will also examine trends by family structure type: single-parent families, two-parent families, and childless adults.  Given the well-known problem of underreporting in survey data, we conduct a careful imputation method that ensures that our measure of self-reported program receipt matches administrative totals. Our analyses begin by examining distributional trends over time in private income by family structure and then exploring how these trends have been affected by changes in taxes and transfers. Our preliminary results show that over the past 30 years, the U.S. safety net has increasingly provided support to low-income families with higher levels of earnings and income relative to support for the poorest families. In some periods, support to the poorest families declined in absolute terms, not just relative to those with higher incomes. By 2016, the poorest families with children received less support than those with higher incomes, inverting the usual negative correlation of support and private income. These long-term trends are likely to have resulted in increased inequality at the bottom end of the income distribution. However, some of the other programs we have examined have not gone the same direction. Discussions are currently underway in Congress that may result in spending cuts for many safety-net programs.  If those cuts occur, we will examine their impact on the receipt of benefits by low-income families and, in particular, whether the enacted cuts increase or decrease the work-based nature of the safety net.

Authors

• Priyanka Anand, George Mason University
  Presenting Author

• Robert A. Moffitt, Johns Hopkins University
  Non-Presenting Co-Author