Interactions Among Social Welfare Programs

Abstract

Social welfare is affected not only by individual progams such as Aid to Families with Dependent Children (AFDC), food stamps, and Medicaid, but also by the interactions among such programs and the interactions between these benefit programs and the taxation system, including not only federal income tax, but also the Federal Insurance Contributions Act (FICA), the dependent care tax credit, the earned-income tax credit, and state and local income taxes. As a prelude to understanding how the welfare system works, this article explores several specific ways in which such programs interact. It illustrates four different types of interactions: (a) the effect of one program on another, (b) the effect of one program on the whole set of additional programs, (c) the system of interacting tax and benefit reduction rates that jointly determine the cumulative marginal tax rate on income, and (d) the effects of interacting programs on the governments that create and maintain those programs. There are at least three benefits m analyzing such interactions. First, such an analysis draws attention to the complex ways in which programs affect one another; second it illustrates that the analysis of complex interactions such as this can be done; and third it provides some substantive knowledge about the nature of the present system that should be useful as issues of welfare reform are pursued.

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