MSW 504

Module 11: Screencast

Welfare Reconsidered: Social Policy, Human Need, and the Conservative Tide: 1980 to 1990s

In today's screencast we'll be discussing Ronald Reagan and Reaganomics. In 1980, Ronald Reagan,
former well known movie actor, ran against democrat Jimmy Carter and he won by a landslide. Reagan
was a classic conservative. He hated big government and he heralded free enterprise as bringing
prosperity for all. Reagan idealized the 19th century frontier mentality of "each man for himself" and he
saw the Gilded Age as the height of American history.

Reagan and his economic advisers, such as Milton Friedman and Arthur Laffer, challenged traditional
Keynesian economics. As you may remember, Keynes believed that the government needed to regulate
the economy. One way the government could do this was to put money in the hands of the consumer
during a recession. This is what FDR did and we refer to it as demand-side economics. But in the 1970s,
this approach wasn't working. We had both unemployment and inflation and traditional Keynesian
solutions were questioned. As an alternative, Reagan promoted supply-side economics.

The basic idea here is to put money in the hands of corporations and investors primarily through tax cuts
for the wealthy and by minimizing regulation. According to this logic, economic growth requires
investment and it is typically the wealthy and corporations who invest. They are most likely to invest
when their investment returns are not taxed. The belief here is that investment will promote economic
growth which will in turn create jobs, and ultimately the benefits of this economic growth will trickle-
down to everyone. Putting money in the hands of business will allow businesses to hire thus
unemployment will be reduced and the economy will grow.

Thus during his administration, Reagan promoted personal and corporate tax cuts as well as cuts in
spending for social welfare programs. Reagan, however, was not totally against government spending.
The one area where he liked to spend was the military. Reagan asked and received massive increases in
military spending. He actually argued that in order to increase military spending, we needed to decrease
social programs to pay for it.

Let's take a look at what Reagan actually does. As I said, Reagan increases military spending. He actually
increases military spending about 160%. In 1980, $142 billion was spent on the military and this
increased up to $368 billion by 1986. Now remember, we were still in the Cold War during this time and
we were still in an arms-race with the Soviet Union. Reagan's monies were also spent on his "Star Wars"
program which was supposed to build a missile shield against nuclear weapons. The important part of
this military spending was really that it coincided with reductions in social welfare spending.

As we know, Reagan also promoted tax cuts. The 1981 Economic Tax Recovery Act gave us a 20% overall
income tax cut. However, for those in the lowest rung, taxes actually rose slightly. From 1981 to 1985,
federal taxes rose from 8 to 10% for those in the lowest quintile, while for those in the highest quintile,
taxes decreased from 27 to 24%. In his second term, Reagan actually had to rollback some of his tax

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cuts. There was simply too large of a deficit. He raised corporate taxes and he also closed off tax
loopholes for wealthy individuals. Although, at the same time, he lowered the personal income tax
brackets for the most affluent. Thus, if we look at his legacy as a whole from 1980 to 1990, the federal
tax burden for the richest quintile decreased 5.5% while taxes for the poorest quintile increased 16%.

Let's think about Reagan's perspective on the welfare state. In addition to tax cuts, Reagan promoted
cuts in social spending for the poor. As I said, in part he argued that social spending should be cut in
order to pay for the overall tax cuts as well as for the increases in military spending, but Reagan also
wanted to cut domestic social programs because he believed that they hadn't been working. He was
very influenced by a group of neo-conservative thinkers who argued that the best way for the poor to
rise above poverty was not through government assistance but through their own efforts.

Like others before them, neo-conservatives maintained that the poor were poor due to their own
individual failures and a dysfunctional culture. George Gilder, a well-known 1980s commentator, argued
that social engineering or government interventionism of any kind was doomed to fail and only the
invisible hand of the marketplace could ensure ongoing successes. Charles Murray's infamous 1984
book, "Losing Ground", argued that welfare programs perpetuated a culture of poverty and helped
promote government dependence by undermining individual initiatives and self-sufficiencies. These
perspectives fueled Reagan Era domestic policies.

Importantly for us, Reagan reduced federal welfare spending by transforming many federal programs
into block grants. Instead of providing an open-ended amount of money to states through a traditional
federal-state match program - And this is what many public assistance programs had been based on. If
the state spends X amount of dollars, the federal government will match them with X amount. Block
grants worked differently. With block grants, the federal government gives only a limited and fixed
amount of money to states. The federal funding under a block grant is finite and once the funds run out,
no additional dollars may be available.

In 1981, Congress passed something called the "Omnibus Budget Reconciliation Act" or OBRA. Now
OBRA took 57 social programs and rolled them into 7 block grants: community mental health block
grants, drug and alcohol block grants, maternal and child health programs, et cetera. You also may
remember something called "Title 20", the social services program. Under Reagan, Title 20 was turned
into a block grant called the social services block grant, but what happened with this block grant is that
these programs were cut by about 25%. This was very important for social workers because non-profit
agencies lost a lot of money in response to this change. Actually in 1977, the government funded about
53% of the cost of non-profits and by 1984, this was down to about 43%.

In addition to these block grant initiatives, Reagan also cut means-tested programs without turning
them into block grants. Reagan knew he didn't have the political support to cut popular programs like
Social Security or Medicare, so he instead focused his cuts on the means-tested programs. To do so, he
promoted the image of welfare recipients as cheats and Cadillac drivers.

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Some of these cuts included AFDC. Reagan cut AFDC by about 17%. Childcare expenses were capped,
deductions for work expenses were limited and the earned income disregard was eliminated after 4
months of AFDC receipt. Reagan also cut food stamps. In fact, 1 million people lost eligibility on their
food stamps when he cut the program by about 12%. Together, these cuts in AFDC and food stamps had
a significant impact on low-income families. For example, in 1972 the combined value of AFDC and food
stamps for a family of 4 in 1984 dollars was an average $8,894 but by 1984, it was $6,955. That's just to
give you an example of the declining value of these benefits.

Reagan also cut the Department of Housing and Urban Development or HUD and this was a very
important cut. HUD, which funded public and low-income housing programs like Section 8, suffered a
huge budget cut of almost 60%. The decline in HUD's funding began in the 1970s as appropriations
failed to keep pace with inflation but it was greatly accelerated during the Reagan Era and it's really
never recovered.

Interestingly, Reagan also went after disability insurance. The administration accomplished this by
increasing the frequency of reviews for disability insurance cases and programs. In one year's time about
200,000 people were declared ineligible. In the 1980s there were often high profile news stories about
severely disabled people who had lost benefits. Unemployment insurance was also a target. In 1975
about 78% of the jobless received unemployment benefits, but by 1983, only 39% did. Again, we've
never really recovered from these cuts.

Interestingly, Reagan also ended up making some cuts in Social Security and Medicare despite political
resistance. In 1983, Social Security's COLA or cost of living adjustment was delayed and the retirement
age was increased. In terms of Medicare, Reagan established diagnostic related groups or DRGs that set
levels of payments for certain medical procedures which helped to reduce inflation. Interestingly today,
as we face some funding issues in both Social Security and Medicare, people are looking back, analysts
from both the left and the right, are looking back at the Reagan administration compromises during this
period as a model to move forward.

Let's think about the legacy of Reagan Era policies. Many have shown that Reagan Era policies
contributed to an increase in economic inequality and perhaps poverty. For instance, the poverty gap or
the amount of money needed to raise everyone above the poverty line increased. The poverty gap in
constant 1983 dollars jumped from about $32 million in 1979 to $47 million in 1983. Moreover, the
overall poverty rate rose. From 1966 to 1979, we saw a decline in poverty from about 14% to 11%.
However, the poverty rate in the Reagan years started to rise again and by 1983, it was at 15%. The
number of poor children also rose and about 22% of children lived in poverty in the 1980s. Clearly, we
can't attribute all these issues to Reagan Era policies. Clearly, the larger economy had much to do with
this, but many analysts argue that Reagan policies contributed to growing economic inequality rather
than stemming it.

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Now Reagan, as we mentioned earlier, also built up huge budget deficits, greater than any other
administration. In fact, many argue that Reagan adopted a starve-the-beast philosophy in which he
purposefully built up these deficits in order to justify cuts in welfare spending. In sum, many suggest the
Reagan administration was one of the most conservative administrations since the 1920s. Clearly
Reagan did work to undermine many of our "War on Poverty" programs. Nevertheless, the percent of
our gross domestic product spent on social welfare remained relatively constant at about 18%. Thus,
while Reagan did target some programs, our overall spending on social welfare remained fairly constant.

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