The Safety Net

Safety Net Theory

The safety net theory has been implemented all over the world. The point of a safety net is to help those who are poor or have otherwise fallen on hard times maintain the minimum standard of living. The programs that make up the safety net are typically funded by the government and tax revenue.

Trapeze artist falling into a safety net. Source: Wikimedia Commons

The safety net is supposed to come into action in cases where someone loses a job, falls ill, and cannot work, there is a disaster that upends the community, or any situation where a person can no longer adequately provide for themselves or their family. The safety net then provides support in the areas that the person requires the most such as rent assistance or food, until the person can once again support themselves.

Ideally, the safety net is only a temporary support network for those living near or below the poverty line. It is meant to maintain the minimum standard of living in the case of economic shocks like the loss of income or natural disasters. This is achieved by creating a network of programs that help cover an individual's needs for nutrition, shelter, healthcare, or income. The support is kept in place until people's economic circumstances improve. When the person finds a job and can afford to pay for their own necessities, the safety net is gradually phased out in proportion to the increase in income.

Eventually, support will no longer be required, and those who relied on the programs in the safety net will give back in the form of taxes paid to the state and government. These taxes will then go back toward the programs in the safety net to help others in need.

Types of Safety Nets

There are several types of safety nets in place to cater to different needs and situations. Some people may be employed but do not earn enough to feed their families a nutritious meal, so school feeding programs provide free breakfast and lunch. Others may live with family or trade work for rent, but they still need help with paying for essentials like shoes and clothing. In those instances, in-kind or cash transfers would be helpful.

The most common types of safety net programs in the United States are:

Table 1. Common types of safety net programs - StudySmarter

Safety Net Programs

Safety net programs first appeared in the United States in the early 20^th century. Before then, the German chancellor Otto von Bismarck had been a pioneer of social insurance programs in the late 19^th century.¹

Safety Nets in U.S. History

The first real safety net, the Social Security Act signed in 1935,² was modeled closely after the German system. The original act provided grants for states to fund unemployment benefits, dependent children, and public health. Today it provides retirement, disability, and survivor benefits to those who qualify.

Another historical safety net program was the Aid to Families with Dependent Children (AFDC), which provided cash transfers to mothers and their children if they were below the poverty line.³ This program was replaced in 1996 by President Bill Clinton with Temporary Assistance for Needy Families (TANF). TANF sees a fixed budget provided to states by the federal government, and the state can decide how to best allocate the funds, as long as it is towards anti-poverty measures.³

The Current Safety Net

The safety net that is in place in the U.S. at the moment also includes programs like the Special Supplemental Food Program for Women, Infants, and Children (WIC), the Supplemental Nutrition Assistance Program (SNAP or "food stamps"), Earned Income Tax Credit (EITC), Section 8 housing, and assistance for electricity or heating bills. For medical assistance under the Affordable Care Act (ACA), there are programs like Medicare and Medicaid that provides health coverage for those 65 and older and low-income families, respectively.

In the case of economic shocks that destroy people's livelihoods, either through a recession or a natural disaster, the government will provide financial relief in the form of Economic Impact Payments (EIPs). The current safety net is an improvement from those of the past because some, like the ACA, have loosened minimum requirements for eligibility enabling more people to qualify. The safety nets have also changed coverage parameters to allow for more personal choice and diversity. In the past, only certain brands or products could be purchased with SNAP benefits, whereas now, nearly any food item can be purchased with SNAP, except for alcohol.

Safety Net Criticisms

All of these programs are meant to provide basic necessities that we have decided all people are entitled to regardless of employment status or income. They attempt to maintain a minimum standard of living that we, in the United States, have decided that all citizens should have. However, safety net programs face a lot of criticism for potentially enabling those who do not want to work or discouraging those who do work from working more because the loss of government benefits would cancel out any increase in income. Critics claim that the government just gives away taxpayer money through these programs. There is also the claim of welfare fraud, where people will hide their income to qualify for more benefits from the government. These claims have been proven to be false by the Congressional Research Service, which says that only $11 out of every $10,000 of SNAP was overpaid due to fraud.⁴

Woman throwing money away. - StudySmarter Source: Wikimedia Commons

Examples of the Safety Net

The main examples of the safety net are Supplemental Security Insurance (SSI), Earned Income Tax Credit (EITC), nutritional assistance, Medicaid, and Temporary Assistance for Needy Families (TANF). Let's take a look at these.

Supplemental Security Insurance (SSI)

SSI provides income for those over 65 who qualify financially and those who are disabled as well as children. The difference between SSI and the regular Social Security pension is that SSI is non-contributory, so one does not have to pay into it to qualify for these benefits. Social Security is a pay-as-you-go program that requires recipients to have paid into it to qualify for benefits since it is funded by those who are actively paying into it. SSI is funded by the treasury and income taxes.

Earned Income Tax Credit (EITC)

The EITC is assistance via the tax system. A tax credit is essentially money that is credited to you for your taxes. It is a tax break for those earning below a certain income. Since our taxes are calculated as a percentage of our earnings, the more we make per paycheck, the more we pay. So the more the recipient earns in income, the larger the tax break until the recipient exceeds the upper qualifying limit for EITC. This means that low-income workers are paying fewer taxes out of each paycheck which puts more money in their pockets.³

Nutritional assistance programs

The two most widespread nutritional assistance programs are WIC and SNAP. They are both collected by low-income families, with WIC being meant for women with children specifically, whereas SNAP can be collected by anyone. Both programs provide assistance in proportion to income. So if you earn more, you will qualify for a smaller monthly supplemental payment, but if you earn less or are unemployed, you will collect a higher payment.

Medicaid

Medicaid is a federally funded healthcare program where the qualifications and parameters are set by each individual state. It is meant for low-income families and focuses especially on children, the elderly, and the disabled. Medicaid is one of the programs that receive criticism for encouraging people not to work or work more. Often the income to qualify is set so low that workers quickly rise above the qualification limit, yet their job may not offer health insurance benefits, and then they lose coverage for themselves and their families.³

Temporary Assistance for Needy Families (TANF)

TANF is a federal program that provides states with funding for anti-poverty measures. It is up to the individual state's discretion how this money is spent as long as it is used for reducing poverty. These programs should be geared toward helping low-income families and children achieve economic and financial self-sufficiency. TANF also sets a limit on how long families can collect the benefit and requires that recipients are either working or going to school to qualify.³