Family Allowances as a Program for Reducing Poverty

Abstract

The United States is one of the few developed nations without a system of family allowances. Many social insurance theoreticians and welfare economists propose a system of family allowances under the OASDHI program to help meet the hard-core poverty problem in the United States. This paper analyzes empirically the desirability and limitations of family allowances in reducing poverty. The central thrust of the paper is devoted to the proposition that a system of family allowances is a costly and inefficient technique for reducing the remaining hard-core poverty in the United States. Considerable attention is devoted currently to poverty in the United States and the need for new public income maintenance programs to help the hard-core poor. New proposals include the negative income tax and guaranteed minimum income plans, reforms in public assistance, substantial improvements in the OASDHI program, and work and wage guarantees. In addition, many social insurance theoreticians propose a system of family allowances (FA) to reduce the remaining poverty in the United States.' George E. Reida, Ph.D., C.L.U., is Professor of Economics at the University of Nebraska. Dr. Rejda is the recipient of three N.A.I.I. Journal awards and serves currently as Communications Co-Editor of this Journal. He held a Huebner Foundation Fellowship at the University of Pennsylvania. Dr. Rejda has also served as a staff consultant to The President's National Advisory Panel on Insurance in Riot-Affected Areas. The author wishes to thank Professor C. Arthur Williams, Jr., University of Minnesota, Professor Wallace Peterson, Chairman, Department of Economics, University of Nebraska, and Professor Thomas Nitsch, Economics Department, Creighton University, for their penetrating and critical comments of an earlier draft of this paper. The views expressed in this paper, however, are those solely of the author. This article was submitted in June, 1969. 1 See Children's Allowances and the Economic Welfare of Children, The Report of a Conference, Eveline M. Burns. ed. (New York: CitiAlthough FA plans exist in sixty-two foreign nations, including Canada, Great Britain, France, Denmark, and Sweden,2 the United States does not presently employ this technique to meet the income maintenance needs of the population. The primary purpose of this paper is to analyze empirically the desirability and limitations of FA plans for reducing poverty in the United States. Other aspects of FA plans are beyond the scope of the paper. The central thrust of this paper is devoted to the proposition that FA plans are ineffective and costly techniques for reducing the remaining hardcore poverty in the United States. Poverty is defined here as an insufficiency of material goods and servicesthe basic needs of individuals and famizen's Committee for Children of New York, Inc., 1968). 2 U.S., Congress, Joint Economic Committee, Guaranteed Minimum Programs Used By Governments Of Selected Countries, Paper No. 11, (Washington, D.C.: Government Printing Office, 1968), p. 10. 3 For a complete discussion of FA plans, see James Vadakin, Family Allowances (Miami: University of Miami Press, 1958) and Victor Gerdes, Social Security And Family Income Requirements, The Journal of Risk and Insurance, Vol. XXXIII, No. 2 (June, 1966), pp. 225-35.