U.S. antipoverty programs include three huge programs—Social Security, Medicare, and Medicaid—several other fairly big programs, including Temporary Assistance for Needy Families, the Supplemental Nutrition Assistance Program, and the Earned Income Tax Credit, and a number of smaller programs. Table 78.3 shows one useful way to categorize these programs, along with the amount spent on each listed program in 2013.

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First, the table distinguishes between programs that are means-tested and those that are not. In means-tested programs, benefits are available only to families or individuals whose income and/or wealth falls below some minimum. Basically, means-tested programs are poverty programs designed to help only those with low incomes. By contrast, non-means-tested programs provide their benefits to everyone, although, as we’ll see, in practice they tend to reduce income inequality by increasing the incomes of the poor by a larger proportion than the incomes of the rich.

Second, the table distinguishes between programs that provide monetary transfers that beneficiaries can spend as they choose and those that provide in-kind benefits, which are given in the form of goods or services rather than money. As the numbers suggest, in-kind benefits are dominated by Medicare and Medicaid, which pay for health care.

When people use the term welfare, they’re often referring to monetary aid to poor families. The main source of such monetary aid in the United States is Temporary Assistance for Needy Families, or TANF. This program does not aid everyone who is poor; it is available only to poor families with children and only for a limited period of time.

TANF was introduced in the 1990s to replace a highly controversial program known as Aid to Families with Dependent Children, or AFDC. The older program was widely accused of creating perverse incentives for the poor, including encouraging family breakup. Partly as a result of the change in programs, the benefits of modern “welfare” are considerably less generous than those available a generation ago, once the data are adjusted for inflation. Also, TANF contains time limits, so welfare recipients—even single parents—must eventually seek work. As you can see from Table 78.3, TANF is a relatively small part of the modern U.S. welfare state.

Other means-tested programs, though more expensive, are less controversial. The Supplemental Security Income program aids disabled Americans who are unable to work and have no other source of income. The Supplemental Nutrition Assistance Program (formerly known as the Food Stamp Program) helps low-income families and individuals to buy food staples.

Finally, economists use the term negative income tax for a program that supplements the earnings of low-income workers. For example, in the United States, the Earned Income Tax Credit (EITC) provides additional income to millions of workers. It has become more generous as traditional welfare has become less generous. As an incentive to work, only workers who earn income are eligible for the EITC. And as an incentive to work more, over a certain range of incomes, the more a worker earns, the higher the amount of EITC received. That is, the EITC acts as a negative income tax for low-wage workers. In 2014, married couples with two children earning less than $13,650 per year received EITC payments equal to 40% of their earnings. Payments were slightly lower for single-parent families or workers without children. At higher incomes, the EITC is phased out, disappearing at an income of $49,186 in 2014.

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Social Security, the largest program in the U.S. welfare state, is a non-means-tested program that guarantees retirement income to qualifying older Americans. It also provides benefits to workers who become disabled and “survivor benefits” to family members of workers who die. Social Security is supported by a dedicated tax on wages: the Social Security portion of the payroll tax pays for Social Security benefits. The benefits workers receive on retirement depend on their taxable earnings during their working years: the more you earn up to the maximum amount subject to Social Security taxes ($117,000 in 2014), the more you receive in retirement. However, benefits are not strictly proportional to earnings. Instead, they’re determined by a formula that gives high earners more than low earners, but with a sliding scale that makes the program relatively more generous for low earners.

Because most senior citizens don’t receive pensions from their former employers, and most don’t own enough assets to live off the income from their assets, Social Security benefits are an enormously important source of income for them. Fully 64% of Americans 65 and older rely on Social Security for more than half their income, and 35% of those 65 or older rely on Social Security for 90% or more of their income.

Unemployment insurance, although a much smaller amount of government transfers than Social Security, is another key social insurance program. It provides workers who lose their jobs with about 35% of their previous salary until they find a new job or until 26 weeks have passed. (This period is sometimes extended when the economy is in a slump.) Unemployment insurance is financed by a tax on employers.

Because the people who receive government transfers tend to be different from those who are taxed to pay for those transfers, the U.S. welfare state has the effect of redistributing income from some people to others. Each year the Census Bureau estimates the effect of this redistribution in a report titled “The Effects of Government Taxes and Transfers on Income and Poverty.” The report calculates only the direct effects of taxes and transfers, without taking into account changes in behavior that the taxes and transfers might cause. For example, the report doesn’t try to estimate how many older Americans who are now retired would still be working if they weren’t receiving Social Security checks. As a result, the estimates are only a partial indicator of the true effects of the welfare state. Nonetheless, the results are striking.

Table 78.4 shows how taxes and government transfers affected the poverty threshold for the population as a whole and for different age groups in 2009. It shows two numbers for each group: the percentage of the group that would have had incomes below the poverty threshold if the government neither collected taxes nor made transfers, and the percentage that actually fell below the poverty threshold once taxes and transfers were taken into account. (For technical reasons, the second number is somewhat lower than the standard measure of the poverty rate.) Overall, the combined effect of taxes and transfers is to cut the U.S. poverty rate nearly in half. The elderly derived the greatest benefits from redistribution, which reduced their potential poverty rate of 48.0% to an actual poverty rate of 9.8%.

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Table 78.5 shows the effects of taxes and transfers on the share of aggregate income going to each quintile of the income distribution in 2009. Like Table 78.4, it shows both what the distribution of income would have been if there were no taxes or government transfers and the actual distribution of income taking into account both taxes and transfers. The effect of government programs was to increase the share of income going to the poorest 80% of the population, especially the share going to the poorest 20%, while reducing the share of income going to the richest 20%.