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 18-3, 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 food stamp program or SNAP—officially the Supplemental Nutrition Assistance Program, since it now provides debit cards rather than stamps—helps low-income families and individuals, who can use those debit cards to buy food staples but not other items.

Finally, economists use the term negative income tax for a program that supplements the earnings of low-income working families. The United States has a program known as the Earned Income Tax Credit (EITC), which provides additional income to millions of workers. It has become more generous as traditional welfare has become less generous. Only workers who earn income are eligible for the EITC; 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 2013, married couples with two children earning less than $13,430 per year received EITC payments equal to 40% of their earnings. (Payments were slightly lower for single-parent families or workers without children.) The EITC is phased out at higher incomes. As of 2013, the payment ceased at an income of $43,038 for married couples with two children.