Government and Households Government and Household Government Intervention

Government and Households Government and Household

Government Intervention To protect the worker and consumer from unfair business practices. Regulations and Trust busting To provide public goods. National Defense, Roads, Schools To provide safety nets. WIC, TANF, SSI To stabilize the economy. Fiscal and Monetary Policy

Income Gap The top 20% of American households earned more income than the other 80% combined Two Key Factors Skills/Education differences Inheritances Over the last two decades income distribution has become less equal

The Lorenz Curve illustrates the distribution of income in the economy The reference line represents complete equality Under complete equality each quarter would receive one fourth of the total income In reality this is not the case

In reality a small percentage of the population controls a large share of the cumulative income

Poverty Line/Threshold What do you think is the poverty line in the United States? For one person in 2015 it was $11, 770 For two people it was $15, 930 The poverty line is the dividing line that determines who is poor and who is not Incomes that fall below the threshold are inadequate for supporting a family.

If you made $9. 00/hour… What would you make after a 40 hour week? $360. 00 before taxes What would you make after a 50 week year? $18, 000 before taxes

How far would $14, 500 get you? Taxes 12% 14500 X. 12 12, 760 Rent a month $600 x 12 -$7, 200= $5560 Car insurance $90 x 12 -$1, 080. 00= $4480 Medical Insurance $150 x 12 -$1800. 00 = $2680 Monthly Utility Bills $150 x 12 -1800 = $880 That leaves you with $2. 41 a day to eat, pay for gas, toiletries, entertainment, save, and pay for emergencies.

Is Minimum wage a price floor or a price ceiling? Minimum wage is a price floor, it tells the lowest wage employers may legally pay for an hour of work. What is the minimum wage in the United States? $7. 25/hour What is the minimum wage in the in New York State? $7. 25/hour

Why does the government set a minimum wage? Is the minimum wage going to cause a shortage or surplus of jobs? Shortage, this is one of the reasons that there will always be some unemployment. Do you think minimum wage is hurting American business? Why?

WIC Women, Infants, & Children Provides money for supplemental food, health care referrals and nutritional education. For low income pregnant, breastfeeding, and nonbreastfeeding postpartum women, and to infants and children up to age five who are found to be at nutritional risk.

Unemployment Insurance Pay benefits for employees that have lost their jobs and meet certain qualifications Must be ready, willing, and able to work Must have been laid off This program is run by the states Employers who contribute a percentage of their payroll to the state operated fund, pay for the cost of the program

Unemployment Insurance Average in the United States is $262 a week for 13 weeks In NY State Unemployment maxes out at $405 a week for 72 weeks Massachusetts is $628 -942 for 72 weeks https: //ui. labor. state. ny. us/UBC/home. do

Do you think seasonal workers should receive unemployment benefits?

Food Stamps The food stamp program helps low income families buy the food that they need to maintain good health The amount of money they receive depends on the number of people in the family and the amount of income left after certain expenses are subtracted http: //www. foodstampshelp. org/getfoodstamps/rights. aspx

Based on the chart, why do some people argue that the current welfare system promotes people on welfare to have more children?

Food Stamps can be spent like cash at most stores that sell food Some households receive debit cards that can be used in certain stores to buy food More than 40 million people get food stamps

Based on this chart, do you think food stamps promotes independence or reliance? Why?

Temporary Assistance for needy families (TANF): provides income to needy families for a limited period of eligibility There is a maximum of 60 months of benefits within one's lifetime, but some states have instituted shorter periods Average monthly Annual Year TANF recipients Poverty rate (%) unemployment rate (%) 1998 8, 347, 136 10. 0 4. 5 1999 6, 824, 347 9. 3 4. 2 2000 5, 778, 034 8. 7 4. 0 2001 5, 359, 180 9. 2 4. 7 2002 5, 069, 010 9. 6 5. 8 2003 4, 928, 878 10. 0 6. 0 2004 4, 748, 115 10. 2 5. 5 2005 4, 471, 393 9. 9 5. 1 2006 4, 166, 659 9. 8 4. 6 2007 3, 895, 407 9. 8 4. 5 2008 3, 795, 007 10. 3 5. 4 2009 4, 154, 366 11. 1 8. 1 2010 4, 375, 022 -- 8. 6

Workfare At some agencies, those receiving welfare benefits are required to work a given number of hours each week at such tasks as helping to clean parks and other public areas What are the benefits of Workfare?

Supplementary Security Income (SSI): designed to help poor people who are blind, aged, or otherwise disabled

2013 FICA tax rates Social Security Tax 6. 2% Medicare Tax 1. 45% 7. 65%

Medicare Provides hospital and medical benefits to people 65 years or older and to disabled people under 65 already covered by Social Security. People who receive Medicare can also sign up for medical insurance in exchange for a small monthly payment medical insurance helps pay for doctors services and other medical needs. http: //www. aarp. org/research/medicare/coverage/aresearc h-import-673 -FS 45 r. html

Is government provided medical insurance a new idea?

Social Security- Entitlement Program Social Security is the largest category of federal spending More than 50 million retired or disabled people and their families receive monthly benefits

Increased Life Expectancy

Decreased Fertility Rates

Declining worker to beneficiary ratio

How it Works Workers pay social security tax This tax is matched by their employers After they retire, workers receive social security payments for the rest of their lives In 2001 there were 3. 4 workers paying social security for each retiree

Private Pension Plans 401(k) plans and IRA’s Many companies require employees to contribute a portion of their income into a pension plan that will give them monthly income when they retire Income Tax does not have to be paid on the interest or dividends earned on the money while it is saved

IRA and 401 (k) An IRA is Individual Retirement Account And this has a wide variety of investment options Money in an IRA can not be borrowed until retirement In a 401 (k) plan both the employer and the employee put in a set amount of money into the account each pay period The Employee has some choice on how the money is invested Employees do not have to pay taxes on this money until they withdraw it

Retirement Accounts 401 K -Set up through employer. -Involves employer matching -Money can be accessed and borrowed before retirement. -Money is added pre tax -Limits are set on yearly contribution. -Returns are not guaranteed but are generally more than savings. IRA -Set up by the individual. -Money can not be accessed before retirement.

Which seems better for the employee a IRA or a 401 (k)? Why?

Consumer Sovereignty Consumer sovereignty: the condition in a market economy by which consumer decisions about which goods and services to purchase determine what is produced.

Medicaid is available only to certain low-income individuals and families who fit into an eligibility group that is recognized by federal and state law. Medicaid does not pay money to you; instead, it sends payments directly to your health care providers. Depending on your state's rules, you may also be asked to pay a small part of the cost (co-payment) for some medical services.

Take out your Part A and Key Terms Budget

WHY CHANGE HEALTHCARE? Was not affordable to millions of working Americans. People in transition (in between jobs) and/or young adults were not covered. Insurance companies could find reasons to deny coverage 1400. Many people with preexisting conditions could not get a plan. There was little incentive for businesses to offer healthcare to employees. Other developed nations have found ways to create universal healthcare.

Obamacare - Patient Protection and Affordable Care Act. Cannot be denied for preexisting conditions More people qualify for Medicaid Children until 26 years old regardless if they are going to school, married, or independent of parents. Generic drugs can be made faster (12

How will it be funded? Added Sin taxes on things like tanning Increase in taxes for those that make over 200, 000 annually. Enhanced methods of fraud detection are being created. Government regulation of the costs some medical services. Everyone must carry insurance or pay a penalty.

Potential Fears/Opposition Having insurance changes (13: 40) the way we look at medical care and makes it more expensive for all. There could be a shortage of doctors b/c of supply and demand lack of incentive. There could be a decrease in care. Longer lines ext. Doctor’s will not be fairly compensated. People could be forced to change doctors. People who do not want healthcare forced to pay. It could cripple small businesses as they are forced to offer health care to employees. It could slow down an already stagnant economy. Taxes are too high already. The government decides what goods and services are covered taking reducing consumer sovereignty. As more and more people use the system the costs will continue to increase.

Quick Quiz 1. TANF 2. SSI 3. Workfare 4. Medicare 5. Medicaid 6. Social Security 7. Unemployment Insurance A. Monthly income support for the blind or disabled B. The Workers of today pay taxes to support retired people and their families C. Provides hospital benefits for people over the age of 65 D. People receive welfare benefits in exchange they clean public parks E. Temporary assistance to people that lose their jobs for reasons beyond their control F. Provides hospital benefits for very low income individuals G. Temporary assistance for needy families

Spending Choices There are three things that can be done with income: spend it, save it, or pay taxes. After-tax income is called disposable income.

Spending v. Saving The average propensity to consume is the percentage of after-tax income which, on the average, consumers spend on goods and services.

Spending v. Saving The average propensity to save is the percentage of after-tax income which, on the average, consumers save. Examples of savings include savings accounts, stocks, bonds, and real estate.

Spending v. Saving APC + APS = 1 [85% + 15% = 100%]

Spending v. Saving If the average propensity to consume is 90% of disposable income, what would the average propensity to save be? When consumption equals disposable income: a. The APC is zero. b. Consumption and saving are equal. c. The APS is zero.

Marginal Propensity to Consume MPC is the proportion of any change in disposable income spent for consuming goods. [marginal means “extra” or “change in”] MPC equals the change in consumption divided by the change in disposable income: change in cons change in DI

Marginal Propensity to Save MPS is the fraction of any change in disposable income that households save. MPS equals the change in saving divided by the change in disposable income. change in saving change in DI MPC + MPS = 1

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