Jim Crow's Welfare State
America’s major entitlement programs are often significantly more expensive than those in other nations, but much less effective in reducing poverty.
For instance, in 2017, the United States spent twice as much on Social Security than Australia or Canada did on their public pension programs. Yet, those nations’ poorest senior citizens enjoy substantially higher incomes than their American counterparts. America’s national government in 2019 gave states 64% more per capita for Medicaid alone than Canada provided to its provinces. Yet 11% of Americans remained uninsured.
The high cost and poor results of these aspects of the American welfare state are in large part due to the preoccupations and priorities of the New Deal coalition that built it, which political scientist Ira Katznelson has called “a strange marriage of Sweden and South Africa.”
The mid-20th century Democratic Party encompassed western farmers, urban Catholics, southern segregationists, and black voters from northern cities. But the Southerners ruled Congress, having accumulated seniority while the rest of the party suffered landslide defeats during the 1920s. They controlled the leadership, dominated its major committees, and voted as a bloc to ensure that no legislation threatened Jim Crow’s system of white supremacy.
The Social Security Act of 1935 was authored, cosponsored, and shepherded through Congress by two sons of Confederate veterans: House Ways and Means committee Chairman Robert Doughton (D-TN) and Senate Finance committee Chairman Pat Harrison (D-MS). Harrison, in particular, “displayed remarkable ability in getting what he wanted.”
The NAACP’s special council, Charles Hamilton Houston, testified against the legislation, noting that “from a Negro's point of view it looks like a sieve with the holes just big enough for the majority of Negroes to fall through”. The proposed Old Age Insurance (now OASI) would vary retirement benefits according to prior payroll tax payments, which increased the tax burden on those who were already below “a distinct subsistence level”, while providing inadequate aid to the poor in retirement. (Later, benefits would be inflated beyond prior payroll tax contributions for early generations under the program; but higher earners would profit most from the adjustment.)
Britain and several of its then-Dominions instead opted to provide equal retirement benefits to retirees. But Edwin Witte, Social Security’s chief architect under President Franklin Roosevelt, noted icily that “flat benefits, without regard to earnings, do not appeal to many Americans who are accustomed to wide differentials between urban and rural areas and in different parts of the country between occupations and races.” The Jackson Daily News was more frank, declaring: “The average Mississippian can’t imagine himself chipping in to pay pensions for able-bodied Negroes to sit around in idleness on front galleries, supporting all their kinfolks on pensions, while cotton and corn crops are crying for workers to get them out of the grass.”
Although support for uniform benefits ranged from the U.S. Chamber of Commerce and Senator Robert Taft (R-OH) to organized labor and Senator Robert LaFollette Jr. (P-WI), the South held sway. Indeed, to secure OASI’s initial enactment, Witte spoke to the Southern-dominated Senate Finance Committee in executive session (i.e. off the record) “with an emphasis upon the fact” that a uniform benefit would likely be adopted if they didn’t support his proposal. Witte noted: “Chairman Harrison then, immediately after my speech, put the question to a vote and every member of the committee who was considered doubtful voted for old age insurance.”
Social Security retains the imprint of its origins. A 2013 analysis by the Urban Institute concluded that “historically, currently, and in the near future—Social Security redistributes from Hispanics, blacks, and other people of color to whites.”
In 2017, OASI paid an average benefit of $32,000 to the wealthiest decile of Americans over the age of 65, but only $4,000 to the poorest. Although government spending on public pensions in 2017 was much higher in the United States ($4,919 per capita) than in Australia ($2,232) or Canada ($2,500), most of this went to the rich, because the maximum benefit which OASI provides is two to three times higher than in Australia and Canada. Because of this distribution, the disposable income of the poorest 10% of American seniors is significantly lower ($12,431) than in Australia ($15,482) and Canada ($18,937) respectively.
In short, Social Security is poorly focused on protecting Americans from the risk of poverty and deserves reform. Although the current structure of retirement benefits should be preserved for those who have paid into the system for decades, Congress should consider phasing towards more uniform benefits which have elsewhere proven far more effective at reducing poverty among the elderly, while imposing less of a burden on taxpayers.
While Old Age Insurance was set up on a national basis, the other six major programs established by the Social Security Act were structured as federal support for state-run programs.
The financing of entitlements with federal grants was originally intended to allow Southern states to neglect black residents. But, although Civil Rights and Voting Rights Acts sought to prevent such discrimination, the continued reliance on federal matching funds for America’s safety net programs ensures that states which need aid the most still typically receive the least.
The poorest Americans live in states with the shallowest tax bases, which are much less able to finance payments to claim federal matching funds. While Mississippi collected a higher share of personal income in state and local taxes (10.2%) than Massachusetts (9.9%) in 2019, this generated much less revenue per capita ($3,949 vs. $7,339).
When 1970s federal court rulings mandated expansions of eligibility for Aid to Families with Dependent Children without increasing aid, states with the weakest revenues and greatest caseloads were forced to cut benefit levels. Under the 1996 welfare reform legislation, block grants to states were based on matching funds that states had previously claimed under AFDC, so enormous disparities in allocations to states were frozen into law. In 2020, federal welfare grants ranged from $4,177 per poor child in Vermont, to $330 for Nevada. Most of this spending no longer goes directly to poor families.
The Social Security Amendments Act of 1950 allowed states to claim matching funds to subsidize providers of medical care to the poor, which were greatly expanded by the Kerr-Mills Act of 1960. As historians Robert and Rosemary Stevens note, “Kerr-Mills was perhaps less a means of increasing aid to the elderly than it was a means for shifting the burden of that aid from others to the federal government.” Five of the nation’s wealthiest states (accounting for 31% of its population) claimed 62% of its federal funds; Georgia and Mississippi never made any expenditures under the program.
Following the Civil Rights Act, Congress established Medicare as a uniform national source of healthcare benefits for the elderly, and used the program’s finances to push Southern hospitals to desegregate. Medicaid was originally seen as doing little more than financing the vestiges of Kerr-Mills which weren’t covered by Medicare, but has grown to become the largest item on state budgets.
Medicaid now provides between $1 and $9 in federal funds for every $1 that states spend on eligible low-income beneficiaries. Because the return on investment is so great, states spend as much as they can on the program – and the wealthiest are able to go furthest in taking advantage of it. In 2021, oil-rich Alaska claimed $22,446 in federal Medicaid funds per poor resident, whereas Louisiana received only $12,227 – even though both states opted to expand the program to able-bodied adults.
Although its value to Jim Crow was clear, state involvement in financing and operating entitlements now serves mainly to inhibit the operation of a cost-effective safety-net. It causes funding to run short where it is most needed (in poorer states and during recessions), spending to bloat where resources are abundant, and concentrates the burden of financing on taxpayers who are least equipped to pay. Congress should seek to fully nationalize payment for mandatory Medicaid beneficiaries and services, while leaving states to finance additional benefits entirely out of their own funds.
Chris Pope is a senior fellow at the Manhattan Institute
