Welfare State

Between the mid-1960s and the mid-1970s the number and size of welfare-state programs expanded rapidly, but beginning in the mid-1970s, a combination of economic, social, and political factors led to a reversal of the trend. Stagflation (the combination of high rates of unemployment and high rates of inflation) and recession led many Americans to question America’s economic future. As workers faced stagnating wages and reductions in their standard of living, resentment toward welfare-state programs increased, particularly with respect to programs targeted at the poor, such as Aid to Families with Dependent Children (AFDC). The Watergate crisis provided evidence of corruption at the highest level of government and contributed to widespread cynicism. The economic downturn of the 1970s and evidence suggesting that many of the nation’s costly antipoverty programs were not producing the desired results in the ‘‘war against poverty’’ contributed to a political shift toward the right. This shift was reflected in successful tax revolts in several states, including Proposition 13 in California and Proposition 2 in Massachusetts. Ronald Reagan’s election as president in 1980 was in part a reflection of discontent with existing welfare policies. His campaign openly advocated dismantling or severely cutting back many social welfare programs aimed at the low-income population.

During the late 1970s and again during the early 1980s Social Security faced a short-term funding problem and a number of changes had to be made, including an increase in the payroll taxes and some modest benefit cuts. Some political commentators on the right argued that Social Security faced a ‘‘crisis’’ that necessitated a reduction in promised future Social Security benefits to ‘‘save’’ the program. While the program remained very popular with the general public, for the first time a substantial segment of the population came to fear that their Social Security benefits might not be there when they retired.

During this same period, criticisms of Medicare centered on the growing costs of medical treatment, often referred to as ‘‘medical inflation.’’ The Health Care Financing Administration, created in 1977 to administer Medicare and Medicaid, failed to control the rapid increase in federal spending. The Reagan administration succeeded in pinning much of the blame for medical inflation on the Medicare program, which was viewed as encouraging older adults to overutilize health care, requesting and getting treatments and services that they otherwise would not have asked for.