U.S. social insurance programs support workers and economic growth

Since coming to power in early 2025, Republican majorities in Congress have shifted resources away from the nation’s social insurance programs, most notably to offset the cost of H.R. 1, the most regressive budget bill in decades. These actions threaten the health care coverage of 11 million people on Medicaid and 4.5 million people receiving nutrition assistance.

Meanwhile, the Trump administration has simultaneously inhibited the nation’s economic activity under the weight of tariffs and economic uncertainty, dragging down national consumer sentiment as Americans weather historically high costs of living and a weakened U.S. labor market. Then, there is the impending expiration of the Affordable Care Act’s premium tax credits that help Americans afford health care, which will price millions of families out of coverage as their monthly insurance premiums skyrocket beginning January 1, 2026.

Roughly 11 percent, or 36 million Americans, including more than 10 million children, were living in poverty (with an annual income of $31,812 for a family of four) in 2024. Despite the disproven—but still commonly held—belief that poverty is a result of personal failings, poverty in the United States is largely driven by policy choices and contextual factors.

Importantly, there is substantial mobility into and out of poverty year to year—even during periods of labor market contraction. During the Great Recession of 2007–2009, for example, a substantial number of Americans moved out of poverty within a year: Forty-one percent of those living in poverty in the United States in 2007 were no longer living in poverty the following year.

Social insurance—the programs, services, and benefits that provide critical support for low-income families to access necessities, such as safe housing, sufficient food, and adequate health care—promotes economic stability by helping individuals and families weather periods of diminished income or unemployment. These programs provide other widespread positive benefits for the U.S. economy, too, enabling people to take positive economic risks, such as starting a business or going back to school to develop their human capital. These risks fuel innovation that, in turn, supports greater productivity across the economy.

Social insurance programs are traditionally thought of as programs that people “pay into” through dedicated taxes that they can later receive as benefits based on those contributions, such as Unemployment Insurance and Social Security. In this column, social insurance programs also refer to programs traditionally thought of as means-tested, income-transfer programs, such as the Supplemental Nutrition Assistance Program, and direct cash assistance funded by the Temporary Assistance for Needy Families program. These programs protect Americans’ shared economic security by cushioning the blow when households experience unforeseen, unavoidable, or unfortunate losses of income.

When people cannot quickly find employment after a professional setback, they not only suffer from those lost wages but also can experience additional long-term economic damage in diminished wages across the course of their careers, known as “scarring,” if they face persistent unemployment. Overcoming such long-term joblessness can be challenging for workers, as they potentially suffer from decaying skills, limiting their competitiveness in the job market. Further, the loss in human capital limits the growth of the U.S. economy in the short term and reduces future economic output. 

In a healthy economy, money needs to flow and circulate. When households experience losses in personal income, they often pull back on consumer spending and tap into their personal savings. Yet many of the lowest-income Americans are increasingly struggling to save a portion of their incomes, due to a combination of factors, including stagnant wages outpaced by increasing costs of living. Such spending reductions by households can spark communitywide economic effects, as more households are impacted by a poorly performing labor market or as more households anticipate a risk of impending layoffs. Local businesses then feel the impact of fewer customers with fewer dollars to spend—effects that can snowball across local communities.

Social insurance programs help households get back on their feet quickly and re-engage in the economy, stabilizing local economies. A 2025 analysis of one direct cash assistance program in Flint, Michigan, found that every dollar invested in families produces an additional 60 cents to $3 that circulates in the local economy. Yet without robust social programs to support household spending on basic needs when experiencing a loss in income or during moments of economic downturn, the cumulative effects can be self-reinforcing and lead to wider impacts.

This is why—beyond the well-documented ways in which reducing poverty is good for society by improving health outcomes and well-being, particularly for children—there is also an economic imperative to help households maintain their standards of living when they experience financial setbacks. Many social programs in the United States do just that on a regular basis, offering nutrition assistance, housing support, health insurance coverage, direct cash assistance, and more to tens of millions of Americans who would not otherwise be able to afford basic necessities.

But despite their social and economic benefits, U.S. social insurance programs are a patchwork quilt, with some states being more or less generous with benefits or eligibility, even for programs funded in part by the federal government, as is the case with Unemployment Insurance, for instance. These variations not only increase inequality and reduce the efficiency of these programs, but also increase the likelihood that Americans end up falling through the cracks. This unnecessarily harms individual households and limits the collective ability of the U.S. workforce to weather economic hardships.

Take, for example, the Temporary Assistance for Needy Families program, a federal block grant that, among other things, funds state-administered cash assistance for low-income families. On average, these funds only reach 1 out of every 5 eligible families in the United States, greatly limiting the program’s potential to help families get back on their feet when they experience setbacks. Lack of resources at the household level is particularly harmful for children. In the long term, experiencing poverty as a child has broad economic costs and is linked to a range of worse outcomes, including worse health and lower lifetime earnings.

In order to foster a resilient and dynamic economy that supports economic growth, U.S. social insurance programs must be able to help individuals, families, and workers stay resilient and successfully navigate moments of financial difficulty. The strength of these programs are particularly salient in moments of broad economic uncertainty such as the one many Americans are currently facing.

Rather than cut funding for social insurance programs that help low-income families and individuals, policymakers can tap into proven policy solutions, such as expanding Unemployment Insurance, improving the Supplemental Nutrition Assistance Program, bolstering Medicaid, and offering direct cash assistance to help households navigate tough economic times and protect U.S. economic growth and prosperity. The economics are clear: Robust social programs not only are good for individual families’ well-being, but also bolster economic resilience and, in turn, reinforce economic growth and local economies across the country.

Did you find this content informative and engaging?
Get updates and stay in tune with U.S. economic inequality and growth!