New research from the University of Michigan reveals that social transfer programs, such as Social Security and the Earned Income Tax Credit (EITC), help reduce income inequality between richer and poorer regions of the United States.
The study finds that these federal programs reduced geographic inequality by 12% in 2019, reversing more than 28% of the rise in inequality seen since the 1970s. Though not originally designed to address regional disparities, these programs disproportionately benefit lower-income areas. Among them, retirement benefits made the biggest dent in inequality, with veterans’ benefits, the EITC, and the Supplemental Nutrition Assistance Program (SNAP) also making significant contributions.
“Social transfer programs are often praised for helping individuals, but their impact on regional inequality is less recognized. Our findings offer new insights for policymakers debating federal social programs, like the Child Tax Credit,” the researchers say.
Rising inequality
Inequality in the U.S. has increased over the past forty years, with growing geographic disparities. Initially, higher incomes were found in metro areas in the upper Midwest and rural interior West, but these areas have seen relative income declines compared to the rest of the country.
“Addressing the widening income gap between places like San Francisco and rural areas is crucial,” the authors note. “Our study shows that social insurance programs, even though they weren’t designed to target regional disparities, play a significant role in narrowing these gaps.”
In 2019, per capita income varied widely. The Jackson metropolitan area (Wyoming and Idaho) had the highest income at $163,370, while Buffalo County (South Dakota) had the lowest at $15,679. This shows the large economic differences between regions.
Varied spending
Transfer program spending also varied greatly. The Villages, Florida, had the highest per capita transfer spending at $12,316, while the Aleutians West Census Area, Alaska, had the lowest at $2,183.
Rural areas, including the northern Midwest, Appalachia, and parts of the rural South and Pacific coast, received more transfer spending, while metropolitan areas and some rural parts of Texas and the interior West received less. Areas where transfers made up a high percentage of local income were often poor but not the poorest, showing a complex relationship between income levels and transfer reliance.
The study also found that regions with lower total incomes received higher per capita transfers.
Rethinking the balance
This research suggests rethinking the balance between federal and state roles in social welfare. Future studies might look at how taxes affect geographic inequality and the role of Medicaid spending.
“Expanding federal social transfer programs could help reduce regional disparities further,” the researchers argue. “Political tension over interregional inequality and the effectiveness of federal programs in addressing these disparities highlight the need for consistent implementation, free from local political biases.”
Understanding these geographic differences is essential for policymakers aiming to reduce inequality and improve conditions in underserved regions.
“As some parts of the country struggle economically, we’ve seen lower mobility and worsening health issues,” the researchers conclude. “More research is needed to link social and economic conditions to better inform policy decisions.”
