This book suggests that we should be working toward the total elimination of government welfare programs subsitituting a renewed and invigorated program of private charity and economic opportunity.

The Poverty of Welfare

Helping Others in Civil SocietyBy MICHAEL D. TANNER

CATO INSTITUTE

Copyright © 2003 Cato Institute
All right reserved.
ISBN: 978-1-930865-41-9

Contents

Preface.........................................................vii1. "The End of Welfare As We Know It"...........................12. Welfare before 1996..........................................133. The Need for Reform-Then and Now.............................354. The Results of Reform........................................515. Welfare: End It, Don't Mend It...............................856. The Dangers of Government-Funded Charity.....................1097. Getting Out of Poverty.......................................1258. Conclusion: The Poverty of Welfare...........................157Notes...........................................................161Index...........................................................201

Chapter One

"The End of Welfare As We Know It"

On August 22, 1996, leaders of both political parties gathered in the White House Rose Garden to watch President Clinton sign the Personal Responsibility and Work Opportunity Reconciliation Act, a bill that, despite its obscure title, represented the most extensive revision of federal welfare policy in more than 30 years. In the Rose Garden, there were smiles all around and an uncommon political harmony, as both Democrats and Republicans basked in the warm afterglow of their enormous undertaking. Clinton even saw it as the beginning of a new era of bipartisan cooperation. "Welfare will no longer be a political issue," he said. "The two parties cannot attack each other over it."

Behind the faade of cooperation, however, welfare reform remained a contentious issue. Clinton had run for president as a "New Democrat," on a platform that called for "ending welfare as we know it." But once in office, he quickly found that the same divisions that split the Democratic Party over the issue also existed in his administration.

As a result, the Clinton administration never formulated a clear vision of welfare reform. The president's reform plan was repeatedly delayed by internal bickering. When finally released in June 1994, the president's plan called for a two-year time limit for welfare eligibility. During that period, recipients would receive job training and be eligible for other educational programs. At the end of the two years, they would be required to find work. If they were not able to find jobs in the private sector, they would be required to work in publicly funded community service jobs. The administration estimated that between 500,000 and 1 million public service jobs might be required. There would be no limit on the length of time a person could remain in a public service job. In addition, there would be a significant increase in funding for childcare. The president called for a crackdown, including federal sanctions, on fathers who failed to pay child support. Unwed teen mothers would be required to live with their parents in most cases, and the administration would launch a $100 million media and education campaign against teen pregnancy.

The Clinton plan was not an attempt to cut welfare spending. Early versions of the plan were estimated to increase welfare spending by as much as $58 billion over 10 years. That was quickly whittled back, but the final Clinton plan would still have increased spending by $9.3 billion over five years.

For better or for worse, the president's proposal was released at the height of the battle over his plans for health-care reform. As a result, it received only cursory public attention and almost no debate in Congress. Thus, welfare reform remained a hot political issue going into the 1994 elections.

The centerpiece of the successful Republican effort to capture control of Congress was the Contract with America, one provision of which called for welfare reform. The Republican plan, dubbed the Personal Responsibility Act, called for returning responsibility for many welfare programs, including Aid to Families with Dependent Children, to the states and providing them block grants. The Republican welfare reform proposal had many other components, including work requirements, time limits, and provisions to deal with out-of-wedlock births. But the most important was the block grants, not because block grants themselves were an innovation, but because they would end welfare's status as an entitlement. Under an entitlement program, every individual who meets the program's eligibility criteria is automatically entitled to receive the program's benefits. Spending on the program is not subject to annual appropriation; it rises automatically with the number of people enrolled. The block grant proposal, by contrast, would provide states with a fixed amount of money and they would have the power and authority to determine welfare eligibility.

Ending welfare's entitlement status would have two important effects. First, it would allow states to impose a variety of conditions and restrictions on receipt of benefits. Second, because it would make welfare spending subject to annual appropriation, Congress could assert greater control over the growth in spending.

As did most provisions of the Contract with America, welfare reform passed the House of Representatives largely intact and was significantly watered down in the Senate. The Senate added a maintenance-of-effort (MOE) requirement, ordering states to continue at least 80 percent of their previous welfare spending. That would prevent states from dramatically reducing welfare spending or benefits. The Senate also added a new child-care program and other spending increases.

President Clinton initially supported the Senate version and even indicated that he might sign the final compromise. However, he quickly became the target of a withering lobbying campaign by liberal groups, notably the Children's Defense Fund. In the end, Clinton vetoed two different versions of the welfare reform bill.

However, as the 1996 elections approached, pressure grew on both parties to pass some type of welfare reform. President Clinton changed course yet again and agreed to end welfare's status as an entitlement, if Congressional Republicans would agree to increase funding for childcare and job training and ease some of the eligibility restrictions that appeared in the original bill. Republicans agreed, and welfare reform passed the House by a vote of 256 to 170 and the Senate by 74 to 24.

Of course, not everyone was pleased with welfare reform. Even as President Clinton prepared to sign the bill, nearly 300 protesters marched outside the White House, chanting "One, Two, Three, Four. Stop the War on the Poor." Three senior members of the administration had resigned in protest.

But President Clinton was not deterred. Echoing his campaign theme, he declared, "Today, we are ending welfare as we know it." And with a presidential signature, 60 years of welfare in America changed.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996

Welfare reform made a number of significant changes in the way welfare was provided.

Before PRWORA, when most people thought of welfare, they thought of AFDC, the country's largest cash assistance program, which provided direct cash payments to children in families where the parents were absent, incapacitated, deceased, or unemployed, as well as certain other members of the children's household, most frequently their mother. The program was funded by a combination of federal and state funds (the federal portion varied from 50 to 80 percent), with states setting benefit levels and the federal government determining eligibility requirements.

PRWORA replaced AFDC with the Temporary Assistance for Needy Families block grant. This effectively abolished most federal eligibility and payment rules, giving states much greater flexibility to design their own programs. The TANF block grant was a fixed amount for each state, largely based on the pre-reform federal contribution to that state's AFDC program. In addition, as mentioned above, the block grants eliminated welfare's "entitlement" status, meaning that no one would have an automatic right to benefits. States could choose which families to help. States were however, required to continue spending at least 75 to 80 percent of their previous levels under the MOE provision.

Widespread work requirements were to be imposed on welfare recipients. States were initially to have at least 40 percent of their welfare recipients either working or participating in work preparation activities; that percentage was to have increased to 50 percent by 2002, although states were given wide discretion in designing work programs. However, states were given various credits and exemptions that significantly reduced the number of recipients actually required to work.

PRWORA also established a time limit for welfare receipt. Recipients could not remain on the rolls for longer than 60 months (five years). However, that restriction did not apply to child-only families, in which the children receive benefits but the parents do not, and states could exempt up to 20 percent of their adult recipients from time limits for "hardship" reasons. States also had the option of imposing stricter time limits or of using their own funds to continue paying benefits to families who exceed the five-year time limit.

The legislation included incentives for states to establish programs to limit out-of-wedlock births. Each year, the five states that achieved the greatest reduction in out-of-wedlock birth ratios (defined as the proportion of out-of-wedlock births to total births), while also decreasing the ratio of abortions to live births, would receive $20 million in additional federal funds. PRWORA also included other provisions targeted at out-of-wedlock births, including (1) unmarried mothers under the age of 18 are required to remain in school and to live with an adult; (2) states are allowed to prohibit additional benefits for women who conceive additional children while on welfare; (3) states are required to establish numerical goals for the reduction of teen pregnancy and out-of-wedlock births and to develop specific plans for achieving those goals; (4) the secretary of Health and Human Services is directed to implement a comprehensive program to combat teen pregnancy and to ensure that at least 25 percent of American communities have teen pregnancy prevention programs in place by 2002; and (5) states are authorized to spend unused TANF funds on teen pregnancy prevention and teen parent services.

In one of the more controversial provisions, legal immigrants who arrived after 1996 and had not become citizens were made ineligible for TANF, as well as food stamps and Supplemental Security Income. (However, later legislation restored food stamp eligibility for most immigrants.)

And finally, rules were changed to encourage greater state efforts to determine paternity and to collect child support from absent parents. The federal government would also provide additional assistance in collecting child support.

Welfare Today

What does welfare look like today? First, despite welfare reform, most of the mammoth federal and state social welfare complex remains unchanged. There are still more than 70 overlapping federal anti-poverty programs. For example, there are 11 different programs providing food, administered by two separate federal departments. There are 16 housing programs, administered by three separate federal agencies.

In 2000, the last year for which final data are available, total welfare spending by federal, state, and local governments topped $434 billion. Of this amount, roughly 72 percent came from the federal government, and the remainder was provided at the state and local levels. Approximately 51 percent of all welfare spending goes to medical and health-care programs, the largest of which is Medicaid. Cash programs such as TANF, food stamps, housing, and energy programs make up 38 percent of the total, while 11 percent goes to education, job training, social services, and community aid programs.

Still, when most people think of "welfare," they are thinking of the cash assistance program, formerly AFDC, now TANF. Therefore, unless otherwise stated, for the purposes of this book, when discussing "welfare" I will be referring to TANF and associated programs.

The block grant at the center of PRWORA has been held constant at $16.5 billion per year since 1996. But when combined with other TANF-related spending, TANF can be estimated to have cost more than $25.5 billion in 2001. Roughly 53 percent of that was federal money; the remainder was state funds. Just over $10 billion was for direct cash assistance; the remainder was used for childcare, education and training, work support, administrative costs, and other expenses.

That is a significant change in the distribution of expenditures from prereform welfare. Prior to reform, direct cash assistance accounted for 73 percent of welfare spending under AFDC and related programs. Under PRWORA, cash assistance has shrunk to 40 percent. The second largest category of expenditure, roughly 13 percent, was previously for childcare. Despite rhetoric about the importance of work to welfare reform, work-related expenditures-including those for education and training as well as subsidized employment, job search activities, employment counseling, and outreach efforts to employers-represent less than 10 percent of expenditures.

It is also important to recognize that the number of welfare recipients declined dramatically after 1996, which meant that states had far fewer individuals to serve with the same size grant. As a result, on a per recipient basis, spending has increased from about $7,000 to more than $16,000.

Families can receive TANF in two ways. In most cases, both the parent or parents and the children receive benefits. However, in some cases, the children may be eligible, though the parents are not. As a practical matter, that may be a distinction without a difference, but in some cases different rules apply.

Overall, roughly 2.1 million families, comprised of 1.4 million adults and a few more than 4 million children, receive TANF. That number reflects postreform reductions in the welfare caseload, but it may also understate the impact of welfare on our society and the prevalence of welfare receipt. For example, more than 20 percent of all children born in the late 1960s have spent at least one year on welfare; more than 70 percent of African-American children born during those years have done so. And the situation is growing worse. More than 30 percent of children born in 1980 spent a year on welfare; more than 80 percent of African-American children did so.

About 61 percent of the nearly 2.3 million adults who live in families receiving TANF benefits receive benefits in their own right. More than 90 percent of those recipients are women. The average age of adult recipients is much higher than might be commonly believed, 31 years. Seven percent of recipients are teen parents, and 19 percent are over the age of 40.

Ninety-two percent of families on welfare have no father present. The average family size is 2.6 persons, down from 4.0 persons in 1969. Only about 10 percent of families have more than three children.

The average age of children on welfare is 7.8 years, and about 92 percent are under the age of 16 and 38 percent under the age of 6. Roughly 63 percent live with at least one parent, generally their mother, but 22 percent live with a grandparent.

The racial composition of the welfare rolls has changed significantly in the past decade, a trend that accelerated sharply in the aftermath of welfare reform. In 1992 whites were more likely to be on welfare than blacks: 39 percent of recipients were white, 37 percent were black, and 18 percent were Hispanic. However, today African Americans make up 39 percent of recipients, while whites have fallen to just 30 percent; and Hispanics have shown an exceptionally large increase to 26 percent. The rise in Hispanic welfare receipt is particularly pronounced in California, Texas, and New York. For example, Hispanics make up 49 percent of California's caseload.

Although many conservatives complain about immigrants coming to this country for welfare, the reality is quite different. Fewer than 2 percent of children receiving TANF are noncitizens. And only 113,000 noncitizen adults receive TANF. Noncitizen use of other welfare programs, especially Medicaid, may be much higher, however. At least one study indicates that 22.7 percent of noncitizen immigrant families have at least one member who has used a welfare program at some time. Medicaid, other government health-care programs, and food stamps were the most frequently used. On a more positive note, noncitizen families who used noncash welfare programs were more likely to have a family member working, making long-term dependence less likely.

Divorce is the most common reason a person goes on welfare, followed by an out-of-wedlock birth. Contrary to the rhetoric, relatively few individuals go on welfare because they have lost a job or suffered a decline in wages.

Although the average length of time spent on welfare is relatively short, generally two years or less, 65 percent of persons enrolled in the program at any one time have been in the program for eight years or longer. The vast majority of long-term recipients are single mothers, especially those whose entry into the welfare system was brought about by an out-of-wedlock birth. In fact, women who started on welfare because of an out-of-wedlock birth average more than nine years on welfare and make up roughly 40 percent of all recipients who are on welfare for 10 years or longer.

(Continues...)

Excerpted from The Poverty of Welfareby MICHAEL D. TANNER Copyright © 2003 by Cato Institute. Excerpted by permission.
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