Tuesday, August 20, 2013

Welfare in the US today - two views

A just-released report from Cato, who have been responsible for much of the welfare analysis that led to the eventual 1996 reforms finds:

The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour. If Congress and state legislatures are serious about reducing welfare dependence and rewarding work, they should consider strengthening welfare work requirements, removing exemptions, and narrowing the definition of work. Moreover, states should consider ways to shrink the gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.

Then the World Socialist Website talks to an associate Professor from University of Michigan about the extreme poverty amongst those with the lowest incomes:

Really, I think our interests stemmed at the start from the 1996 Welfare Reform that got rid of this cash assistance entitlement program which, for all of its faults, was an entitlement program that if you fell below a certain income, you could rely on it. They replaced it with this program, Temporary Assistance for Needy Families (TANF), which has all these restrictions. It requires work, and as a result of that, our cash assistance caseloads plummeted in the US to the extent to which there’s only about 1.5 percent of the entire US that gets a cash check for being poor, which is I think far less than a lot of people think.
Now, we’ve actually expanded a lot of other benefits. We have the Earned Income Tax Credit (EITC), which is much larger than our cash assistance program ever was. We spend about $60 billion on it, but those benefits are actually targeted towards families who are working. So if you are just above the poverty line and have a minimum wage job, the federal government supplements your income to a greater extent than it ever did before. But if you are on really hard times, have ever been in a long period of unemployment, or you have multiple barriers to work like substance abuse problems or some sort of mental health problems, if you’re at the very bottom, the federal government actually does less for you in terms of cash support than ever before.

The two views aren't mutually exclusive.

The US (in general) is spending more on welfare, but handing out less cash.

That's what our government is doing with the Youth package. Youth and young parents get the same basic benefit, less cash in the hand but can earn more. I expect the government will extend the income management process to other beneficiaries progressively.

(And our In Work Tax Credit is similar to the US Earned Income Tax Credit.)


Chris said...

Tax reform needs to be addressed. When 42 per cent pay no income taxes. This is a problem.


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Anonymous said...

Just goes to show that the only real welfare reforms, the only ones that matter are
* chopping people off the rolls
* chopping benefits in real terms

Welfare pseudo-reform, whether it's Clinton's in '96, or Crusher's today, achieves nothing. NZ's only real reform was Ruth in 1991's Mother of all Budgets where she just chopped rates hard.