On the positive side, there has been no rush on the part of the states to reduce cash benefits and there has in some cases been additional money allocated for childcare (which is necessary if parents of small children are to go to work as mandated). It does appear that many families are leaving the welfare roles, thus reducing welfare costs. And the percentage of those in poverty continues to decline, although this is most certainly due to economic factors, especially the level of employment, which is higher than it has been in decades.
On the negative side, it appears that many of the families leaving the welfare rolls are leaving because of sanctions imposed for noncompliance with program rules. Unfortunately, there has not been much follow-up, so we don't know what has happened to those families. Since the average poor family became $200 poorer in 1997, the concern is that many of those families may have dropped through the safety net. We do know that many of the people who have left the rolls have had to take jobs that give them incomes below the poverty level and many families have returned to welfare within a few months. Despite the action of some states to increase subsidized childcare, there is still far too little available. Among single mothers with a high school diploma or less, a relatively small number of will find childcare they can afford, certainly one of the major reasons for early return to welfare.
Elements of American Welfare in 1999
So, what is left? What are the major elements of American Welfare in 1999?
Social insurance (e.g., Social Security, Medicare, and unemployment insurance) dominates public welfare spending in America, and the gap between social insurance and public assistance (e.g., TANF and food stamps) continues to increase with time, in part because the former are pegged to inflation while the latter are not, in part because public assistance programs have been severely curtailed in the last twenty years. The cost of food stamps plus AFDC was $47 billion in 1992 while the cost of Social Security was $238 billion. The cost of Medicaid (the most important program for the poor that has kept up with inflation) was $96 billion; even so Medicare benefits totaled $120 billion.
Probably the most important and certainly the most overlooked anti-poverty program is the Earned Income Tax Credit (EITC). An idea backed and turned into legislation by the Reagan and Bush administrations and expanded enormously under Clinton, the EITC offers low-income
working people a maximum of $3,656
28 in yearly tax credits. If these credits are more than Federal tax due, the family receives the balance as a cash benefit. The credit varies with family size and with income. For very low-income families the credit increases with increasing income, providing an extra financial incentive to go to work, while families with more income gradually lose the tax credit until it phases out (at just under $30,000 for a family of three).
Studies have shown the EITC to be very effective at raising people out of poverty. For instance, the program encourages single parents to find work. Recent Census data show that among working families, the EITC lifts substantially more children out of poverty than any other government program or category of programs. Although there has recently been more criticism of the program, it has been politically popular, presumably because it provides no disincentive to work; indeed, it is
only available to working people.
Footnotes
28 1997 figure for a family with two or more children that has earnings of at least $9,140 and adjusted gross income less than $11,930.
