Life on Welfare: Cato Gets It Very Wrong

Sharon Ward |

It’s great to be poor. That’s the finding of a Cato Institute report released this week claiming to calculate the value of all public benefits received by the typical welfare household. This methodologically flawed study is another of the bows in the 47% quiver. It is particularly timely — and damaging — given the ongoing debate over federal nutrition assistance,which the U.S. House majority would like to cut by $40 billion over 10 years.

The Cato report claims that the typical Pennsylvania family enrolled in Temporary Assistance for Needy Families (TANF) — a mom and two kids — receives benefits worth $29,817 annually, which the authors claim is a disincentive to work. It argues that food assistance, utility support, and cash assistance should all be reduced. The theme is very much like that of a Commonwealth Foundation report last year.

The worst thing about these reports is that they reinforce this stereotype of poor people living high on the hog at the expense of the working class taxpayer. This narrative is critical to the Republican Party, which is seeking to maintain the Reagan era voter coalition by pitting disaffected working-class whites against the urban poor.

The study is poppycock. Here’s why:

  1. The share of the poor who receive welfare benefits is tiny and those benefits are temporary. Only 1.5% of Pennsylvanians receive cash assistance — what most people think of as welfare — even though fully 13.3% of the population lives below the poverty line. An individual can receive TANF benefits for 60 months in a LIFETIME. There are some hardship exemptions, but this rule, coupled with a high barrier for entry, has made it very difficult for income-eligible women with children to receive the benefit. A report out this month from the Pennsylvania Department of Public Welfare shows that of all adults on TANF in 2012, 81% received benefits for less than five years, and 15% for less than 10 years. This includes time enrollees received TANF benefits as children.
  2. Cato assumes that every family gets all major public benefits, which is not the case. The largest benefit in the Cato analysis is housing assistance, worth 30% of the total dollar value, yet five out of six families in Pennsylvania get no housing assistance at all. The national average is 14.7%, and only five of 50 states and the District of Columbia report more than one quarter of TANF recipients also receiving housing assistance.
  3. The premium value of Medicaid health coverage is counted as cash in the Cato study, even though recipients don’t get those dollars. The value of Medicaid benefits accounts for 16% of the total benefit “income” calculated by Cato. This is not cash that is available to a family to pay for housing, clothing, or food. And counting the full premium value is an exaggeration since most workers who have health coverage have some employer subsidy. (Besides, Obamacare will give everyone affordable health care, but that’s a topic for another day.)

So how much do the 55,000 adults in Pennsylvania who get TANF benefits live on? A family of three receives $403 per month in TANF benefits, $4,800 a year. Food stamp benefits — now known as the Supplemental Nutrition Assistance Program (SNAP) — are worth about $514 per month at the maximum, which is about $5.71 per meal for a family of three. Adding federal heating assistance, the total comes out to $1,015 per month for a family of three. Sign me up

The benefits don’t come for free. There are requirements that recipients engage in regular job searches and do a minimum of 20 hours of work activity to maintain benefits. In smart states, those work requirements include higher education and job training to help beneficiaries get the skills they need to be permanently attached to the workforce and boost earnings. Unfortunately, training programs were cut by almost 50% in Pennsylvania’s 2011-12 budget, making that family-sustaining job all the harder to come by. The gang at Cato wants to eliminate all the skill-building activities from the definition of work activities. Talk about penny wise and pound foolish.

The Cato report released this week is an update of a 1995 report that helped get the 1996 welfare reform law over the finish line. What is depressing about the report is just how successful this line of argument has been in gutting supports for low-income families. Since 1996, welfare rolls have plummeted and welfare’s role as a safety net benefit in recessions is gone.

Figure 1 of the Cato report (below) illustrates those points nicely. In 1996 about 9.8 million families received welfare nationwide; by 2012 that number was under 2 million. TANF rolls continued to decline during the 2002 recession, and the huge jump in unemployment during the Great Recession precipitated only a tiny rise in TANF enrollment. TANF is so stigmatized and state governments try so hard to keep caseloads down that many families who could have used the help to blunt the impact of the recession were denied the option.

Figure 1. Unemployment Rate and Enrollment in the Temporary Assistance for Needy Families (TANF) Program

The purchasing power of TANF has plummeted since 1995. Table 5 of the report shows the gap between benefit levels in 1995, adjusted for inflation, and the current TANF cash benefit. In Pennsylvania, the purchasing power of TANF is 37% less than it was in 1995. Put another way, $10 in 1995 would buy $6.30 worth of goods in 2013.

I agree with the Cato authors on one point. They acknowledge that one strategy to incentivize work is higher entry-level wages. Eureka! Where we disagree is on government’s ability to achieve this. A higher minimum wage, paid sick days, and a permanent extension of the 2009 Earned Income Tax Credit and Child Tax Credit improvements would make work pay more and bring more families out of poverty. Sounds like a great plan to me.