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Policy: Labor

Examiner Editorial: Cato study points to overly generous welfare system

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Editorial,Labor,Housing and Urban Development,Treasury,Health and Human Services,Health Care,Federal Budget,Medicare and Medicaid,Social Security,Analysis

Welfare recipients are often portrayed as lazy, lacking in ambition, and unwilling to take responsibility for themselves. A new study from the Cato Institute finds instead a group of people who generally respond to incentives in rational ways. The Cato study, which updates one originally published in 1995, found the following:

"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."

The Cato report notes that the federal government currently administers 126 discrete welfare programs, including 72 that give either cash or in-kind benefits directly to recipients. The rest of these federal efforts to aid low-income individuals provide assistance to their neighborhoods on the assumption that they will benefit indirectly from the general improvements that result.

Cato's calculations are based on what a single mother with two dependents would receive from a full-time job paying the minimum wage versus the value of benefits provided by seven major federal welfare programs, including Temporary Assistance for Needy Families; Supplemental Nutrition Assistance Program; Medicaid; Women, Infants and Children Program; Emergency Food Assistance Program; housing assistance and utilities assistance. The value of benefits is adjusted to account for the Earned Income Tax Credit, its state-level equivalents and the federal Child Tax Credit. (The EITC is a calculated percentage of income based on earnings and dependents that reduces taxes owed by the amount it exceeds the total otherwise due.)

It should be noted that when Cato first conducted this study in 1995, it found that 40 states provided more in welfare benefits through federal programs than could be earned at a job making $8 per hour, or almost double the $4.25 minimum wage then in force. In 17 states, the welfare package was so generous that it provided more than a job paying $10 an hour, or two-and-a-half times the minimum wage.

Not long after, President Clinton and the Republican-led Congress enacted the 1996 welfare reforms that included a strong work requirement and significantly tightened eligibility requirements. The new data clearly demonstrates that, despite those often-criticized bipartisan reforms, the U.S. provides an ample safety net for the benefit of those citizens who lack needed skills, suffer disabilities, or are otherwise excluded from participating fully in the workplace.

America is the most generous country on earth, so nobody begrudes genuinely needed assistance to those who need it. But the Cato study demonstrates yet again the need for continued honest debate about what is the proper level of government aid. Too little and people suffer. Too much and dependency grows.

The Work Versus Welfare Trade-Off

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