De­liv­er­ing a covert end to wel­fare re­form

The Washington Times Weekly - - Commentary -

Wel­fare re­form in the mid-1990s was a ma­jor pub­lic pol­icy suc­cess, lead­ing to a dra­matic re­duc­tion in wel­fare de­pen­dency and child poverty. Lit­tle-noted pro­vi­sions in the just-passed stim­u­lus bill will ac­tu­ally abol­ish this his­toric re­form.

In ad­di­tion, the bill will add nearly $650 bil­lion in new means-tested wel­fare spending over the next decade. This new spending amounts to around $18,500 for ev­ery poor per­son in the U.S. The cost of the new wel­fare spending alone amounts to nearly $8,500 for each tax­pay­ing fam­ily.

The wel­fare re­form of 1996 re­placed the old Aid to Fam­i­lies with De­pen­dent Chil­dren (AFDC) with a new pro­gram named Tem­po­rary As­sis­tance to Needy Fam­i­lies (TANF). The key to wel­fare re­form’s re­duc­tion in de­pen­dency was the change in the fund­ing struc­ture of AFDC.

Un­der the old AFDC pro­gram, states were given more fed­eral funds if their wel­fare caseloads were in­creased; by con­trast, fed­eral funds to a state were cut when­ever the state caseload fell. This cre­ated a strong in­cen­tive for states to swell the wel­fare rolls. Prior to re­form, 1 child in 7 was re­ceiv­ing AFDC ben­e­fits.

When wel­fare re­form re­placed the old AFDC sys­tem with TANF, this per­verse fi­nan­cial in­cen­tive to in­crease de­pen­dence was elim­i­nated. Each state was given a flat fund­ing level that did not vary whether the state in­creased or de­creased its caseload. In ad­di­tion, states were given the goal of re­duc­ing wel­fare de­pen­dence (or at least of re­quir­ing wel­fare re­cip­i­ents to pre­pare for em­ploy­ment).

The stim­u­lus bill will over­turn the fis­cal foun­da­tion of wel­fare re­form and re­store an AFDC-style fund­ing sys­tem. For the first time since 1996, the fed­eral gov­ern­ment will be­gin pay­ing states bonuses to in­crease their wel­fare caseloads.

In­deed, the new wel­fare sys­tem cre­ated by the stim­u­lus bill is ac­tu­ally worse than the old AFDC pro­gram be­cause it re­wards the states more heav­ily to in­crease their caseloads. Un­der the stim­u­lus bill, the fed­eral gov­ern­ment will pay 80 per­cent of the cost for each new fam­ily that a state en­rolls in wel­fare — a match­ing rate far higher than in the old AFDC pro­gram. The stim­u­lus bill elim­i­nates the re­form goal of re­duc­ing de­pen­dence.

Pro­po­nents of the stim­u­lus plan might ar­gue that th­ese changes are nec­es­sary to help TANF weather the cur­rent re­ces­sion. This is not true. Un­der ex­ist­ing TANF law, the fed­eral gov­ern­ment op­er­ates a TANF “con­tin­gency fund” with am­ple fund­ing that can be quickly fun­neled to states that have ris­ing un­em­ploy­ment. (Note: The ex­ist­ing con­tin­gency fund ties in­creased fi­nan­cial sup­port to states to the ob­jec­tive ex­ter­nal fac­tor of un­em­ploy­ment; it specif­i­cally avoids a pol­icy of fund­ing states for in­creased wel­fare caseloads, rec­og­niz­ing the per­verse in­cen­tives this could en­tail.)

If the au­thors of the stim­u­lus bill merely wanted to pro­vide states with more TANF funds dur­ing the re­ces­sion, they could have in­creased fund­ing in the ex­ist­ing con­tin­gency fund. But they de­lib­er­ately did not do this. In­stead, they com­pletely over­turned the fis­cal and pol­icy foun­da­tions of wel­fare re­form.

But over­turn­ing wel­fare re­form is just the beginning. Of the $791 bil­lion in new spending and tax cuts in the stim­u­lus bill, 28 per­cent, or $224 bil­lion, is new means-tested wel­fare spending, pro­vid­ing cash, food, hous­ing, med­i­cal care and so­cial ser­vices to poor and low-in­come Amer­i­cans.

And it’s only the tip of the ice­berg. The real long-term cost of ex­panded wel­fare is ac­tu­ally hid­den by a bud­getary gim­mick: The stim­u­lus bill pre­tends that nearly all of its wel­fare ex­pan­sions will lapse af­ter two years. While some of the in­creases in the bill will ter­mi­nate af­ter two years, there are half a dozen pro­vi­sions (in­clud­ing growth in food stamp ben­e­fit lev­els, in­creases in Pell grants and the cre­ation of three new re­fund­able tax cred­its) that will al­most cer­tainly be­come per­ma­nent.

If th­ese wel­fare ex­pan­sions are made per­ma­nent — as his­tory in­di­cates they will — the added wel­fare cost will rise to nearly $650 bil­lion over 10 years.

Can­di­date Barack Obama promised to make gov­ern­ment “more open and trans­par­ent.” But, in of­fice, Pres­i­dent Obama has done the op­po­site, pro­mot­ing a mas­sive spending bill rid­dled with se­cret pro­vi­sions un­re­lated to eco­nomic stim­u­lus. The stim­u­lus bill is be­ing used as a Tro­jan horse to se­cretly over­turn wel­fare re­form, mas­sively ex­pand long-term wel­fare spending, and per­ma­nently “spread the wealth.”

The pub­lic and tax­pay­ers de­serve far bet­ter than this ex­er­cise in de­cep­tion.

Robert Rec­tor is se­nior re­search fel­low in do­mes­tic pol­icy stud­ies at the Her­itage Foun­da­tion (her­itage.org).

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