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The Public Policy
Block Grant Welfare to the States
Cutting benefits for seniors and the poor won’t solve the entitlement crisis. Fundamental structural reforms will.
The first step in defusing America’s Ticking Bankruptcy Bomb, the title of my new book, is to restore a booming economy. I discussed last week how to do that by applying the lessons of Reaganomics.
The next step is fundamental entitlement reform, to reduce the overwhelming future burden of exploding entitlement expenses. As I argue in the book, we will never be able to solve the entitlement crisis by simply trying to cut benefits for the poor and seniors. We need fundamental structural reforms. We need to modernize our tax and redistribution entitlement programs to rely on 21st century capital, labor and insurance markets. Through such reforms, we can achieve all of the social goals of these entitlement programs far more effectively, actually serving seniors and the poor far better, at just a fraction of the current cost of those programs. Such reforms would include powerful market incentives driving the programs to contribute further to booming economic prosperity, rather than detracting from it.
Send Welfare Back to the States
All of the reforms proposed in the book, which theoretically halve the size of the federal government, are based on proven policies which have already worked spectacularly in the real world, in the U.S. and elsewhere. One of the major entitlement reform themes advanced in the book involves extending the enormously successful 1996 reforms of the old Aid to Families with Dependent Children (AFDC) program to all of the remaining 184 federal means-tested welfare programs. Those reforms, spearheaded by then Speaker of the House Newt Gingrich, implemented the ultimate welfare policies favored by President Reagan and his longtime welfare guru Robert Carleson, as explained in Carleson’s recent posthumously published book Government Is The Problem: Memoirs of Ronald Reagan’s Welfare Reformer. (I worked directly for Carleson in the Reagan White House.)
The reform returned the share of federal spending on the AFDC program to each state in the form of a “block grant” to be used in a new welfare program redesigned by the state based on mandatory work for the able-bodied. Federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to spend more. The key to the 1996 reforms was that the new block grants to each state were finite, not matching, so the federal funding did not vary with the amount the state spent. If a state’s new program cost more, the state had to pay the extra costs itself. If the program cost less, the state could keep the savings.
To give the states broad flexibility in designing the new replacement program, the entitlement status of AFDC was repealed, as states could not be free to redesign their programs if their citizens were entitled to coverage and benefits as specified in federal standards. The reformed program was renamed Temporary Assistance to Needy Families (TANF).
The reform was bitterly opposed by the liberal welfare establishment. Their view was well expressed by Senator Daniel Patrick Moynihan, the Urban Institute, and others who predicted that the reforms would produce a “race to the bottom” among the states, and that within a year a million children would be subject to starvation.
Nothing Succeeds Like Success
But quite to the contrary, the reform was shockingly successful, exceeding even the predictions of its most ardent supporters. The old AFDC rolls were reduced by two-thirds nationwide, even more in states that pushed work most aggressively: Wyoming (97%), Idaho (90%), Florida (89%), Louisiana (89%), Illinois (89%), Georgia (89%), North Carolina (87%), Oklahoma (85%), Wisconsin (84%), Texas (84%), Mississippi (84%). By 2006, the percent of the population receiving TANF cash welfare was down to 0.1% in Wyoming, 0.2% in Idaho, 0.5% in Florida, 0.6% in Georgia, Louisiana, North Carolina, and Oklahoma, and 0.7% in Arkansas, Colorado, Illinois, Nevada, Texas and Wisconsin.
In his 2006 book Work Over Welfare, in which he evaluates the 1996 welfare reforms, Ron Haskins of the Brookings Institution writes, “the number of families receiving cash welfare is now the lowest…since 1969, and the percentage of children on welfare is lower than it has been since 1966.” Indeed, the percentage of American children on AFDC/TANF was reduced from 14.1% in 1994 to 4.7% in 2006.
As a result, in real dollars total federal and state spending on TANF by 2006 was down 31% from AFDC spending in 1995, and down by more than half of what it would have been under prior trends. At the same time, because of the resulting increased work by former welfare dependents, the incomes of the families formerly on the program rose by 25%, and poverty among those families plummeted. Haskins reports, “[B]y 2000 the poverty rate of black children was the lowest it had ever been.”
This illustrates the book’s entitlement reform theme: through fundamental structural reforms we can achieve the social goals of those programs far more effectively, better serving seniors and the poor at just a fraction of the costs of the current old-fashioned programs. This is what makes these reforms politically feasible, though these socially beneficial effects will have to be explained and argued for.
Building on What Works
There was only one problem with the 1996 reforms: they only reformed one federal program. As indicated above, the federal government sponsors another 184 means-tested welfare programs, including Medicaid, Food Stamps, 27 low-income housing programs, 30 employment and training programs, 34 social services programs, another dozen food and nutrition programs, another 22 low-income health programs, and 24 low-income child care programs, among others.
All of these programs could and should be block-granted back to the states, just as AFDC was in 1996. This would amount to sending welfare back to the states, achieving the complete welfare-reform dream of Reagan and Carleson in restoring the original federalism and state control over welfare. It also follows the spirit of the Tea Party movement in restoring power to the states and gaining control over government spending, deficits and debt.
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
Letter to the Editor View all comments (25) | Leave a comment
More Articles by Peter Ferrara
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buckeyeman| 6.29.11 @ 7:19AM
I agree with just about anything that will shrink the government and thus shrink my forced financial support of my fellow citizens and their often foolish and wasteful living and spending habits. But why is the federal government stealing money from the citizens of the various states only to return the money (minus a few expenses and carrying charges) to the criminals that run the states. Wouldn't it just make more sense to not take the money in the first place and then leave it to the various states to determine the levels of taxation and benefits that they desire?
There's actually a delightful chance to move in this direction right now. Refuse to increase the debt limit. Now and for always. Too feckless and cowardly to advance a budget?? No problem. Let the CEO of the nation supervise his underlings to prioritize expenses. If Barry or Timmy want to tell the citizens that funding NPR is more important than paying the guy on night patrol in Afghanistan, let them go ahead and try to make that argument.
It's not theoretical. It doesn't depend on unknown actions over a ten year period. Just do it now! Lay down that budget limit extension and slowly back away.
Within weeks or months we will all see that we didn't need to spend all that money in the first place. Barry and Timmy and little Benny will twist slowly in the wind if we force them to do what they were hired to do (after all, this IS what real CEO's have to do on a daily basis). Far, far simpler than another gigantic means-tested, statistically founded, actuarially generated complex, unintelligible monstrosity designed to tinker with the adjustment of what the federal government has no business doing in the first place.
Alan Brooks| 6.29.11 @ 9:46AM
"If Barry or Timmy want to tell the citizens that funding NPR is more important than paying the guy on night patrol in Afghanistan"
Afghanistan? we're merely waiting a decent interval to get out of there-- we're only saving face now. 2011 is a helluva lot different than 2001.
Drunken Sailor| 6.29.11 @ 1:37PM
Are you really that dense? His guy on night patrol was just a example of the military. In other words, "If Barry or Timmy want to tell the citizens that funding NPr is mor important than paying the military, let them go ahead and try to make that argument.
Jordan| 6.29.11 @ 8:52AM
Why we have Medicare and Medicaid in the first place I'll never understand. Considering there is private insurance what is the point for government health programs? If we want to reduce the cost of health care we have to take a market and volume based approach.
Make public employees enter the private market, eliminate Medicare and Medicaid but subsidize private insurance for the poor, disallow universities/colleges from offering health plans, make health insurance non-profit, net-revenue would be dolled out to the truly needy - those going through medical bankruptcy, the entire population of the US would be treated as a single pool, those who smoke or are obese, etc. have to pay higher premiums and co-costs to allow for those with pre-existing conditions to not be discriminated against, and insurers cannot spread the cost for unnecessary medical treatments across the insurance pool. There are dozens of other things that can be done to lower costs of health care, from legalizing midwifery in every State to easing licensing laws and allowing for the establishment of low-cost health clinics. Separately these things will have a negligible effect, but all together health costs can be lowered by thousands of dollars per person.
And Mr. Ferrara is of course right in wanting Gingrich-Clinton welfare reform across the entire spectrum of government welfare, but buckeyeman is also correct; certain government taxes should be lowered to allow States to raise taxes to collect and spend on welfare what the government would instead collect and just give back to the States.
Kurt| 6.29.11 @ 8:58AM
With our jobs being sent abroad, mass immigration, both legal and illegal, declining revenues on both the state and federal level the only viable solution is massive welfare cuts. When a person on the dole lives a higher quality of life than a person doing the right thing and working in lower paying job, this is a recipe for disaster! Welfare will and must be cut in the near future and then there will be riots in the street, but this must happen if our country is to survive! Be prepared its going to get ugly!
Ken (Old Texican)| 6.29.11 @ 9:08AM
Peter,
thanks again.
Kurt,
I'm afraid you are right.
Oldefarte| 6.29.11 @ 10:47AM
According to Peter's typically excellent article, $1trillion is spent on welfare programs by our government each year, and that amount is four times the actual amount that is truly/actually needed to care for those that deserve it. Amazing! I disagree respectfully with him in that IMO, welfare is a parge portion of what's wrong in this country. As he states, our government pays people NOT TO WORK, and therein lies the problem. If you eliminate welfare [except for the minute truly infirmed], you force reciepients to get off their lazy arses and work for their needs. The government could instead force able bodied [now recipients] individuals to perform menial, non-professional governmental jobs [street repair/cleaning, building cleaning/repair etc]. Additionally they'd be forced to seek farm employment, thereby forcing the current illegals to return to their home countries [thereby solving our immigration problems]. The problems in this country are partially due to the government's payment [from taxpayers' hard earned incomes] of this welfare, and this wasteful governmental spending should be stopped now!!!!!!!
Slacker| 6.29.11 @ 12:35PM
Force the welfare recipients to work?
Unfortunately they generally find a way to
turn any on the job injury into a permanent disability. Trust me; I live on a street full of them.
Most people will tough out a ruptured disk or bum knee. Some turn it into a check for life.
You can’t even force them to work (at least not for long).
Oldefarte| 6.29.11 @ 1:06PM
If the government cuts off/eleminates welfare, they then have two choices: [1] work or [2] starve to death!!!!!!!!!
Slacker| 6.29.11 @ 1:24PM
The welfare mamas on my street are apparently fearful of option 2 and have put on impressive fat reserves just in case.
Oldefarte| 6.30.11 @ 10:46AM
If they wilt in the sun and expire, hopefully your city's streetcleaning trucks can successfully dispose of the resultant waste!!!!
Southern_Comment| 7.1.11 @ 1:50AM
Excellent article, and I'm all for it, but in all honesty, there are some that I would not be comfortable having in my workplace.
Rick| 6.29.11 @ 11:26AM
With all the talk about “Entitlement Programs” that need to be cut at the federal level I have not heard anything about the Temporary Assistance For Needy Families program (TANF) {Welfare}. TANF is up for reauthorization in September (2011) and current plans are to simply extended this wasteful program for an additional year and thus put off the hard decisions until a later date.
Unfortunately the way TANF is currently designed, it does not hold parents accountable for improving their lives and moving toward employment. While there is a “Work Participation Rate” (WPR) that States must meet, it is meaningless. For those who are meeting the hours that are required, far too many are "warehoused" in work experience and other activities and are never expected to find an actual paying job (this is the case with California’s CalWORKs program, which even with this warehousing has less than 30% of mandatory clients participating in activities.).
TANF must be reformed to hold states (and ultimately parents) accountable and base the programs success not only on the percentage of those clients who are participating, but more importantly on the number of clients who find an actual paying job and are able to move off welfare and become self supporting.
Lea| 6.29.11 @ 5:21PM
Rick you are so right. TANF (welfare) is the granddaddy of entitlement programs. How can we take money from Social Security, and Medicaid without making cuts and changes to TANF ?
Hold TANF clients accountable to find work and force states to focus on employment for TANF clients. CUT TANF NOW !
Stan| 6.29.11 @ 5:45PM
Yes, why do we not hear this in the media ?
Where are the House Republicans on TANF ?
TANF must either change or go. It is the poster child for entitlement programs and it needs to be fixed now, not next year.
Meg| 6.29.11 @ 7:51PM
The welfare system is a mess and yet none of those in Congress are willing to take it on. Why?
Time to cut TANF and leave the welfare culture behind. Time to demand welfare reform.
thomas hobbes.| 6.29.11 @ 1:53PM
A simpler solution would be to end welfare/medicaid.
CalMark| 6.29.11 @ 2:31PM
How we just eliminate altogether welfare/social spending on the Federal level, and cut Federal taxes commensurately. Then let states and local governments decide how to proceed.
And nay-sayers: it could work. A good President (not the Stalinist hooligan we have now) with an agreeable Congress could make it happen within two fiscal years.
CalMark| 6.29.11 @ 2:32PM
Correcting Typo: How about we just eliminate...
CalMark| 6.29.11 @ 2:36PM
And a clarification: Ferrara's premise seems to keep the Federal Government as the central funds-collector and paymaster for block grants. That's still socialism. Eliminate it altogether from the Federal Budget, and let the states deal with it.
carol| 6.29.11 @ 2:36PM
when I retire:
1 return the nmoney I put into soc sec and call it a day
2 leave my inherited money alone and don't tax me any more
3 that is a "fair" exchange for not being part of the problem.
TrueBlue| 6.29.11 @ 2:57PM
Ah the Death Tax... how I despise this completely illegal taxation on money that was already taxed when it was originally made. Passing money from one person to a beneficiary does not make it income!! Nevermind that they have an entirely separate tax on inheritance to begin with so that the inheritance is effectively being taxed three times for the same bundle of cash.
Mike| 6.29.11 @ 5:33PM
Block grants. Code for cutting benefits.
weddingdress | 7.1.11 @ 12:36AM
And a clarification: Ferrara's premise seems to keep the Federal Government as the central funds-collector and paymaster for block grants. That's still socialism. Eliminate it altogether from the Federal Budget, and let the states deal with it.
weddingdress | 7.7.11 @ 5:22AM
There's actually a delightful chance to move in this direction right now. Refuse to increase the debt limit. Now and for always. Too feckless and cowardly to advance a budget?? No problem. Let the CEO of the nation supervise his underlings to prioritize expenses. If Barry or Timmy want to tell the citizens that funding NPR is more important than paying the guy on night patrol in Afghanistan, let them go ahead and try to make that argument.