Sweeping, historic, welfare reforms were enacted in 1996, led by the Republican congressional majorities at the time, with strong, bipartisan support. The reforms involved the old Aid to Families with Dependent Children program (AFDC), originally adopted during the New Deal. The federal funds for the program were sent back to each state with the funds to be used for a new welfare program designed by each state based on mandatory work for the able bodied.
Sweeping, Historic Success
Before the reforms, the federal AFDC funds for each state were provided through a matching formula. The more spent by each state for AFDC, the more federal matching funds were paid to each state. So the states had an incentive to sign up more and more AFDC recipients, for each new recipient effectively brought more federal funds to the state. As a result, before the 1996 reforms, the AFDC rolls grew and grew, in both good economic times and bad, apart from state AFDC experiments that began to implement the fundamental changes.
The 1996 reforms fundamentally changed federal AFDC financing to end the matching funding. Instead, each state was provided a fixed, finite federal block grant for AFDC that did not change with the amount of state AFDC spending. As a result, if the new AFDC program designed by a state cost less, because the state’s program was more effective in moving recipients off of welfare and into work, the state would keep the net savings for other uses. But if the costs of a state’s program continued to increase, the state would have to finance the extra costs entirely itself.
These reforms naturally revolutionized the incentives faced by the states, and the results of the old state AFDC program, now renamed Temporary Assistance for Needy Families (TANF). Instead of federal matching funds inducing the states to sign up more and more AFDC recipients, the states now faced incentives to move AFDC/TANF recipients from welfare to work as quickly as possible, to save money for each state. As a result, states across the country implemented innovative, aggressive, revolutionary reforms to lead recipients from welfare dependency into real work and real jobs.
The results were truly spectacular. The old AFDC welfare rolls declined by a shocking 60% across the country! The former recipients who now moved into work enjoyed an increase in their income over time through real earnings from real jobs. Child poverty in America declined as a result. Federal spending on AFDC/TANF remained flat for a dozen years with no increase, resulting in enormous savings in federal spending by avoiding the increases that would have otherwise occurred under the old system.
The new system changed incentives for recipients as well, because they now faced real work requirements. In most circumstances, recipients could no longer sit back and just collect welfare checks. But the big effect came from the changed incentives for the state bureaucrats running the programs. The strategy and policy behind these reforms was originally developed by long-time Reagan welfare guru Robert Carleson, and was favored by Reagan since his days as California Governor. Former House Speaker Newt Gingrich led the adoption of these reforms as part of his Contract with America.
Scrapping What Works
This enormously successful, historic reform is now being scrapped by changes adopted in the so-called stimulus package. That package provides billions in additional funds for TANF/AFDC based on the old matching federal funds approach. Indeed, the stimulus bill provides that federal taxpayers will pay 80% of the costs for each new welfare recipient signed up, with the states paying only 20%. That is far worse even than the old, unreformed, AFDC program, which generally divided costs between the states and the feds by roughly 50/50. The federal government is now in effect paying states to increase welfare dependency, and federal costs.
As Robert Rector of the Heritage Foundation writes, “[T]he original [welfare reform] goal of helping families move to employment and self-sufficiency and off long-term dependence on government assistance has instead been replaced with the perverse incentives of adding more families to the welfare rolls.”
There is no reason for this change other than extremist, liberal left ideology. Barack Obama and the other extreme liberals now in complete control of the federal government believe in providing an open pipeline of taxpayer funds for welfare dependency, no questions asked. They believe it is unfair and oppressive to impose work requirements on the poor to receive welfare assistance.
But that left-wing philosophy is misguided and unfair to both taxpayers and the poor. It is wrong and unfair to taxpayers to ask them to finance a living for idle, indolent, welfare recipients who are perfectly capable of working and supporting themselves. At the same time, it is harmful and counterproductive for the government to induce welfare recipients to give up on work, and lapse into unnecessary, long-term dependency and idleness. Inducing the poor to subsist on welfare instead of working will leave them with lower incomes over the long run. It also undermines self-respect among the poor, and the spirit in poor communities, leading them into counterproductive activities resulting from idleness, such as drug use, alcoholism, illegitimate births, single motherhood, and personal deterioration.
The original 1996 welfare reform included a contingency fund to provide extra assistance to the states for TANF during an economic downturn. But those extra funds were provided based on the increase in the unemployment rate in each state. That kept the incentives of the historic welfare reforms in place. If more funds were needed by the states during the current economic crisis, Congress could simply have added more funds to that contingency fund. But instead Congress has provided billions to the states in new TANF funding tied to increases in state welfare spending, effectively paying the states to increase welfare spending to serve outdated left-wing ideology.
Runaway Welfare Spending
But this is not all. Rector reports that the so-called stimulus package includes massive, unnecessary increases in welfare spending across the board, for food stamps, public housing, Medicaid, and other programs. Of the $816 billion in the stimulus bill, $264 billion, or 32%, is provided for increased welfare spending. This amounts to $6,700 in increased welfare for each poor person in the United States, Rector reports.
The supposed stimulus bill increases federal welfare spending by 20% in the first year alone, Rector adds, increasing federal fleecing for welfare from $491 billion in fiscal year 2008 to $601 billion in fiscal 2009, the largest one-year increase in welfare spending in U.S. history. Obama and the left-wing Democrats claim that this increase in welfare spending is temporary. But Rector rightly argues that the Democrats will scream bloody murder if Republicans later try to cut back on these welfare increases. If these welfare increases are continued, then Rector calculates that the increased welfare costs will total $787 billion over 10 years. The stimulus bill would then cost taxpayers $1.34 trillion in increased spending over this period, or “$17,400 for each household paying income tax in the U.S.,” Rector calculates.
Even without the extra spending in the stimulus bill, means tested welfare spending is already at a historic high and growing rapidly. In 2008, federal, state and local means tested [welfare] spending hit $679 billion per year. Without any legislative expansions, given historic rates of growth in welfare programs, federal, state and local means tested welfare spending over the next decade will total $8.97 trillion. The House stimulus bill adds another $827 billion to this total, yielding a 10 year total of 9.8 trillion. The total 10 year cost of means tested welfare will then amount to $127,000 for each household paying income tax.
As Rector explains,
The federal government runs over 50 means-tested welfare programs, including [TANF], Medicaid, food stamps, the Earned Income Tax Credit (EITC), the Women, Infants, and Children food program, public housing, Section 8 housing, the Community Development Block Grant, the Social Services Block Grant, and Head Start [among others].
This massive increase in federal welfare spending is an abuse of the public and American taxpayers, who are looking to Obama and Congress to restore economic growth. Instead, Obama and the Congressional Democrat majorities are using the excuse of the economic downturn to take advantage of taxpayers and provide for an explosion in welfare spending to serve left-wing extremist ideological goals. The economy does not grow based on increased welfare, trillion dollar plus deficits, and multitrillion dollar increases in national debt. It grows based on incentives for savings, investment, starting or expanding businesses, job creation, entrepreneurship, and work. But there is nothing in all of Obama’s runaway spending increases that does anything like that.
The New Welfare Reform
Republicans and conservatives are not helpless, however. They have public opinion on their side, and they should aggressively go on the offensive to restore and expand historic, highly effective welfare reform. Republicans should introduce a bill to reinstate welfare reform and its highly effective incentives. Indeed, they should propose and campaign on expanding welfare reform to more federal programs. At a minimum this should include block granting food stamps back to the states, with the funds used for federal work programs for the poor. It should also include block granting Medicaid to the states as well, which is the key to health-care reform focused on providing coverage to the uninsured who could not otherwise afford health insurance. Ultimately, this same welfare reform model can and should be extended to every federal, means-tested welfare program.
States would then have the control to adopt even more revolutionary welfare reforms that would be even more effective in moving recipients from welfare to work, and eliminating other perverse incentives of welfare, such as the incentives for unwed pregnancies and single motherhood. My favorite model, one I would propose to the states, would involve a simple offer of work for the able-bodied. Those who needed assistance would report to their local welfare office before 9 a.m., where they would receive a work assignment. The office would then attempt to assign each applicant to a private sector job, permanent if possible, but temporary at least. If no private sector work assignments were available, the welfare office would assign the applicant to a task for the day working for the government. But everyone who shows up for work would be guaranteed a work assignment.
The applicant would be paid in cash at the end of the day at a wage ideally equal to 90% of the minimum wage, to assure that applicants would have an incentive to find private sector jobs if they could. But the plan would work even if the applicants were paid the minimum wage. EITC wage supplements could still be provided for low-income workers. The government would provide day care for single mothers who needed such assistance to work. For those who continued to work consistently, vouchers would be provided for health insurance. Eventually funds could even be provided to help with home ownership.
This would provide much better assistance for the poor than the current system. Indeed, it would eliminate all involuntary poverty in America, as work with enough in wages and assistance would always be guaranteed for all of the able-bodied poor. (Those who were disabled and unable to work would receive assistance through other programs.)
At the same time, all welfare incentives for non-work would be eliminated. Every able-bodied American would have to work to support himself in any event. So there would be no incentive not to take any available jobs. Moreover, those with children would have to work to support them in any event as well. As a result, there would be no incentive from welfare for unwed births and illegitimate pregnancies.
This would be truly revolutionary reform with great appeal and popularity among the American people, rather than the old-fashioned, backward-looking socialism offered by Obama and his left-wing Democrats. Republicans and conservatives need to shake off oppressive Obama domination, and lead America back to prosperity.