When I joined the Clinton administration at the Department of Health and Human Services in 1993, non-Social Security budget deficits were projected to be about $5 trillion over the next 10 years. Today, those same projections yield surpluses of about $3 trillion. This fiscal situation offers an unparalleled opportunity to build on the successes of welfare reform, to ensure that the working poor have a livable income, to reduce child poverty, and to provide health insurance to a greater share of low-income working parents and their children. As we applaud the achievements of welfare reform, we need to keep in mind its shortcomings as well—and to take steps to mend them.
Results So Far
Although one crucial feature of the 1996 welfare reform law—time limits—has still not been fully implemented, the results of reform thus far are striking. Since the law terminated the Aid to Families with Dependent Children program and replaced it with Temporary Assistance for Needy Families, welfare caseloads have fallen dramatically. Single mothers are working more and earning more. In 1992, about one-third of single mothers with young children were working. By 1999, the share had grown to more than half. Official child poverty rates have declined, and under a comprehensive measure of poverty that includes government benefits and taxes, the child poverty rate fell to 12.9 percent in 1999, the all-time low since this measure became available in 1979.
Not all these changes can be ascribed to the new welfare law. A strong economy and public policies that “make work pay” must also be credited. Welfare reform coincided with the longest-running economic expansion in U.S. history—a time when hourly wage rates for the lowest-paid workers began to rise after falling for two consecutive decades.
Among the most important “make work pay” policy steps of the 1990s was expanding the earned income tax credit. The credit, available only to low-wage workers with children, is refundable and can have as much value as a $2 per-hour raise. One leading study found that EITC expansions between 1984 and 1996 were responsible for more than half the increase in employment among single mothers during that time. Other such policies include expanded public health insurance for low-income children not receiving cash assistance, increased spending on child care subsidies, and increased earned income “disregards” that allow welfare recipients to keep more of their earnings when they work while remaining on welfare.
One would expect earnings to rise and child poverty to fall under these conditions. Yet some families are still floundering. On average, the inflation-adjusted disposable incomes of the poorest fifth of single mothers (about 1.8 million families) fell 4 percent between 1995 and 1999.
Another worrisome indicator is the “poverty gap,” which has scarcely budged in recent years despite the falling poverty rate. The poverty gap—the number of dollars required to bring all low-income people up to the poverty line—takes into account not only the breadth of poverty, but also its depth.
|Table 1: Poverty Gap for Families with Children,
1999 inflation-adjusted dollars
Change in Poverty
|Before taxes and
|After taxes and
|Source: Current Population Survey.
As shown in table 1, during 1995—99, the increased earnings of low-income families with children reduced the pretransfer poverty gap (the gap before government benefits and taxes) an impressive $17 billion. Yet once all government benefits and taxes are included, the gap fell only about $2 billion—only one-third of the reduction between 1993 and 1995, when the drop in the pretransfer poverty gap was considerably smaller.
Changes in the income of single-mother families reflect this same trend. The poorest 40 percent of single-mother families increased their inflation-adjusted earnings about $2,300 per family on average between 1995 and 1999. But their (inflation-adjusted) disposable income increased on average only $292. The increased earnings are not translating into greater disposable income because many of these families are losing ancillary benefits, such as food stamps, for which they remain eligible.
These data about disposable income are significant—and troubling—in light of a recent study that surveyed the results of five separate studies covering 11 different welfare reform programs. Its finding was that increased parental employment did not by itself significantly improve the lives of the parents’ children. Only in programs where the parents increased both their employment and their income were positive effects—such as higher school achievement—noted for elementary school-aged children.
Supporting Working Poor Families
Because their disposable income has grown so little of late, the key issue for working-poor families who are no longer on welfare is their low participation in work support programs. These families should be able to get food stamps, child care, and health insurance readily, ideally from one place and through a relatively simple joint application. States should be allowed to simplify the transitional Medicaid program and provide transitional food stamp benefits for families going to work. Community-based groups, including faith-based ones, should help eligible families get these benefits.
Several changes in food stamp policy could boost participation among the working poor. The federal quality control system, for example, should be modified, for it has led many states to take administrative actions that have cut participation among working families. The food stamp program itself should be simplified. Asset tests, in particular, should be revisited, for current tests make the program hard to administer and make too many low-income working families ineligible. The adequacy of the food stamp benefit structure also warrants reexamination, particularly in light of the cuts in benefits enacted in 1996.
Some changes in health insurance are also needed. In the typical (or median) state, a parent in a family of three loses Medicaid eligibility when her income surpasses 67 percent of the poverty line. Research has shown that expanding state Medicaid programs to cover parents also increases the number of low-income children protected by health insurance. We should expand funding for the State Children’s Health Insurance Program (SCHIP) and allow states to use the funds to extend coverage (through Medicaid or state programs) to low-income working parents (including noncustodial parents who pay child support) along with their children.
Employed immigrants are twice as likely to be poor as employed natives, and children in immigrant families make up one-quarter of all children below the poverty line. The 1996 welfare law eliminated much of the federal safety net for legal immigrants, including food stamps, Medicaid, and CHIP. Though aimed at immigrants, the impact of these restrictions falls also on children who are U.S. citizens. The children themselves and some immigrant parents remain eligible for benefits, but confusion about eligibility and concerns about the immigration consequences of receiving benefits have lowered participation. Congress should allow states to provide Medicaid, CHIP, and TANF benefits to working poor immigrants and restore food stamp benefits for those who were made ineligible by the welfare law.
Finally, several changes in the federal tax code would benefit low-income working families. The EITC could be expanded for larger families and for families in targeted income ranges to reduce the high marginal tax rates that many such families face. And the child tax credit could be made partially refundable for low-income working families.
Focusing TANF on Poverty Reduction
When TANF is reauthorized in 2002, the first step toward improving it will be to shift its focus from reducing caseloads to reducing poverty. A principal purpose of welfare should be to reduce child and family poverty. Over the next 10 years, Prime Minister Tony Blair has committed his government to cutting UK child poverty rates—which are similar to our own—in half. The United States should follow suit.
Since Congress reformed welfare in 1996, a key impediment to measuring progress against poverty has been the lack of accurate state data on poverty rates and poverty gaps among families with children. The Census Bureau’s new American Community Survey will be able to provide this data after the law is reauthorized. States that cut poverty the most, by emphasizing both work and the work support programs described above, should be rewarded.
Recognizing Special Needs of Certain Families
According to one study, 44 percent of TANF recipients reported at least two significant obstacles to work, such as low education, no recent work experience, language barriers, mental or physical health problems and disabilities, and lack of transportation or child care. The share of recipients reporting no work activity increased steadily with the number of significant obstacles. Research also indicates that families that fail to meet work requirements (and have their welfare benefit reduced as a result) have greater barriers to employment than other families receiving welfare. Providing services and accommodations appropriate to their greater needs should enable more of these parents to succeed in the workplace. Some states have been able to help many families that initially fail to comply with work requirements, rather than simply sanctioning them and setting them adrift. All states should be encouraged to follow their lead.
The five-year lifetime limit on federally funded welfare receipt also should be revisited. Work requirements and earnings disregards encourage welfare recipients to make the transition to work by combining earnings from work with a wage supplement in the form of small cash assistance payments. But recipients who make this transition and receive these wage supplements risk hitting the time limit and becoming ineligible for benefits when they may need them in the future. States should be able to use federal TANF dollars to provide wage supplements to families that are working but not earning enough to support themselves.
The share of participating families that states may exempt from time limits—now 20 percent of current caseload—should also be increased. Today the exemption covers many fewer people than was envisioned when the law was passed because current caseload size is much smaller than anyone expected.
Supporting Noncustodial Parents
Noncustodial parents (most of whom are fathers) should be encouraged to provide for their children both financially and emotionally. Child support, for poor families that receive it, is the second largest part of their family budget—more than one-quarter of income on average. But many eligible families do not receive child support or receive it only irregularly. For children in families that have ever been on welfare, the government keeps much of the support that noncustodial parents pay as reimbursement for public welfare costs. Ending the “cost recovery” focus of the current child support system would remove a major disincentive for fathers to pay child support and allow children to benefit directly from their fathers’ contributions. States could go further and build on the proven success and cost-effectiveness of the EITC by creating similar financial incentives for payment of child support. For example, a state could match low-income fathers’ child support payments.
States also could increase the capacity of low-income noncustodial parents to pay child support by providing employment services and work supports. One reason why many such parents do not pay child support regularly is that they are un- or under-employed and have only a limited income from which to pay child support. Welfare reform encouraged more low-income mothers to enter the workplace so they could better support their children. The next steps are to help low-income noncustodial parents get jobs and to address some of their difficulties with the child support system (including child support orders that are high relative to their income, large accumulated child support debts owed to states, and economic disincentives to pay child support) so that they can take more financial and emotional responsibility for their children.
Keeping Fragile Families Together
According to recent research, about half of children born to single parents live with both biological parents at birth. As time goes by, however, these fragile families tend to separate. Policymakers need to find ways to help fragile families stay together. A welfare study in Minnesota found that two-parent working-poor families receiving cash assistance benefits and work supports were more likely to wed or stay married. Because two-parent families participate in food stamps, Medicaid, and cash welfare assistance at a lower rate than single-parent families, even when their incomes are similar, states should eliminate any remaining barriers or eligibility restrictions that apply to them. States should also actively seek to serve larger proportions of eligible two-parent families.
Increase TANF Funding
To better accomplish the goals of TANF and to reduce child poverty, both the TANF and child care block grants should be increased when the welfare law is reauthorized. At the same time, states must be more accountable for how they use their TANF block grant funds.
The TANF block grant should be indexed for inflation so that the resources do not erode and states can maintain services. The cost of child care, work programs, and other supports funded by TANF will rise with time. States also may need more funds to accomplish the multiple goals of TANF, including serving families with multiple barriers to employment, fragile families, and noncustodial parents, as well as providing more child support to these families.
More money will also be necessary to reduce huge disparities in TANF resources available to states. Today wealthier states receive about $1,778 in TANF dollars per poor child, while poorer states, which have higher child poverty rates and lower fiscal capacity, receive $733. Recognizing these disparities, the 1996 law established supplemental grants for the poorer states to begin to move toward greater parity. These grants, scheduled to expire after 2001, should be extended.
Finally, because TANF provides a fixed amount of funding, states will not have additional resources when caseloads increase during an economic downturn. It is widely agreed that the TANF “contingency fund”—which is supposed to provide states additional funds in a recession—will be ineffective. States will need a measure that works.
The Next Round of Reform
Welfare reform has improved the prospects of many current and former recipients, but has had adverse effects on some. When TANF is reauthorized, policymakers should build on its successes, supporting those families who have left welfare for work, helping them climb the economic ladder to a more livable income, and reducing child poverty significantly, while providing additional resources and opportunities to those families left behind by the first round of welfare reform.