When the 1996 welfare reform bill was being debated in Congress, there were numerous predictions from scholars, editorial page writers and politicians that a welfare system that demanded work, imposed sanctions and operated under time limits would result in huge declines in family income and increases in poverty and homelessness.
Now comes the U.S. Census Bureau with its data on family income and poverty for 2000, thereby permitting informed judgments about whether welfare reform is driving poor families into the Grate Society. For the seventh year in a row, poverty was down. Further, black and Hispanic households had their lowest poverty rates ever, and the overall child poverty rate was lower than in any year since 1976. Similarly, black and Hispanic households both set records for all-time high incomes.
How is the nation making such remarkable progress against poverty and low income? The Census Bureau report shows that an important part of the answer is that welfare reform has led to huge increases in work and earnings by single mothers and a revolution in how government helps the poor. No longer does government help the poor primarily by giving them welfare benefits. The new approach is to encourage, cajole and, if necessary, force poor and able-bodied parents to take jobs. Then, once they are employed, government provides help through a system of work supports that includes cash earnings subsidies, primarily through the Earned Income Tax Credit (EITC), medical insurance, food subsidies, child care and housing.
The Census Bureau data show how this new approach works. Consider the group of about 2 million families headed by mothers with incomes under $13,000. In 1993 this group earned on average only $1,400 and had welfare benefits (primarily cash and food stamps) of $4,400 (all figures are adjusted for inflation). By 2000, their earnings had increased by 130 percent, to $3,100, and their welfare benefits had declined by a quarter to $3,300. In addition, they enjoyed a 300 percent increase in EITC income. The net effect was that total income for these mothers and children rose by a quarter, to $8,600.
Now consider the group of 2 million mothers with incomes between $13,000 and $21,000, a group that includes many mothers leaving welfare. Earnings increased from $4,900 in 1993 to $11,700 in 2000. Similarly, EITC income increased by nearly 200 percent. Although the welfare income of mothers in this group fell by nearly 60 percent, their total income increased by more than $4,000, to $17,600.
Progress against poverty over the 1993-2000 period is equally remarkable. Child poverty declined by nearly a third to 16.2 percent, its lowest level since 1976. Moreover, for three of the past five years, poverty among black children declined more than in any year before 1995 and has now reached its all-time low. Deep poverty, defined as income at half the poverty level (about $7,000) or less by the Census Bureau, has also declined sharply and is now well below its previous historical low.
The Census Bureau reports additional data that are even more encouraging. The official poverty index does not include income from the EITC and a few other programs, notably food stamps, that provide non-cash benefits to low-income families. But in recent years the Census Bureau has been calculating an experimental poverty measure based on a more comprehensive definition of income that includes these benefits. Using this broader measure, child poverty is actually around 10 percent, rather than the official measure of 16.2 percent. Even more important, child poverty declined more than twice as much during the economic recovery of the 1990s as it did during the recovery of the 1980s, primarily because so many more single mothers boosted their income through earnings.
The most important conclusion to draw from these remarkable numbers is that the performance of low-income mothers in leaving welfare and entering employment is a great success story. Aided by a strong economy, not only have they rescued their children from poverty but many have told researchers and reporters that their children are proud of them and they are proud of themselves.
These mothers have changed the very reputation of welfare, something that no amount of rhetoric from policymakers could have achieved.
Under the old welfare system, government simply gave benefits to the poor, thereby trapping many of them in a system of learned helplessness. Under the new system, the poor are expected, required, or forced to work. And even in low-income jobs they are much better off financially than under welfare, because government generously subsidizes their income. Thus a job that provides $10,000 a year in earnings is converted by government, primarily through the EITC and food stamps, into a job that provides $16,000 a year in family income. In addition, nearly all these families are eligible for government health insurance, and many receive the child tax credit, child care subsidies, school lunch and other in-kind benefits.
The deadline for reauthorizing the welfare reform legislation is next October. Although improvements are possible and desirable, especially to help parents who lose their jobs because of the slowing economy, Congress would be wise to preserve the basic features of the new welfare system based on work.