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Cato Policy Analysis No. 240 September 19, 1995

Policy Analysis

The Work Versus Welfare Trade-Off:
An Analysis of the Total Level of Welfare Benefits by State

by Michael Tanner, Stephen Moore, and David Hartman

Michael Tanner is director of health and welfare studies and Stephen Moore is director of fiscal policy studies at the Cato Institute. David Hartman is CEO of Hartland Bank, N.A., in Austin, Texas.

Executive Summary

The value of the full package of welfare benefits for a typical recipient in each of the 50 states and the District of Columbia exceeds the poverty level. Because welfare benefits are tax-free, their dollar value is often greater than the amount of take-home income a worker would have left after paying taxes on an equivalent pretax income.

Introduction

As the debate over welfare reform heats up, one goal seems constant across the ideological spectrum. Nearly everyone agrees that a major goal of welfare reform should be to encourage recipients to leave the welfare rolls and enter the workforce. However, to date, there is no evidence that any of the policy prescriptions championed by either liberals (such as job training and child care) or conservatives (such as workfare) have been successful in achieving that goal.(1) There appears to be a good reason for the failure.

Despite the stereotypes, there is no evidence that people receiving welfare are "lazy." Indeed, surveys of recipients consistently show that they express a desire to work.(2) The choice of welfare over work is often a rational decision based on the economic incentives presented.(3)

Most welfare recipients, particularly long-term recipients, lack the skills necessary to obtain the types of jobs that pay top or even average wages.(4) The individuals who do leave welfare for work most often start employment in service or retail trade industries, generally as clerks, secretaries, cleaning persons, sales help, and waitresses.(5) Although it would be nice to increase the wages of entry- level workers to the point where work paid better than welfare, government has no ability to do so. (Attempts to mandate wage increases, such as minimum wage legislation, result chiefly in increased unemployment.)(6)

Major Findings

Welfare advocacy groups and the media often portray welfare as a series of frugal programs that barely provide subsistence help to the needy. But that conclusion is based on the faulty assumption that welfare recipients receive primarily only one form of public assistance, Aid to Families with Dependent Children. But today at the federal, state, and local levels of government, there are dozens of welfare assistance programs in addition to AFDC.

This study calculates the total value of a full range of federal welfare assistance programs. The value of that benefit package is then compared with the amount of pretax income a person would have to earn in a job to equal the value of welfare assistance in each state.(7) The attractiveness of welfare relative to work is heightened by the fact that welfare benefits are a nontaxable form of income.

Table 1 shows the total value of welfare relative to work by state.(8) (The appendix contains a detailed summary of the compilations and results for each state.) The full package of welfare benefits actually provides recipients with incomes above the poverty level in every state. There is a wide disparity among the states regarding the attractiveness of welfare. The value of the total package of benefits relative to a job providing the same after-tax income ranges from a high of $36,400 in Hawaii to a low of $11,500 in Mississippi. In eight jurisdictions--Hawaii, Alaska, Massachusetts, Connecticut, the District of Columbia, New York, New Jersey, and Rhode Island--welfare pays at least the equivalent of a $25,000 a year job.(9)

The pretax value of welfare benefits substantially exceeds the amount a recipient could earn in an entry-level job in virtually every state. The numbers suggest that recipients of aid are likely to choose welfare over work, thus increasing their long-term dependence.

Although the evidence shows that, in the long term, an individual is better off in the labor force than on welfare, moving from welfare to work is likely to lead to at least a short-term decline in income and, for some, perhaps a permanent reduction of income.(10) That may be why 68.6 percent of welfare recipients report that they are not actively seeking work.(11) Other studies show that, as welfare benefits increase, women are more likely to leave the labor force and enroll in welfare programs instead.(12)

Any welfare reform proposal must recognize that individuals are unlikely to move from welfare to work as long as welfare pays as well as or better than working. That suggests that the most promising welfare reforms are those that substantially cut back on the level of benefits.

Table 1
Wage Equivalent of Welfare, 1995
Rank Jurisdiction Pretax Wage Equivalent ($) Hourly Wage ($)
1 Hawaii 36,400 17.50
2 Alaska 32,200 15.48
3 Massachusetts 30,500 14.66
4 Connecticut 29,600 14.23
5 District of Columbia 29,100 13.99
6 New York 27,300 13.13
7 New Jersey 26,500 12.74
8 Rhode Island 26,100 12.55
9 California 24,100 11.59
10 Virginia 23,100 11.11
11 Maryland 22,800 10.96
12 New Hampshire 22,800 10.96
13 Maine 21,600 10.38
14 Delaware 21,500 10.34
15 Colorado 20,900 10.05
16 Vermont 20,900 10.05
17 Minnesota 20,800 10.00
18 Washington 20,700 9.95
19 Nevada 20,200 9.71
20 Utah 19,900 9.57
21 Michigan 19,700 9.47
22 Pennsylvania 19,700 9.47
23 Illinois 19,400 9.33
24 Wisconsin 19,400 9.33
25 Oregon 19,200 9.23
26 Wyoming 19,100 9.18
27 Indiana 19,000 9.13
28 Iowa 19,000 9.13
29 New Mexico 18,600 8.94
30 Florida 18,200 8.75
31 Idaho 18,000 8.65
32 Oklahoma 17,700 8.51
33 Kansas 17,600 8.46
34 North Dakota 17,600 8.46
35 Georgia 17,400 8.37
36 Ohio 17,400 8.37
37 South Dakota 17,300 8.32
38 Louisiana 17,000 8.17
39 Kentucky 16,800 8.08
40 North Carolina 16,800 8.08
41 Montana 16,300 7.84
42 South Carolina 16,200 7.79
43 Nebraska 15,900 7.64
44 Texas 15,200 7.31
45 West Virginia 15,200 7.31
46 Missouri 14,900 7.16
47 Arizona 14,100 6.78
48 Tennessee 13,700 6.59
49 Arkansas 13,200 6.35
50 Alabama 13,000 6.25
51 Mississippi 11,500 5.53

Table 1 may actually understate the hourly wage equivalent because it is based on a 52-week (2,080-hour) work year and assumes no vacation.

Methodology

In an attempt to determine whether there is an economic incentive to choose welfare over work, this study examines the welfare benefits that a typical household would receive in each state and the District of Columbia. The popular press often reports that welfare provides a barely subsistence level of assistance to low-income families and consumes only a small portion of the federal budget. That popular misconception results from examining only one federal welfare program, AFDC. The truth is that there are at least 77 major means-tested federal programs for the poor.(13) State, county, and municipal governments operate additional welfare programs. Obviously, no one receives assistance from all of those programs, but most welfare recipients are eligible for a number of them. This study takes account of the programs from which welfare recipients are most likely to get benefits: AFDC, food stamps, Medicaid, public housing, nutrition assistance, and utility assistance. We calculate the combined value of benefits for a welfare recipient who fits a typical profile in each of the 50 states and the District of Columbia. We do not take into account special state and city low-income assistance programs that might be provided in addition to the major federal programs. Many of the smaller federal low-income assistance programs are also not accounted for. So actual benefit levels available to a welfare family may be somewhat higher than this study indicates.(14)

Because welfare benefits are tax-free, the value of those benefits is then compared with the amount of pretax income a worker would have to earn to receive an equivalent take-home income.

This study also assumes that welfare recipients are not cheating--that they are not working on the side and do not have other sources of unreported income. We recognize that in many cases that is not true.(15) There is substantial welfare fraud by recipients who are in the workforce and receiving unreported income. There are also many cases in which a man is living in the welfare household and earning income for the family. In such cases, welfare serves as an illegal supplement to earned income.

In this analysis we use a profile of a typical welfare household consisting of a single mother over the age of 21 and two children, ages one and four. No paternity has been established for the children. The mother does not work and reports no outside income. Neither the mother nor either child is disabled. All are American citizens. That profile substantially conforms to the typical AFDC household.(16)

We then compute the cash value of the total benefits package that the profiled household would be eligible to receive, using data for the most current year available. Those benefits are discussed in the following subsections.

AFDC

AFDC is the primary cash benefit program targeted to the poor and is the program most often considered "welfare."(17) AFDC began in 1935 (it was then called Aid to Dependent Children) as part of the Social Security Act. The program provides cash payments to families with children whose father or mother is absent, incapacitated, deceased, or unemployed and to certain others in the households of those children. All 50 states, the District of Columbia, Puerto Rico, and Guam operate AFDC programs. American Samoa is eligible for the program but has chosen not to participate.

Each state determines its own benefit levels and (within certain federal restrictions) eligibility requirements. Funding comes from both the federal and the state governments, with the federal portion varying from a high of 80 percent to a low of 50 percent. On average, the federal government provides 55 percent of funding for AFDC.

In 1995 our profile household is eligible for AFDC in all 50 states. The amount of AFDC benefits ranges from a high of $923 per month in Alaska to a low of $120 per month in Mississippi.(18) The national average AFDC benefit is $399 per month. Table 2 ranks jurisdictions by the generosity of their benefits.

Food Stamps

As the name implies, the food stamp program provides vouchers to low-income households for the purchase of food.(19) Participating households are expected to spend 30 percent of their monthly cash income on food. The food stamp program contributes the difference between that amount and the amount judged to be sufficient to purchase an adequate diet. The food stamp program operates in all 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands.

Eligibility standards and benefit levels are defined by the federal government, and, with the exceptions of Alaska, Hawaii, and the territories, they are uniform nationally. The maximum benefit level is derived from the U.S. Department of Agriculture's "Thrifty Food Plan," varied by household size, and adjusted annually for inflation.

Recipients of AFDC are automatically eligible for food stamps. Therefore, our profile household receives food stamps in every state. However, the value of food stamps received varies depending on the amount of the AFDC payment and the cost of food. Our household would receive the highest level of food stamps, $422, in Hawaii and the lowest, $192, in Connecticut. The high benefit level in Hawaii is largely due to the high price of food in that state. The low benefit in Connecticut is largely due to the extremely high AFDC benefits that Connecticut provides. The nationwide average is $278. Table 3 ranks jurisdictions according to the value of food stamps our profile household could receive.

Table 2
AFDC Benefits, 1995
Rate State Monthy Benefit($) Yearly Benefit($)
1 Alaska 923 11,076
2 Hawaii 712 8,544
3 New York 703 8,436
4 Connecticut 680 8,160
5 Vermont 638 7,656
6 California 607 7,284
7 Massachusetts 579 6,948
8 Rhode Island 554 6,648
9 New Hampshire 550 6,600
10 Washington 546 6,552
11 Minnesota 532 6,384
12 Wisconsin 517 6,204
13 Michigan 489 5,868
14 Oregon 460 5,520
15 Kansas 429 5,148
16 Iowa 426 5,112
17 New Jersey 424 5,088
18 Pennsylvania 421 5,052
19 District of Columbia 420 5,040
20 Maine 418 5,016
21 South Dakota 417 5,004
22 Utah 414 4,968
23 North Dakota 409 4,908
24 Montana 401 4,812
25 Illinois 367 4,404
26 Maryland 366 4,392
27 Nebraska 364 4,368
28 Wyoming 360 4,320
29 New Mexico 357 4,284
30 Colorado 356 4,272
31 Virginia 354 4,248
32 Nevada 348 4,176
33 Arizona 347 4,160
34 Ohio 341 4,092
35 Delaware 338 4,056
36 Oklahoma 324 3,888
37 Idaho 317 3,804
38 Florida 303 3,636
39 Missouri 292 3,504
40 Indiana 288 3,456
41 Georgia 280 3,360
42 North Carolina 272 3,264
43 West Virginia 249 2,988
44 Kentucky 228 2,736
45 Arkansas 204 2,448
46 South Carolina 200 2,400
47 Louisiana 190 2,280
48 Tennessee 185 2,220
49 Texas 184 2,208
50 Alabama 164 1,968
51 Mississippi 120 1,440

Sources: Carmen Solomon, "Aid to Families with Dependent Children (AFDC): Need Standards, Payment Standards, and Minimum Benefits," Congressional Research Service report no. 95-229 EPW, January 18, 1995, pp. 30-32; and Cato Institute telephone survey of state welfare managers, conducted May-June 1995.

Table 3
Food Stamp Benefits, 1995
Rank Jurisdiction Monthly Benefit($) Yearly Benefit($)
1 Hawaii 422 5,064
2 Alabama 295 3,540
3 Arkansas 295 3,540
4 Delaware 295 3,540
5 Florida 295 3,540
6 Georgia 295 3,540
7 Idaho 295 3,540
8 Indiana 295 3,540
9 Kentucky 295 3,540
10 Louisiana 295 3,540
11 Maryland 295 3,540
12 Mississippi 295 3,540
13 Missouri 295 3,540
14 North Carolina 295 3,540
15 Ohio 295 3,540
16 Oklahoma 295 3,540
17 South Carolina 295 3,540
18 Tennessee 295 3,540
19 Texas 295 3,540
20 West Virginia 295 3,540
21 Oregon 293 3,516
22 Arizona 292 3,504
23 Nevada 292 3,504
24 Illinois 291 3,492
25 Virginia 290 3,480
26 New Mexico 289 3,468
27 Colorado 289 3,468
28 Wyoming 288 3,456
29 Nebraska 287 3,444
30 Alaska 285 3,420
31 Kansas 284 3,408
32 Montana 276 3,312
33 New Jersey 276 3,312
34 North Dakota 273 3,276
35 Utah 272 3,264
36 Maine 271 3,252
37 South Dakota 271 3,252
38 Pennsylvania 270 3,240
39 District of Columbia 270 3,240
40 Rhode Island 268 3,216
41 Iowa 268 3,216
42 Washington 258 3,096
43 Michigan 249 2,988
44 Wisconsin 241 2,892
45 Minnesota 236 2,832
46 New Hampshire 231 2,772
47 Massachusetts 222 2,664
48 California 214 2,568
49 Vermont 205 2,460
50 New York 201 2,412
51 Connecticut 192 2,304

Sources: Carmen Solomon, "Aid to Families with Dependent Children (AFDC): Need Standards, Payment Standards, and Mini- mum Benefits," Congressional Research Service report no. 95-229 EPW, January 18, 1995, pp. 30-32; and Cato Insti- tute telephone survey of state welfare managers, conducted May-June 1995.

Medicaid

The Medicaid program, Title XIX of the Social Security Act, was begun in 1965 and is the nation's primary program for providing health care for low-income people.(20) Adults and children in low-income families make up nearly 75 percent of Medicaid recipients, but the program also covers the elderly and disabled for many services not included in the Medicare program. The elderly and disabled actually are responsible for the majority (approximately 59 percent) of Medicaid spending because of their intensive use of acute and long-term care services.(21) However, only spending on recipients eligible for Medicaid as a result of being eligible for AFDC is covered in this study. Spending for nursing-home care and other Medicaid expenditures for the elderly and disabled is not included.

As is AFDC, Medicaid is administered by the states within broad federal guidelines. Funding is divided between the federal and state governments, with the federal government's share ranging from 50 to 80 percent of the total. On average, the federal government funds about 57 percent of Medicaid costs.

States must provide Medicaid to all persons receiving cash assistance under AFDC. Thus, our profile household is eligible for Medicaid in all 50 states.

The actual level of Medicaid spending varies dramatically by state. In part that reflects a variation from state to state in benefits provided under the Medicaid program. The federal government requires all state Medicaid programs to include coverage of certain services: inpatient hospital services; outpatient hospital services; physician services; laboratory and x-ray services; nursing facility services for adults; family-planning services; rural health clinic services; nurse mid-wife services; prenatal care; federally qualified health center services; early and periodic screening, diagnostic and treatment services for children under age 21, including treatment for conditions identified in screening; and services of certified pediatric or family nurse-practitioners. However, states have the option of providing additional services, ranging from mental health services to dental care, from eyeglasses to prescription drugs. Some states, such as Wisconsin, have chosen to cover most optional services. Others, such as Delaware and Louisiana, cover relatively few optional services. Moreover, some optional services, such as mental health care, are quite expensive. Therefore, the number and mix of services that a state includes under its Medicaid program will affect its spending per recipient.

Reimbursement rates for services are determined state by state and vary significantly. That reflects both variation in the cost of medical services from state to state and differences in political decisionmaking among the jurisdictions. Some states require all or a portion of their Medicaid population to participate in managed-care programs. Arizona reimburses almost exclusively on a capitated basis, with physicians receiving a set fee per patient regardless of the treatment required. As a result, spending on Medicaid for our profile household ranges from a high of $6,086 in Alaska to a low of $1,171 in Arizona.(22)

However, it is important to realize that Medicaid benefits are paid, not to the beneficiary, but to medical providers. It would be unfair to assume that the value to the beneficiary is equal to the per recipient expenditure by the program. Therefore, in calculating the value of Medicaid benefits, we capped the benefits at the amount that premiums for an equivalent insurance policy would have cost, based on the average family premium for enrollment in a health maintenance organization.(23) The data in Table 4 show that 12 jurisdictions (Alaska, Colorado, Indiana, Louisiana, Maryland, Nevada, New Jersey, New York, South Carolina, Utah, Wyoming, and the District of Columbia) had per recipient spending higher than the cap.

Housing Assistance

Federal housing assistance comes in several forms. Three of those forms are considered in this study: public housing, Housing Assistance Payments (better known as Section 8), and other rent subsidies. Section 8 payments can be further subdivided into three programs: the Section 8 Rental Voucher Program, the Section 8 Rental Certificate Program, and the Section 8 Moderate Rehabilitation Program.(24)

A family is considered eligible for housing assistance if its household income falls below 50 percent of the median for a family of the same size in the same county. AFDC payments are counted as income, but food stamps and other forms of public assistance are not.(25) Although a family may be eligible for housing assistance, whether they receive benefits depends on, among other things, the availability of housing units and the amount of funding appropriated for rental assistance. Participation rates in housing programs and the appropriateness of including housing assistance in the welfare benefits package are discussed below.

Table 4
Medicaid Expenditures per AFDC Household, Fiscal Year 1993
Rank(a) Jurisdiction Annual Expenditure Per Recipient($) Equivalent Insurance Premium($)
1 Louisiana 6,019.00 4,891.20
2 Oklahoma 4,789.00 4,891.20
3 Indiana 5,701.00 4,641.96
4 Alaska 6,086.00 4,575.12
5 Massachusetts 4,533.00 5,441.04
6 North Dakota 4,241.00 4,484.04
7 Maine 4,232.00 5,441.0
8 Kentucky 4,209.00 4,891.20
9 Maryland 5,508.00 4,191.60
10 South Carolina 4,233.00 4,191.60
11 District of Columbia 5,503.00 4,191.60
12 Virginia 4,168.00 4,191.60
13 Georgia 4,099.00 4,191.60
14 Colorado 4,027.00 4,020.96
15 Nevada 5,439.00 4,020.96
16 Utah 4,176.00 4,020.96
17 Wyoming 4,061.00 4,020.96
18 New Mexico 3,988.00 4,020.96
19 Iowa 3,982.00 4,484.04
20 North Carolina 3,921.00 4,191.60
21 Connecticut 3,913.00 5,441.04
22 Idaho 3,889.00 4,020.96
23 Delaware 3,870.00 4,191.60
24 Minnesota 3,843.00 4,484.04
25 New Jersey 4,181.00 3,824.40
26 New York 5,432.00 3,824.40
27 Ohio 3,760.00 4,641.96
28 South Dakota 3,748.00 4,484.04
29 Hawaii 3,689.00 4,575.12
30 Tennessee 3,583.00 4,891.20
31 West Virginia 3,568.00 4,191.60
32 Illinois 3,543.00 4,641.96
33 Kansas 3,475.00 4,484.04
34 New Hampshire 3,473.00 5,441.04
35 Texas 3,459.00 4,891.20
36 Florida 3,417.00 4,191.60
37 Nebraska 3,412.00 4,484.04
38 Washington 3,407.00 4,575.12
39 Pennsylvania 3,275.00 3,824.40
40 Montana 3,228.00 4,020.96
41 Rhode Island 3,130.00 5,441.04
42 Alabama 3,128.00 4,891.20
43 Oregon 3,108.00 4,575.12
44 Missouri 3,088.00 4,484.04
45 Michigan 3,076.00 4,641.96
46 Arkansas 2,984.00 4,891.20
47 Wisconsin 2,837.00 4,641.96
48 California 2,784.00 4,575.12
49 Vermont 2,734.00 5,441.04
50 Mississippi 2,373.00 4,891.20
51 Arizona 1,171.00 4,020.96

Sources: Health Care Financing Administration, "Medicaid Statistics: Program and Financial Statistics, Fiscal Year 1993," HCFA publication no. 10129, October 1994, pp. 45-46; Group Health Association of America, "HMO Industry Profile," 1994, p. 99; and Cato Institute telephone survey.

(a) Rank is according to the lower of expenditure per recipient or equivalent insurance premium.

The value of housing assistance fluctuates widely within a state. Section 8 rent payments are based on fair market rental values, determined county by county.(26) The equivalent rental value of public housing would also be determined by rents in the county. The value of all rental assistance is therefore based on the median value of Section 8 assistance for each jurisdiction.(27) The results are given in Table 5.

Utilities Assistance

There are several programs at both the federal and state level designed to help low-income households pay for heating oil, electricity, and other utilities.

In 1994 our profile household would have been eligible for utilities assistance, such as the federal Low Income Home Energy Assistance Program.(28) While not all low-income households receive utilities assistance, participation levels in all states exceeded 50 percent, sufficient for inclusion in the hypothetical benefits package. In addition, the actual benefit a household receives varies according to availability and prioritization of need. Therefore, the benefit included in this study is the average benefit per recipient household in each jurisdiction (Table 6).(29)

Special Supplemental Food Program for Women, Infants, and Children

The Special Supplemental Food Program for Women, Infants, and Children (WIC) provides food assistance and nutritional screening for pregnant and postpartum women and their infants, as well as for low-income children up to the age of five.(30) Beneficiaries receive vouchers for the purchase of specific food items (or occasionally actual food- stuffs). The actual food package depends on the ages of the children, whether the mother is pregnant, and whether a postpartum mother is nursing, but food packages generally include milk, cheese, eggs, infant formula, cereals, fruit, and vegetable juices.

Table 5
Median Housing Assistance Benefit, 1994
Rank Jurisdiction High Market($) Low Market($) Median Monthly Benefit($) Median Annual Benefit($)
1 D.C. 718.00 718.00 718.00 8,616.00
2 Mass. 1,065.30 342.30 703.80 8,445.60
3 Hawaii 896.40 473.40 684.90 684.90
4 Connecticut 915.00 421.00 668.00 8,016.00
5 New Jersey 808.80 517.80 663.30 7,959.60
6 Rhode Island 630.80 482.80 556.80 556.80
7 California 821.90 246.90 534.40 6,412.80
8 Maryland 734.20 243.20 488.70 5,864.40
9 Alaska 707.10 239.10 473.10 5,677.20
10 New York 794.10 152.10 473.10 5,677.20
11 Virginia 737.80 196.80 467.30 5,607.60
12 New Hampshire 543.00 377.00 460.00 5,520.00
13 Delaware 524.60 381.60 453.10 5,437.20
14 Florida 674.10 199.10 436.60 436.60
15 Nevada 580.60 281.60 431.10 5,173.20
16 Maine 550.60 297.60 424.10 5,089.20
17 Colorado 628.20 196.20 412.20 4,946.40
18 South Carolina 501.00 251.00 376.00 4,512.00
19 Pennsylvania 561.70 165.70 363.70 4,364.40
20 Arizona 513.90 207.90 360.90 4,330.80
21 Wyoming 500.00 219.00 359.50 4,314.00
22 Illinois 547.90 150.90 349.40 4,192.80
23 New Mexico 519.90 176.90 348.40 4,180.80
24 Texas 511.80 184.80 348.30 4,179.60
25 Idaho 490.90 192.90 341.90 4,102.80
26 Utah 498.80 184.80 341.80 4,101.60
27 Indiana 430.60 234.60 332.60 3,991.20
28 Mississippi 455.00 210.00 332.50 3,990.00
29 Michigan 497.30 163.30 330.30 3,963.60
30 Washington 493.20 159.20 326.20 3,914.
31 North Carolina 463.40 187.40 325.40 3,904.80
32 Vermont 452.60 185.60 319.10 3,829.20
33 Georgia 505.00 132.00 318.50 3,822.0o
34 Arkansas 400.80 226.80 313.80 3,765.60
35 Ohio 408.70 212.70 310.70 3,728.40
36 Louisiana 403.00 214.00 308.50 3,702.00
37 Kentucky 416.60 189.60 303.10 3,637.20
38 West Virginia 403.30 201.30 302.30 3,627.60
39 Alabama 201.30 168.80 296.80 3,561.60
40 Wisconsin 441.90 147.90 294.90 3,538.80
41 Tennessee 456.50 127.50 292.00 3,504.00
42 Minnesota 437.40 437.40 290.90 3,490.80
43 Oregon 391.00 391.00 280.00 3,360.00
44 Missouri 390.40 169.40 279.90 3,358.80
45 Iowa 385.20 385.20 274.20 3,290.40
46 Oklahoma 332.80 154.80 243.80 2,925.60
47 South Dakota 342.90 139.90 241.40 2,896.80
48 Kansas 364.30 364.30 240.80 2,889.60
49 Nebraska 381.80 381.80 233.30 2,799.60
50 Montana 381.80 161.70 229.70 2,756.40
51 North Dakota 381.80 161.70 206.80 2,481.60

Source: "HUD Fair Market Rent Values by County," Federal Register 58, no. 189 (October 1, 1993): S1410-82.

Table 6
Utilities Assistance, FY94
Rank Jurisdiction Average Monthly Benefit($) Annual Benefit ($)
1 Texas 83.33 999.96
2 Vermont 60.92 731.04
3 Minnesota 59.83 717.9
4 Connecticut 52.67 632.04
5 Mississippi 51.83 621.96
6 Wisconsin 51.25 615.00
7 South Dakota 51.08 612.96
8 Virginia 48.67 584.04
9 New Jersey 48.58 582.96
10 North Dakota 48.25 579.00
11 Alaska 45.92 551.04
12 Illinois 45.00 540.00
13 Iowa 44.42 533.04
14 Louisiana 44.17 530.04
15 Colorado 43.00 516.00
16 Rhode Island 42.83 513.96
17 Kansas 40.00 480.00
18 Tennessee 40.00 480.00
19 New Hampshire 38.33 459.96
20 Wyoming 37.92 455.04
21 Indiana 36.67 440.04
22 Nebraska 36.42 437.04
23 Kentucky 36.08 432.96
24 Montana 35.17 422.04
25 Nevada 35.08 420.96
26 Massachusetts 34.75 417.00
27 Michigan 34.08 408.96
28 Pennsylvania 32.83 393.96
29 D.C. 32.75 393.00
30 Idaho 32.67 392.04
31 Washington 32.50 390.00
32 Georgia 32.33 379.96
33 California 30.67 368.04
34 Delaware 30.67 368.04
35 Missouri 30.42 365.04
36 New York 29.75 357.00
37 Alabama 29.00 348.00
38 Utah 28.58 342.96
39 Ohio 28.42 341.04
40 Oregon 27.08 324.96
41 Hawaii 25.83 309.96
42 Maryland 24.42 293.04
43 South Carolina 22.17 266.04
44 Maine 21.67 260.04
45 West Virginia 21.50 258.00
46 Arizona 20.00 240.00
47 Oklahoma 18.92 227.04
48 Florida 17.83 213.96
49 North Carolina 17.58 210.96
50 Arkansas 16.33 195.96
51 New Mexico 12.08 144.96

Sources: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Com- munity Services, Energy Assistance Division, "Results of Summer Telephone Survey of Fiscal Year 1994 Low Income Home Energy Assistance Program (LIHEAP) Estimates," LIHEAP Information Memorandum, March 14, 1995; and Cato Institute telephone survey.

The children in our profile household would have qualified for WIC in 1994. While not all eligible low-income households receive WIC benefits, approximately 56 percent of eligible families participate in the program nationwide, which justifies including WIC in the hypothetical benefits package.(31) The actual benefit a household receives varies on the basis of availability and prioritization of need. Therefore, the benefit included in this study is the average benefit for a two-child household in each jurisdiction (Table 7).(32)

Free Commodities Program

The profile household would also have been eligible to receive free commodities under the Temporary Food Assistance Program. Although the FY95 appropriation for the program was significantly reduced and the availability of food varies by locale, a conservative estimate of the value of the food package was determined to be approximately $15 per month or $360 per year.(33) The food package generally con- tains some combination of nonfat dry milk, flour, canned fruit and vegetables, canned meats, peanut butter, cheese, and butter.

Total Benefits Package

In computing the value of the total benefits package, benefits were adjusted to reflect the fact that receipt of one type of benefit may reduce the amount received under another program. Information on benefit levels from the primary sources was confirmed by interviews with human services personnel in the jurisdictions. The total value of the benefits package by jurisdiction is given in Table 8.

Table 7
WIC Benefits, 1994
Rank Jurisdiction Montly Benefit($) Annual Benefit($)
1 Hawaii 144.18 1,730.16
2 Alaska 114.18 114.18
3 Connecticut 105.78 105.78
4 New York 105.78 1,237.32
5 Arizona 1,237.32 1,212.12
6 Washington 99.18 1,189.92
7 Rhode Island 97.59 1,171.08
8 Louisiana 97.23 1,166.76
9 Vermont 96.96 1,163.52
10 North Dakota 95.52 1,146.24
11 Illinois 95.04 1,140.48
12 New Mexico 93.54 1,122.48
13 Wisconsin 93.48 1,121.76
14 Idaho 93.33 1,119.96
15 Virginia 93.12 1,117.44
16 Kansas 92.16 1,105.92
17 Montana 91.98 1,103.76
18 Oklahoma 91.02 1,092.24
19 Alabama 90.93 1,091.16
20 California 90.81 1,089.72
21 D.C. 90.33 1,083.96
22 Nebraska 90.33 1,083.96
23 Michigan 89.58 1,074.96
24 Tennessee 89.58 1,074.96
25 Kentucky 89.31 1,071.72
26 Pennsylvania 89.04 1,068.48
27 Missouri 88.86 1,066.32
28 Colorado 87.84 1,054.08
29 Florida 86.82 1,041.84
30 West Virginia 86.73 1,040.76
31 Delaware 86.22 1,034.64
32 Wyoming 86.19 1,034.28
33 Maryland 86.19 1,028.16
34 Iowa 85.14 1,021.68
35 New Jersey 85.05 1,020.60
36 Georgia 84.69 1,016.28
37 South Dakota 82.83 993.96
38 Minnesota 82.74 992.88
39 Maine 82.41 988.92
40 Massachusetts 82.35 988.20
41 North Carolina 82.17 986.04
42 Nevada 81.72 980.64
43 Arkansas 81.21 974.52
44 Utah 80.04 960.48
45 New Hampshire 79.95 959.40
46 Oregon 79.17 950.04
47 Indiana 78.60 943.20
48 Ohi 75.81 909.72
49 Texas 75.27 903.24
50 Mississippi 74.0 903.24
51 South Carolina 71.94 863.28

Sources: U.S. Department of Agriculture, Food and Consumer Service, "Nutrition Program Facts: Special Supplemental Nutri- tion Program for Women, Infants, and Children," October 1994, pp. 1-2; U.S. Department of Agriculture, Food and Consumer Service, "National Databank Statistics," June 2, 1995; and Cato Institute telephone survey.

Table 8
Total Annual Value of the Welfare Package (dollars), 1995
Rank Jurisdiction AFDC Food Stamps Medicaid Housing Utilities WIC Commodities Total
1 Hawaii 8,544 5,064 3,689 8,219 310 1,730 180 27,736
2 Alaska 11,076 3,420 4,575 5,677 551 1,370 180 26,849
3 Connecticut 8,160 2,304 3,913 8,016 632 1,269 180 24,474
4 Massachusetts 6,948 2,664 4,533 4,533 417 988 180 24,176
5 D.C. 5,040 3,240 4,192 8,616 393 1,084 180 22,745
6 New York 8,436 2,412 3,824 5,677 357 1,237 180 22,124
7 New Jersey 5,088 3,312 3,824 3,824 583 1,021 180 21,968
8 Rhode Island 6,648 6,648 6,648 6,682 514 1,171 180 21,541
9 California 7,284 2,568 2,784 6,413 368 1,090 180 20,687
10 New Hampshire 6,600 2,772 3,473 5,520 5,520 959 180 19,964
11 Maryland 4,392 3,540 4,192 5,864 293 1,028 180 19,489
12 Virginia 4,248 3,480 4,168 4,168 584 1,117 180 19,385
13 Maine 5,016 3,252 5,089 5,089 260 989 180 19,018
14 Vermont 7,656 2,460 2,734 3,829 731 1,164 180 18,754
15 Washington 6,552 6,552 3,407 3,914 390 1,190 180 18,730
16 Delaware 4,056 3,540 3,870 5,437 368 1,035 180 18,486
17 Colorado 4,272 3,468 4,021 4,946 516 1,054 180 18,457
18 Nevada 4,176 3,504 4,021 5,173 421 981 180 18,456
19 Minnesota 6,384 2,832 3,843 3,491 718 993 180 18,441
20 Utah 4,968 3,264 4,021 4,102 343 960 180 17,838
21 Wyoming 4,320 3,456 4,021 4,314 455 1,034 180 17,780
22 Pennsylvania 5,052 3,240 3,275 4,364 394 1,068 180 17,574
23 Michigan 5,868 2,988 3,275 3,964 409 1,075 180 17,560
24 Illinois 4,404 3,492 3,543 4,193 540 1,140 180 17,492
25 Wisconsin 6,204 2,892 2,837 3,539 615 1,122 180 17,389
26 New Mexico 4,284 3,468 3,988 4,181 145 1,122 180 17,368
27 Iowa 5,112 3,216 3,982 3,290 533 1,022 180 17,335
28 Florida 3,636 3,540 3,417 5,239 214 1,042 180 17,268
29 Indiana 3,456 3,540 4,642 3,991 440 943 180 17,192
30 Idaho 3,804 3,540 3,889 4,103 392 1,120 180 17,028
31 Oregon 5,520 3,516 3,108 3,360 325 950 180 16,959
32 North Dakota 4,908 3,276 4,241 3,360 579 1,146 180 16,812
33 South Dakota 5,004 3,252 3,748 3,360 613 994 180 16,688
34 Kansas 5,148 3,408 3,748 2,890 613 1,106 180 16,687
35 Oklahoma 3,888 3,540 4,789 2,926 227 1,092 180 16,642
36 Ohio 4,092 3,540 3,760 3,728 341 910 180 16,551
37 Georgia 3,360 3,540 3,760 3,822 388 1,016 180 16,405
38 Louisiana 2,280 3,540 4,891 3,702 530 1,167 180 16,290
39 North Carolina 3,264 3,540 4,891 3,905 211 986 180 16,007
40 South Carolina 2,400 3,540 4,192 4,512 266 863 180 15,953
41 Montana 4,812 3,312 3,228 2,756 422 1,104 180 15,814
42 Kentucky 2,736 3,540 4,209 3,637 433 1,072 180 15,807
43 Nebraska 4,368 3,444 3,412 2,800 437 1,084 180 15,725
44 Texas 2,208 3,540 3,459 4,180 1,000 903 180 15,470
45 West Virginia 2,988 3,540 3,568 3,628 258 1,041 180 15,202
46 Missouri 3,504 3,540 3,088 3,359 365 1,066 180 15,102
47 Arizona 4,164 3,540 1,171 4,331 240 1,212 180 14,802
48 Tennessee 2,220 3,540 3,583 3,504 480 1,075 180 14,582
49 Arkansas 2,448 3,540 2,984 3,766 196 975 180 14,088
50 Alabama 1,968 3,540 3,128 3,562 348 1,091 180 13,817
51 Mississippi 1,440 3,540 2,373 3,766 622 888 180 13,033

Pretax Income Equivalent to Welfare

The second step in determining the actual value of the welfare benefits package was to compare the value of those benefits with the amount of pretax salary that a worker would have to earn to receive an equivalent after-tax income. The following taxes were taken into account.

Earned Income Tax Credit

The federal Earned Income Tax Credit (EITC) is a refundable tax credit available to lower income working families and individuals.(34) The EITC is intended to provide lower income working families and families in transition from welfare to work with a financial incentive for working. The maximum available credit in 1994 for the profile household was $2,528. The credit is phased in when annual income is below $8,400 and phased out starting at $10,999. A credit would not be available to a family whose annual income exceeded $25,295.

Federal Income Tax

In calculating the federal income tax due, we assumed that the profile household would have been eligible for the standard deduction of $5,600 and three personal exemptions totaling $7,350.

State Income Tax

As were federal taxes, state taxes were calculated on the basis of one adult with two dependents. Eligibility for and value of deductions, exemptions, and credits varied widely from state to state. Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not have a state income tax. Eleven states (Connecticut, Georgia, Hawaii, Idaho, Iowa, Kentucky, Maryland, Minnesota, New York, Pennsylvania, and Vermont) have their own version of the EITC or another form of tax credit designed to assist the working poor. State- by-state calculations are contained in the appendix.

FICA Payroll Tax

The profile household would be required to pay the 7.65 percent Social Security payroll tax. Although most econo mists believe that the employer's matching 7.65 percent payroll tax is also borne by the worker in the form of reduced wages, that tax is not included in our calculations.

Table 9 provides the pretax salary equivalent to the value of the welfare benefits package for each jurisdiction.

Translating the annual pretax salary into an hourly wage rate yields the results given in Table 10. In every state the equivalent hourly wage exceeded the minimum wage. Indeed, in 40 states welfare pays more than an $8.00 an hour job. In 17 states the welfare package is more generous than a $10.00 per hour job. In Hawaii, Alaska, Massachusetts, Connecticut, New York, Rhode Island, and the District of Columbia welfare pays more than a $12.00 per hour job, or nearly three times the minimum wage.

Two other comparisons are helpful in considering the real value of welfare benefits. The first is a comparison of the value of welfare benefits with the poverty level. As Table 11 illustrates, in every state welfare benefits exceed the current poverty level of $11,817 for a family of three. In 21 states welfare benefits exceed 150 percent of the poverty level, and in Hawaii, Alaska, Connecticut, and Massachusetts the benefits package is more than 200 percent of the poverty level. Clearly, it is a myth that welfare has not kept pace with the official poverty level in America.

Table 9
Pretax Wages Required to Earn the Equivalent to the Value of the Welfare Package, 1995
Rank Jurisdiction A($) B($) C($) D($) E($) F($) G(G)
1 Hawaii 27,736 36,400 2,785 3,518 2,337 8,640 27,760
2 Alaska 26,849 32,200 2,463 2,888 NA 5,351 26,849
3 Massachusetts 24,176 30,500 2,333 2,633 1,339 6,305 24,196
4 Connecticut 24,474 29,600 2,264 2,498 310 5,072 24,528
5 District of Columbia 22,745 29,100 2,226 2,423 1,684 6,333 22,767
6 New York 22,124 27,300 2,088 2,153 907 5,148 22,152
7 New Jersey 21,968 26,500 2,027 2,033 439 4,499 22,001
8 Rhode Island 21,541 26,100 1,997 1,973 542 4,512 21,588
9 California 20,687 24,100 1,844 1,461 95 3,400 20,700
10 Virginia 19,385 23,100 1,767 1,134 760 3,662 19,438
11 Maryland 19,489 22,800 1,744 1,036 508 3,289 19,511
12 New
Hampshire		 19,964 22,800 1,744 1,036 NA 2,780 20,020
13 Maine 19,964 21,600 1,652 644 282 2,578 19,022
14 Delaware 18,486 21,500 1,645 611 733 2,989 18,511
15 Colorado 18,457 20,900 1,599 415 398 2,412 18,488
16 Vermont 18,754 20,900 1,599 415 104 2,118 18,782
17 Minnesota 18,441 20,800 1,591 383 352 2,326 18,474
18 Washington 18,730 20,700 1,584 350 NA 1,933 18,767
19 Nevada 18,456 20,200 1,545 187 NA 1,732 18,468
20 Utah 17,838 19,900 1,522 88 386 18,468 17,903
21 Michigan 17,560 19,700 1,507 23 599 2,129 17,571
22 Pennsylvania 17,574 19,700 1,507 23 552 2,082 17,618
23 Illinois 17,492 19,400 1,484 (75) 492 1,901 17,499
24 Wisconsin 17,389 19,400 1,484 (75) 567 1,976 17,424
25 Oregon 16,959 19,200 1,469 (140) 862 2,191 17,009
26 Wyoming 17,780 19,100 1,461 (173) NA 1,288 17,812
27 Indiana 17,192 19,000 1,454 (206) 544 1,792 17,208
28 Iowa 17,335 19,000 1,454 (206) 407 1,654 17,346
29 New Mexico 17,368 18,600 1,423 (336) 107 1,194 17,406
30 Florida 17,268 18,200 1,392 (467) NA 925 17,275
31 Idaho 17,028 18,000 1,377 (532) 122 967 17,033
32 Oklahoma 16,642 17,700 1,354 (630) 271 995 16,705
33 Kansas 16,687 17,600 1,346 (663) 229 912 16,688
34 North Dakota 16,812 17,600 1,346 (663) 98 781 16,819
35 Georgia 16,405 17,400 1,331 (728) 371 974 16,426
36 Ohio 16,551 17,400 1,331 (728) 217 819 16,581
37 South Dakota 16,688 17,300 1,323 (761) N 562 16,738
38 Louisiana 16,290 17,000 1,301 (859) 216 657 16,343
39 Kentucky 15,807 16,800 1,285 (925) 603 963 15,837
40 North Carolina 16,007 16,800 1,285 (925) 384 745 16,055
41 Montana 15,814 16,300 1,247 (1,088) 312 470 15,830
42 South Carolina 15,953 16,200 1,239 (1,121) 87 205 15,995
43 Nebraska 15,725 15,900 1,216 (1,219) 130 127 15,773
44 Texas 15,470 15,200 1,163 (1,447) NA (285) 15,485
45 West Virginia 15,202 15,200 1,163 (1,447) 276 (9) 15,209
46 Missouri 15,102 14,900 1,140 (1,545) 188 (218) 15,118
47 Arizona 14,802 14,100 1,079 (1,807) 0 (728) 14,828
48 Tennessee 14,582 13,700 1,048 (1,938) NA (890) 14,590
49 Arkansas 14,088 13,200 1,010 (2,101) 175 (916) 14,116
50 Alabama 13,817 13,000 995 (2,166) 330 (842) 13,842
51 Mississippi 13,033 11,500 880 (2,439) 0 (1,559) 13,059

Notes: A = welfare benefit, B = pretax income, C = Social Security tax, D = federal income tax, E=

Table 10
Hourly Wage Equivalent
Rank Jurisdiction Pretax Equivalent ($) Hourly Wage ($)a
1 Hawaii 36,400 17.50
2 Alaska 32,200 15.48
3 Massachusetts 30,500 14.66
4 Connecticut 29,600 14.23
5 DC 29,100 13.99
6 New York 27,300 13.13
7 New Jersey 26,500 12.74
8 Rhode Island 26,100 12.55
9 California 24,100 11.59
10 Virginia 23,100 11.11
11 Maryland 22,800 10.96
12 New Hampshire 22,800 10.96
13 Maine 21,600 10.38
14 Delaware 21,500 10.34
15 Colorado 20,900 10.05
16 Vermont 20,900 10.05
17 Minnesota 20,800 10.00
18 Washington 20,700 9.95
19 Nevada 20,200 9.71
20 Utah 19,900 9.57
21 Michigan 19,700 9.47
22 Pennsylvania 19,700 9.47
23 Illinois 19,400 9.33
24 Wisconsin 19,400 9.33
25 Oregon 19,200 9.23
26 Wyoming 19,100 9.18
27 Indiana 19,000 9.13
28 Iowa 19,000 9.13
29 New Mexico 18,600 8.94
30 Florida 18,200 8.75
31 Idaho 18,000 8.65
32 Oklahoma 17,700 8.51
33 Kansas 17,600 8.46
34 North Dakota 17,600 8.46
35 Georgia 17,400 8.37
36 Ohio 17,400 8.37
37 South Dakota 17,300 8.32
38 Louisiana 17,000 8.17
39 Kentucky 16,800 8.08
40 North Carolina 16,800 8.08
41 Montana 16,300 7.84
42 South Carolina 16,200 7.79
43 Nebraska 15,900 7.64
44 Texas 15,200 7.31
45 West Virginia 15,200 7.31
46 Missouri 14,900 7.16
47 Arizona 14,100 6.78
48 Tennessee 13,700 6.59
49 Arkansas 13,200 6.35
50 Alabama 13,000 6.25
51 Mississipp 11,500 5.53

state income tax, F = total tax liability, G = after-tax income. Pretax income may not precisely equal welfare benefits due to rounding and tax calculation formulas. NA = not applicable.

aBased on a 2,080-hour work year.

Table 11
Welfare Package as a Percentage of the Poverty Level, 1995M
Rank Jurisdiction Welfare Benefit ($) Benefit as Percentage of Poverty Level
1 Hawaii 27,736 234.7
2 Alaska 26,849 227.2
3 Connecticut 24,474 207.1
4 Massachusetts 24,176 204.6
5 District of Columbia 22,745 192.5
6 New York 22,124 187.2
7 New Jersey 21,968 185.9
8 Rhode Island 21,541 182.3
9 California 20,687 175.1
10 New Hampshire 19,964 168.9
11 Maryland 19,489 164.9
12 Virginia 19,385 164.0
13 Maine 19,018 160.9
14 Vermont 18,754 158.7
15 Washington 18,730 158.5
16 Delaware 18,486 156.4
17 Colorado 18,457 156.2
18 Nevada 18,456 156.2
19 Minnesota 18,441 156.1
20 Utah 17,838 151.0
21 Wyoming 17,780 150.5
22 Pennsylvania 17,574 148.7
23 Michigan 17,560 148.6
24 Illinois 17,492 148.0
25 Wisconsin 17,389 147.2
26 New Mexico 17,368 147.0
27 Iowa 17,335 146.7
28 Florida 17,268 146.1
29 Indiana 17,192 145.5
30 Idaho 17,028 144.1
31 Oregon 16,959 143.5
32 North Dakota 16,812 142.3
33 South Dakota 16,688 141.2
34 Kansas 16,687 141.2
35 Oklahoma 16,642 140.8
36 Ohio 16,551 140.1
37 Georgia 16,405 138.8
38 Louisiana 16,290 137.9
39 North Carolina 16,007 135.5
40 South Carolina 15,953 135.0
41 Montana 15,814 133.8
42 Kentucky 15,807 133.8
43 Nebraska 15,725 133.1
44 Texas 15,470 130.9
45 West Virgini 15,202 128.6
46 Missouri 15,102 127.8
47 Arizona 14,802 125.3
48 Tennessee 14,582 123.4
49 Arkansas 14,088 119.2
50 Alabama 13,817 116.9
51 Mississippi 13,033 110.3

However, as a single nationwide average, the poverty level does not accurately reflect the relative difference among states in the cost of living.(35) It is considerably more expensive to live in Hawaii or New York than in Mississippi.(36) A better way to look at the value of welfare is to compare the equivalent-wage value of the welfare package to the median wage in each jurisdiction. As Table 12 illustrates, in 36 states the equivalent-wage value of welfare exceeds 70 percent of the median state wage.

Finally, to fully understand the generosity of welfare benefits, it is helpful to compare the welfare wage equivalent with the national annual median wage for some common professions. For example, a first-year teacher can expect a salary of about $23,258.(37) Welfare recipients in nine states receive more in benefits than the average first-year teacher.

An entry-level secretary can expect to earn about $9.01 per hour, which is less than equivalent to welfare benefits in 29 jurisdictions.(38) The national median wage for a janitor is $6.75 per hour.(39) Welfare recipients in 47 jurisdictions receive more in benefits than the average janitor. It is important to realize that, contrary to popular belief, the average janitor's wage is well above the minimum wage rate of $4.25 per hour.

Perhaps more interesting, the national median wage for computer programmers is about $13.03 per hour--less than the welfare benefit levels in the six most generous states.(40)

Table 12
Pretax Wage Equivalent as a Percentage of Mean Salary
Rank Jurisdiction Mean Slary ($) Pretax Wage Equivalent($) Percentage of Mean Salary
1 Hawaii 26,139 36,400 139.3
2 Rhode Island 24,426 26,100 106.9
3 Massachusetts 29,370 30,500 103.8
4 Alaska 31,309 32,200 102.8
5 Maine 21,618 21,600 99.9
6 South Dakota 18,177 17,300 95.2
7 Vermont 22,091 20,900 94.6
8 New Hampshire 24,426 22,800 93.3
9 North Dakota 19,030 17,600 92.5
10 Utah 21,811 19,900 91.2
11 Iowa 20,825 19,000 91.2
12 Connecticut 32,477 29,600 91.1
13 Virginia 25,386 23,100 91.0
14 Wyoming 21,546 19,100 88.6
15 Idaho 20,722 18,000 86.9
16 New Mexico 21,689 18,600 85.8
17 New York 32,265 27,300 84.6
18 Wisconsin 22,951 19,400 84.5
19 Maryland 27,145 22,800 84.0
20 Montana 19,467 16,300 83.7
21 California 28,910 24,100 83.4
22 Minnesota 25,075 20,800 83.0
23 Colorado 25,292 20,900 82.6
24 New Jersey 32,152 26,500 82.4
25 Oklahoma 21,543 17,700 82.2
26 Delaware 26,375 21,500 81.5
27 Indiana 23,507 19,000 80.8
28 Oregon 23,766 19,200 80.8
29 Kansas 21,936 17,600 80.2
30 Washington 26,306 20,700 78.7
31 Florida 23,370 18,200 77.9
32 Kentucky 21,697 16,800 77.4
33 Louisiana 21,971 17,000 77.4
34 Nevada 26,177 20,200 77.2
35 Pennsylvania 25,715 19,700 76.6
36 DC 38,128 29,100 76.3
37 Nebraska 20,843 15,900 76.3
38 South Carolina 21,432 16,200 75.6
39 North Carolina 22,443 16,800 74.9
40 Michigan 27,633 19,700 71.3
41 Georgia 19,837 13,200 66.5
42 Ohio 23,406 14,900 63.7
43 West Virginia 25,093 15,200 60
44 Illinois 27,995 19,400 60.1
45 Arkansas 19,83 13,200 60.1
46 Missouri 23,406i 14,900 63.7
47 Texas 25,093 15,200 60.6
48 Mississippi 19,120 11,500 60.1
49 Arizona 23,453 14,100 60.1
50 Tennessee 22,908 13,700 59.8
51 Alabama 22,149 13,000 58.7

Sources: Authors' calculations and information in U.S. Department of Commerce, Economic Statistics Administration, Bureau of Economic Analysis, Regional Economic Information System, "Wage and Salary Employment and Average Wage per Job by County and Metropolitan Area," December 28, 1994.

The Cities: An Even Bigger Problem

The wage-equivalent value of welfare benefits is likely to be higher in large cities than in the states generally. There are two reasons for that. First, the value of public housing tends to be higher in urban areas. Second, 16 major cities have income or wage taxes that are in addition to the state income tax.(41) City income taxes increase the financial attractiveness of welfare relative to work for residents. On the other hand, the cost of living and wages are often higher in urban areas than in outlying areas.

Table 13 presents the pretax wage equivalent of welfare in terms of annual income and hourly wage. Not surprisingly, New York's welfare package is the most generous. The average welfare benefit in the 16 cities is comparable to a $10.00 an hour, 40-hour-a-week job. Hence, in cities, particularly those with income or wage taxes, especially high hurdles must be overcome to move long-term welfare dependents into work.

Table 13
Value of Welfare in Selected Cities, 1995
City, State Welfare Benefit Level($)a Local Income Tax Rate (%)b Pretax Income Equivalent($)c Hourly Equivalent
New York, NYe 23,743 4.20 30,700 14.76
Philadelphia, PA 19,949 4.96 25,900 12.45
Baltimore, MDf 19,543 2.50 23,600 11.35
Detroit, MIg 18,580 3.00 22,700 10.91
Indianapolis, IN 18,260 0.70 21,100 10.14
Akron, OH 17,679 2.00 20,100 9.66
Toledo, OH 17,619 2.25 20,100 9.66
Cleveland, OH 17,631 2.00 20,000 9.62
Pittsburgh, PA 17,189 2.88 20,000 9.62
Lexington, KY 17,037 2.00 19,800 9.52
Cincinnati, OH 17,463 2.10 19,800 9.52
Columbus, OH 17,343 2.00 19,500 9.38
Louisville, KY 16,389 2.20 18,600 8.94
Kansas City, MO 16,428 1.00 17,700 8.51
St. Louis, MO 16,308 1.00 17,450 8.39
Birmingham, AL 14,945 1.00 15,300 7.36

Source: Advisory Commission on Intergovernmental Relations, "Significant Features of Fiscal Federalism: Budget Processes and Tax Systems, 1994," June 1994.

Note: Table 13 gives the 16 cities of the 80 largest (by 1990 population) that impose either a city or a county income tax.

aIncludes fair market housing benefit for the respective counties.

bRate is imposed on adjusted gross income with no exemptions or deductions, except in Indianapolis and New York City where the tax base is state taxable income.

cIncludes federal, state, local, and FICA taxes.

dBased on a 2080-hour work year.

eNew York City's income tax has graduated rates, starting at 2.5 percent. The 4.2 percent listed is the top marginal rate paid by a taxpayer whose after-tax income would equal welfare benefits.

fIn Baltimore the tax is 50 percent of state income tax liability. The 2.5 percent listed is half of the top marginal state rate paid by a hypothetical taxpayer.

gIn Detroit a portion of city income tax liability is deductible from the state income tax.

Do Recipients Receive All Benefits?

Some readers may disagree with the decision to include housing and some other benefits in the total welfare benefits package. Clearly, not all welfare recipients actually receive all the benefits to which they are entitled. That is particularly true of housing benefits. Although the profile household would qualify for housing assistance in every state, the limited availability of funding and public housing units means that many welfare recipients do not receive housing assistance. Nationwide, only 23 percent of households receiving AFDC are currently receiving housing assistance through the programs considered: 9.2 percent through public housing, 12.1 percent through HUD programs, and 1.7 percent through other rent subsidies.(42) On a state- by-state basis, 1993 participation rates varied widely from a high of 62.8 percent in North Dakota to a low of 8.7 percent in California.

Participation in each of the three types of assistance also varied widely. North Dakota had the highest participation under HUD programs, 48 percent; Alaska the lowest, 6.0 percent. The highest participation in public housing was in Wyoming, 22.8 percent; the lowest in Iowa, 1.3 percent. Other rental subsidies were highest in North Dakota, 9 percent, and lowest in South Carolina and Texas, less than 0.1 percent. Participation rates are detailed in Table 14.

Similar arguments can be made regarding utilities assistance, WIC, and free commodities. We believe it was proper to include those benefits because at least some recipients in every state do receive them. Moreover, the likelihood of receiving those additional benefits is primarily a function of the length of a family's stay on welfare. For example, most states maintain a waiting list for housing assistance. That means that hard-core welfare recipients, who spend long periods on welfare, are likely to be receiving those benefits.

Although the average length of time spent on welfare is two years or less, 65 percent of persons on welfare at any given time will be on the program for eight years or longer.(43) It is precisely those long-term welfare recipients who should be the focus of welfare reform.

However, as noted, not every welfare recipient does receive all the available benefits. Therefore, Table 15 shows the value of a welfare benefits package that includes only AFDC, food stamps, and Medicaid.

Table 14
Housing Program Participation Rates (%), 1993
Rank Jurisdiction Public Housing HUD Rent Assistance Total participation
1 North Dakota 4.0 40.5 10.0 54.5