Testimony

Welfare Reform

Committee on Finance
United States Senate

Mr. Chairman, Distinguished Members of the Committee:

It is a pleasure to have the opportunity to appear before you today to address one of the most serious issues facing America today — the need to reform our failed social-welfare system.

In discussing welfare reform it is important to understand the magnitude of the failure that has been our welfare policy. Our welfare system is unfair to everyone: to taxpayers who must pick up the bill for failed programs; to society, whose mediating institutions of community, church and family are increasingly pushed aside; and most of all to the poor themselves, who are trapped in a system that destroys opportunity for themselves and hope for their children.

Since the start of the “war on poverty” in 1965, the United States has spent more than $3.5 trillion trying to ease the plight of the poor. Yet, today, the poverty rate is actually slightly higher than when we started.

If it was merely a question of wasted money, there would be cause for concern, but no crisis. After all, the money that the government has wasted on welfare pales in comparison to what it wastes on many other programs. However, the real welfare crisis lies in what the system is doing to our society.

Consider some of the results of our welfare system:

Illegitimacy. In 1960 only 5.3 percent of births were out of wedlock. Today nearly 30 percent of births are illegitimate. Among blacks, the illegitimacy rate is nearly two-thirds. Among whites, it tops 22 percent. There is strong evidence that links the availability of welfare with the increase in out-of-wedlock births.

Having a child out of wedlock often means a lifetime in poverty. Approximately 30 percent of all welfare recipients start because they have an out-of-wedlock birth. The trend is even worse among teenage mothers. Half of all unwed teen mothers go on welfare within one year of the birth of their first child; 77 percent are on welfare within five years of the child’s birth.

More than half of AFDC, Medicaid, and food stamp expenditures are attributable to families begun by a teen birth.

The non-economic consequences of the increase in out of wedlock births are equally stark. There is strong evidence that the absence of a father increases the probability that a child will use drugs and engage in criminal activity. Nearly 70 percent of juveniles in state reform institutions come from fatherless homes.

Social scientists may dispute the degree of linkage between welfare and illegitimacy, but the vast majority agree that there is some connection. Even William Galston, President Clinton’s Deputy Assistant to the President for Domestic Affairs, says that the welfare system is responsible for at least 15 to 20 percent of the family disintegration in America. Others, such as Charles Murray, attribute as much as 50 percent of illegitimacy to welfare. I believe that any objective look at the available literature on this topic indicates a strong correlation between the availability of welfare and out-of-wedlock births.

Of course women do not get pregnant just to get welfare benefits. It is also true that a wide array of other social factors has contributed to the growth in out-of-wedlock births. But, by removing the economic consequences of a out-of-wedlock birth, welfare has removed a major incentive to avoid such pregnancies. A teenager looking around at her friends and neighbors is liable to see several who have given birth out-of- wedlock. When she sees that they have suffered few visible consequences (the very real consequences of such behavior are often not immediately apparent), she is less inclined to modify her own behavior to prevent pregnancy.

Proof of this can be found in a study by Professor Ellen Freeman of the University of Pennsylvania, who surveyed black, never-pregnant females age 17 or younger. Only 40% of those surveyed said that they thought becoming pregnant in the next year “would make their situation worse.” Likewise, a study by Professor Laurie Schwab Zabin for the Journal of Research on Adolescence found that: “in a sample of inner-city black teens presenting for pregnancy tests, we reported that more than 31 percent of those who elected to carry their pregnancy to term told us, before their pregnancy was diagnosed, that they believed a baby would present a problem…” In other words, 69 percent either did not believe having a baby out-of-wedlock would present a problem or were unsure.

Until teenage girls, particularly those living in relative poverty, can be made to see real consequences from pregnancy, it will be impossible to gain control over the problem of out-of- wedlock births. By disguising those consequences, welfare makes it easier for these girls to make the decisions that will lead to unwed motherhood.

Current welfare policies seem to be designed with an appallingly lack of concern for their impact on out-of-wedlock births. Indeed, Medicaid programs in 11 states actually provide infertility treatments to single women on welfare.

Dependence. While the average stay on welfare remains relatively short, nearly 65 percent of the people on welfare at any given time will be on the program for eight years or longer. Moreover, welfare is increasingly intergenerational. Children raised in families on welfare are seven times more likely to become dependent on welfare than are other children. Professors Richard Vedder and Lowell Galloway of the University of Ohio, found that, if you compare two individuals with incomes below the poverty level, an individual who does not receive welfare is two and a half times more likely to be out of poverty the next year than an individual who receives welfare.

Crime. The Maryland NAACP recently concluded that “the ready access to a lifetime of welfare and free social service programs is a major contributory factor to the crime problems we face today.” Welfare contributes to crime by destroying the family structure and breaking down the bonds of community. Moreover, it contributes to the social marginalization of young black men by making them irrelevant to the family. Their role has been supplanted by the welfare check.

Given this record of failure, I recommend that Congress

  • In the long-term, Congress should end all federal funding of welfare. In the short-term, Congress should end the entitlement status of welfare and return control of welfare programs to the states with as few strings as possible. Congress should resist the temptation to impose conservative mandates on the states in lieu of liberal mandates.
  • Begin the transition from government welfare to private charity by creating a dollar-for-dollar tax credit for contributions to private charity.
  • Make adoption easier. This includes eliminating barriers to transracial adoption, including repeal of the Metzenbaum amendment passed last year.
  • Tear down tax and regulatory barriers to economic growth and entrepreneurism, particularly in high poverty areas.

End federal welfare programs

Congress should avoid the temptation to try to “reform” the welfare system. There is no evidence that any of the reforms currently popular with either liberals or conservatives will be able to fix the system’s fundamental flaws.

In particular, Congress should be skeptical of proposed “workfare” schemes. The workfare concept is largely based on the stereotyped belief that welfare recipients are essentially lazy, looking for a free ride. Not only is there no evidence to support such stereotypes, but outside of certain defined subgroups such as AFDC-UP recipients, there is no evidence that workfare programs work.

The Manpower Demonstration Research Corporation conducted a review of workfare programs across the country and found few, if any, employment gains among welfare participants. Economists at the University of Chicago’s Center for Social Policy Evaluation reviewed the major studies of workfare and welfare-to-work programs and found a consensus in the literature that “mandatory work experience programs produce little long term gain.”

Moreover, workfare jobs are not inexpensive. It is estimated that it will cost at least $6,000 over and above welfare benefits for every workfare job created. This represents a great deal of expense for very little gain.

At the same time, Congress should be equally skeptical of proposals for increased job training. Again, there is little evidence that job training programs actually work. A study by the General Accounting Office of 61 job training programs in 38 states concluded that the programs “are helping recipients find only dead-end jobs, and are failing to give the poor the education and training they need to advance.”

Several job training programs have been particularly notable failures. The Federal Job Training Partnership Act was designed to boost the earnings of high school dropouts. But a study in 1992 reported that those who had enrolled in the program earned 8 percent less than those with no training. A study of the “Jobstart” training program, which operated in 13 communities across the country found that the program generated only “statistically insignificant” increases in earnings among participants. As Fred Doolittle, director of Jobstart explains, “education and training alone, as traditionally offered within the [federal job training program], are not enough to make a real difference in these young people’s lives.” Of 5,000 Baltimore area participants in the Agriculture Department’s Food Stamp Employment and Training Program, fewer than one percent found jobs through the program.

As the Manpower Demonstration Resources Project concluded the most optimistic evidence from studies of job training programs, from the 1967 Work Incentive (WIN) Program to the 1988 JOBS program, indicates that “caseload reductions have not been dramatic and increases in people’s standards of living have been limited.”

Given that there is little likelihood that Congress will be able to “fix” the welfare system, it should begin looking to the day when the federal government gets out of the charity business.

As a staring point, Congress should certainly end the entitlement status of welfare. However, for the long-term, Congress should begin phasing out federal funding for the entire panoply of welfare programs.

In the short-term, Congress appears to be nearing a consensus to send many welfare programs back to the states in the form of block grants. If Congress decides to take this approach, such block grants should be accompanied by few if any strings.

Congress should not attempt to devise a detailed “conservative” welfare program, imposing conservative mandates in lieu of liberal ones. In particular, Congress should avoid mandating work or job training requirements.

Establish a Dollar-for-Dollar Tax Credit for Contributions to Private Charity.

If the federal government’s attempt at charity has been a dismal failure, private efforts have been much more successful. America is the most generous nation on earth. We already contribute more than $125 billion annually to charity. However, as we phase out inefficient government welfare, private charities must be able to step up and fill the void. To help generate increased charitable giving, the federal government should offer a dollar-for-dollar tax credit for contributions to private charities that provide social-welfare services. That is to say, if an individual gives a dollar to charity, he should be able to reduce his tax liability by a dollar. Since current federal welfare spending is equivalent to 41 percent of the revenue generated from personal income taxes (for all major means-tested programs), the credit could be capped at 41 percent of tax liability.

Private charities are able to individualize their approach to the circumstances of poor people in ways that governments can never do. For example, private charities may reduce or withhold benefits if a recipient does not change his or her behavior. Private charities are much more likely than government programs to offer counseling and one-on-one follow-up rather than simply providing a check.

By the same token, because of the separation of church and state, government welfare programs are not able to support programs that promote religious values as a way out of poverty. Yet, church and other religious charities have a history of success in dealing with the problems that often lead to poverty. And, private charity is much more likely to be targeted to short-term emergency assistance than long-term dependence. Thus, private charity provides a safety net, but not a way of life.

Private charities are also much better able to target assistance to those who really need help. Because eligibility requirements for government welfare programs are arbitrary and cannot be changed to fit individual circumstances, many people in genuine need do not receive assistance, while benefits often go to people who do not really need them. More than 40 percent of all families living below the poverty level receive no government assistance. Yet, more than half of the families receiving means- tested benefits are not poor. Thus, a student may receive food stamps, while a homeless man with no mailing address goes without. Private charities are not bound by such bureaucratic restrictions.

Finally, private charity has a better record of actually delivering aid to recipients. With all the money being spent on federal and state social-welfare programs, surprisingly little money actually reaches recipients. In 1994, for example, federal, state and local government welfare spending averaged $35,756 for every family of four below the poverty level. Obviously, the poor did not receive anywhere near this amount of money. In 1965, 70 cents of every dollar spent by the government to fight poverty went directly to poor people. Today, 70 cents of every dollar goes not to poor people, but to government bureaucrats and others who serve the poor. Few private charities have the bureaucratic overhead and inefficiency of government programs.

Make Adoption Easier

Recent discussion of orphanages has largely been a smokescreen designed to obscure the failure of current social welfare policies. The purpose of eliminating welfare is not to force children into orphanages, but to avoid bringing more people into a cycle of welfare, illegitimacy, fatherlessness, crime, more welfare dependency, and more illegitimacy.

Without the availability of welfare, there will be far fewer out of wedlock births and far fewer children born into poverty. For those women who continue to bear children they cannot afford to raise, most will be able to find financial assistance through private charity. Still, a small minority may remain unable to financially support a child. For these women, adoption must be a viable option. This will entail eliminating the regulatory and bureaucratic barriers that restrict adoption today.

Chief among these is the need to remove any restrictions on transracial adoptions. Last year’s Metzenbaum Bill was originally designed to accomplish this. However, under pressure from the social welfare industry, the language was amended to actually codify the practice of delaying adoption based on the race of the child and adoptive parents. Such practices by state adoption agencies should be explicitly prohibited.

Second, there should be an earlier termination of parental rights (TPR) for children placed in the foster care system. Parents should have a maximum of 12 months to reclaim custody of their children, after which the child should be eligible for adoption. Children should not remain in the limbo of foster care for years because their biological parents refuse (or are unfit) to resume custody but will not relinquish parental rights.

Third, federal funding of state foster care programs should be restructured to end “per day/per child” funding formulas that create incentives for states to keep children in foster care rather than place them for adoption. In addition, states who are unable to place a child for adoption within 30 days of TPR should be required to notify private adoption agencies within the state of the availability of that child for adoption. States that fail to do so, should receive no federal funding for their foster care programs.

Tear Down Barriers to Economic Growth and Entrepreneurism

Almost everyone agrees that a job is better than any welfare program. Yet, for years this country has pursued tax and regulatory policies that seem perversely designed to discourage economic growth and reduce entrepreneurial opportunities. Government regulations and taxes are steadily cutting the bottom rungs off the economic ladder, throwing more and more poor Americans into dependency.

Someone starting a business today needs a battery of lawyers just to comply with the myriad of government regulations from a virtual alphabet soup of government agencies: OSHA, EPA, FTC, CPSC, etc. Zoning and occupational licensing laws are particularly damaging to the type of small businesses that may help people work their way out of poverty. In addition, government regulations such as minimum wage laws and mandated benefits drive up the cost of employing additional workers. For a typical small business the tax and regulatory burden for hiring an additional worker is more than $5,400.

Economist Thomas Hopkins estimates that the current annual cost to the economy of government regulations is more than $500 billion. That is $500 billion that cannot be used to create jobs and lift people out of poverty.

At the same time taxes have both diverted capital from the productive economy and discouraged job-creating investment. Harvard economist Dale Jorgenson estimates that every dollar of taxes raised by the federal government costs the economy 18 cents, leading to annual loss of $200 billion per year from our Gross National Product. Moreover, tax rates are already so high that new taxes will cause even greater losses to the economy. Jorgenson estimates, for example, that the 1994 Clinton tax hike will cost the economy more than $100 billion over 5 years.

These figures do not include the estimated $600 billion that the American economy loses every year because of the cost of complying with our dizzyingly complex tax system. In 1990 American workers and businesses were forced to spend more than 5.4 billion man-hours figuring out their taxes and filing the paperwork. That was more man-hours than was used to build every car, truck, and van manufactured in the United States.

A 1993 World Bank study of 20 countries found that countries with low taxes had higher economic growth, more investment, greater increases in productivity, and faster increases in living standards than high-tax nations. Perhaps that should be a lesson for the United States. Instead of worrying about how to make poverty more comfortable, Congress should concentrate on tearing down those regulatory and tax barriers that help trap people in poverty.

Conclusion

We should not pretend that reforming our social welfare system will come easily or painlessly. In particular, ending government welfare will be difficult for those people who currently use welfare the way it was intended — as a temporary support mechanism during hard times. However, these people — almost by definition — remain on welfare for very short periods of time. A compassionate society can find other ways to deal with the problem of people who need temporary assistance to get through hard times. But our current government-run welfare system is costly to taxpayers and — more important — cruel to the children born into a cycle of welfare dependency and hopelessness.