Commentary

In N.J., It Pays to Be Poor

When you hear the term “welfare state,” most people think of Europe and countries like Denmark or France. No doubt those countries offer a wide range of benefits targeted to the middle class, retirees, and so forth. But according to a new study released by the Cato Institute this week, someone who is poor might just be better off here in New Jersey.

The federal government currently funds more than 100 anti-poverty programs. While no one participates in all of them, many can and do collect assistance from multiple programs.

In New Jersey, a mother with two children under the age of five who participates in six major welfare programs (Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP or food stamps), housing assistance, the Low Income Home Energy Assistance Program (LIHEAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and free commodities) would receive a benefits package worth $30,575 per year.

Using a similar measure, Cato found that benefits in Europe ranged from $38,588 per year in Denmark to just $1,112 in Romania. In fact, New Jersey’s welfare system can be more generous than every country included except Denmark. The benefits package is higher than in well-known welfare states as France ($17,324), Germany ($23,257) and even Sweden ($22,111).

Moreover, this benefit package doesn’t include Medicaid, which would be worth roughly $8,150 for this household, because Europe’s health care systems are not targeted to the poor, unlike Medicaid.

New Jersey has the fifth-highest benefit package in the United States, but overall the U.S. fits comfortably in the middle of the pack when it comes to providing for the poor.

One of the problems with these welfare systems is that they can create situations where participants have little incentive to increase work effort because they would lose most of their earnings through lower benefits or higher taxes, while also having to bear the costs associated with going to work like transportation: these people would see little tangible improvement in their standard of living by taking up a job, working more hours or moving up the job ladder.

People in these programs are not lazy, but they are also not stupid. Like everyone else, they respond to incentives. If welfare pays better than work, people on welfare will be less likely to work.

Indeed, economists often discuss the danger that high marginal tax rates can discourage economic activity. But some of the highest effective marginal tax rates in the world are for someone leaving welfare for work.

By creating such a big disincentive for work, our tangled, ineffective welfare system can harm the same low-income people it is supposed to help, in addition to the taxpayers who must fund nearly $1 trillion per year in anti-poverty spending. After all, the evidence strongly suggests that work, even in a low-paying entry level job, is an important route out of poverty: fewer than 3 percent of Americans who work full-time are poor.

Many EU countries have recognized some of these problems and begun to reform. For example, several countries have consolidated multiple programs in their patchwork welfare systems. Others have strengthened work requirements or established time limits for benefits. Still others have established or expanded work-based tax credits or transitional assistance to increase the value of work. In many cases, these reforms are tentative, but they are steps in the right direction.

In that sense, despite the conventional wisdom that welfare in Europe is more expansive and entrenched than in the United States, at least some of these countries are farther along than the United States in terms of recognizing some of these problems and taking steps to address them.

That’s why it is so disappointing that Gov. Chris Christie, who casts himself as a get-things-done reformer, has done little to address New Jersey’s troubled welfare system. In FY 2013, more than 10 percent of head of household recipients had been on the program for more than 60 months and this year the preliminary work participation rate has hovered around 26 percent. The state also continues to employ a waiver exempting able-bodied adults without dependents from SNAP’s work requirement.

Christie did veto a bill that would have leveraged federal SNAP dollars by giving people energy assistance without regard to their heating and cooling expenses, but that is far short of the bold action he has promised in other areas.

Michael D. Tanner is senior fellow at the Cato Institute. Charles Hughes, a research associate at Cato, also contributed to this oped.