My name is Michael Tanner. For the past 20 years I have been in charge of social welfare research for the Cato Institute in Washington, DC. Before that I served as legislative director for the Georgia Public Policy Foundation and as legislative director for health & welfare with the American Legislative Exchange Council. In all, I have spent more than 25 years studying the American welfare system and am the author of two books on welfare reform, including The Poverty of Welfare: Helping People in Civil Society.
Last September, I co‐authored a study for the Cato institute examining the combined value of welfare benefits in all 50 states, and the potential impact of those benefits on work incentives. The academic literature has long made it clear that work, along with education, the avoidance of unmarried pregnancy, and saving, is one of the keys to avoiding and escaping poverty. Less than 3 percent of Americans who work full time live in poverty, compared to 23.6 percent of those without jobs. Even part‐time employment can go a long way towards helping people get out of poverty. Just 15 percent of part‐time workers are poor.
We also know that in Missouri, finding employment was the reason for welfare case closure for 82 percent of total closures. In other words, finding a job was the reason a household left the TANF rolls in more than four out of five cases.
It would appear to be common sense, therefore, that any successful anti‐poverty program should stress the primacy of work.
Unfortunately, it appears that our current conglomeration of welfare and anti‐poverty programs can potentially act as a disincentive for work, thereby trapping the poor into long‐term poverty.
As you may know, the federal government currently funds 126 separate anti‐poverty programs, 72 of which provide either cash or in‐kind benefits to individuals. State, county, and municipal governments operate additional welfare programs. Of course, no individual or family receives benefits from all 72 programs, but many recipients do receive aid from multiple programs at any pointing time.
Our study looked at the potential value of the benefits that a hypothetical mother of two could receive from participation in seven common programs: Temporary Assistance for Needy Families (TANF), Medicaid, food stamps (SNAP), the Women Infants and Children Nutrition Program (WIC), utilities assistance through the LIHEAP program, public housing, and free commodities.
We found that the value of benefits for our hypothetical family ranged from a high of $60,590 in Hawaii to a low of $11,150 in Idaho. In 33 states and the District of Columbia, welfare pays more than an $8‐an‐hour job. In 12 states and the District of Columbia, the welfare package is more generous than a $15‐an‐hour job. In Hawaii, Massachusetts, Connecticut, New York, New jersey, Rhode Island, Vermont and Washington, D.C., welfare pays more than a $20‐an‐hour job.
In Missouri, our family would be eligible for $3,504 in TANF benefits, $6,312 in food stamps, $935 from WIC, $400 in utilities assistance, and $300 in free commodities such as bread, milk, and cheese. They would also receive Medicaid benefits equivalent to an insurance policy with a premium of $7,092. Finally, those Missouri families who receive public housing, roughly 13 percent of all welfare recipients, but a somewhat higher percentage of families with children and long‐term recipients, would receive an average benefit of $8,295. Thus, the total potential benefits package could total as much as $26,837. That would be the 30th most generous package of benefits in the country.
But this doesn’t tell the whole story. We should remember that welfare benefits are not taxed, while wages are. Those taxes are offset in Missouri by the Earned Income Tax Credit (EITC), and your state’s Child Tax Credit. As a result, the mother in our study could earn roughly $22,800, and still break even, although that does not consider the additional costs associated with work — transportation, clothing, childcare, etc — or the value of lost leisure and family time.
My concern is that even at $22,800, the value of potential welfare benefits substantially exceeds the entry level wages that an individual moving from welfare to work can expect to receive. After all, this does amount to the equivalent of $10.96 per hour, an amount that exceeds not only today’s minimum wage, but also the minimum wage that has been proposed by President Obama.
We need to recognize that many welfare recipients, particularly long‐term recipients, lack the skills and attachment to the job market necessary to obtain the types of jobs that pay average or above‐average wages. Individuals who do leave welfare for work most often start employment in the service or retail industries, in positions such as clerks, secretaries, cleaning persons, sales help, and waitresses. And, although it would be nice to raise the wages of entry level service workers, government has no ability to do so. (Attempts to mandate wage increases, such as increases in the minimum wage, primarily result in increased unemployment for the lowest skilled workers).
There is no evidence that people receiving welfare are lazy. Every survey suggests that the vast majority would prefer to be working. However, poor people are not stupid either. If they would suffer even a short‐term loss of income by leaving welfare for a job, they are likely to think twice about taking that job. The very generosity of Missouri’s welfare program, therefore, can act as a disincentive to work, and by discouraging that person from getting that first job, can leave them worse off in the long‐run.
In addition, Mr. Chairman, our study showed that Missouri has also been unusually lax in enforcing welfare’s work requirements. When we wrote the paper, the most recent data showed that only 17 percent of Missouri welfare recipients were engaged in “work activities,” a broad definition that includes not only actual work, but also college, job training, and job search activities. Since then, this rate has fallen even further since then, to 13.5 percent. This ranks Missouri dead last among all 50 states and the District of Columbia. Moreover, even fewer adult TANF recipients, 6.9 percent, had an unsubsidized job, compared to a national average of over 20 percent. Only Oklahoma and Oregon had lower unsubsidized job rates in the country.
Another troubling trend is that the proportion of adult recipients in unsubsidized work has shrunk from 9.7 percent in the middle of the recession (Oct. 2008‐Sept. 2009) to only 6.9 percent for FY 2011. While Missouri was hit by the effects of the recession, its unemployment and poverty rate were either comparable or better than the national rates, so outsized effects of the recession in the state cannot explain its poor performance in the TANF program relative to the national average.
This poor performance in helping adult TANF recipients find employment and leave the rolls is especially troubling given the high proportion of TANF household with an adult— almost three quarters of TANF households in Missouri have at least one adult compared to the national average of approximately half. None of these adults received disability benefits, so it is not as if the adult recipient population in Missouri is less able to work.
Mr. Chairman, I will not pretend to be an expert on Missouri welfare law or the specific intricacies of Senate Bill 736. However, in my opinion, SB 736 appears to be an entirely reasonable and responsible start to dealing with these issues. By strengthening the sanctions regime for failure to participate in work activities, the proposed legislation would be likely to substantially increase work participation. That participation would make it more likely that recipients would ultimately gain the necessary skills to earn an income that would enable them to leave the welfare rolls permanently. There are several studies that demonstrate that the more stringent the sanctions, the more likely the compliance with welfare’s work requirements.
I also strongly advocate diversion options. Approximately 30 states currently have “diversion” programs, designed to keep potential welfare recipients, particularly those considered “job ready” or who had another potential source of income, from ever entering the system. I will caution that the success of state diversion plans has been somewhat difficult to gauge, in part because even in states with diversion programs there has been limited implementation, and in part because states are not set up to track diversion program participants. However, the limited data available provides reason for optimism. In Utah and Virginia, states that have the most extensive tracking information, between 81 and 85 percent of those going through the diversion program do not subsequently reapply for TANF.
The most extensive federal look at state diversion programs is quite dated, a 1999 study by the GAO. However, it did conclude that “states diverting eligible families from receiving cash assistance may have contributed to the large decline [in people receiving welfare].”
SB 736 is certainly not a panacea for the problems facing those poor Missourians trapped in your state’s welfare system. To truly make work a priority policy preference, and to get more welfare recipients off the dole and into jobs will ultimately require far more extensive reforms at both the federal and state levels. However, SB 736 appears to be a good start and deserves your careful consideration.
Mr. Chairman, I thank you for this opportunity to visit your wonderful state, and to appear before you today. I await any questions that the committee might have.