Welfare "Reform": Ten Years Later

It's now ten years since the 1996 welfare law promised to end "welfare as we know it." That goal may have been accomplished, but the results have been decidedly mixed, both for poor families and for state lawmakers coping with changing federal mandates.

As this Dispatch will detail, it was less the 1996 law than other changes in state and federal law that have given poor families any chance to thrive -- and still, many lives have been made worse because of the 1996 changes in welfare law. But states are finding innovative ways to expand the anti-poverty agenda in the wake of those changes.

Evaluating the Results of Welfare Law Changes

Evaluating the results is complex, but the basic facts are clear (see resources below for data sources, especially the Urban Institute's "A Decade of Welfare Reform: Facts and Figures"):

  • While the booming economy in the late 1990s made initial cuts in welfare case loads relatively easy as job growth surged, the real test came when the 2001 recession hit. And the result was that, after a reduction in poverty and some gains in income by the poor in the 1990s, child poverty began climbing again in the last few years.
  • And the new Temporary Assistance to Needy Families (TANF) program in many cases was no longer there to help. Where there were 4.6 million families receiving cash benefits in 1996, only 2.1 million were receiving benefits by 2002 -- and estimates are that over half that reduction (57%) came from cutting off families still in need but no longer receiving help from TANF programs.
  • Of families receiving welfare, the good news was that more were finding work: 39% finding some work in the preceding 12 months in 2002 versus 31% back in 1997. But a large number of single-adult families had no work and no longer received any help. By 2002, one in five former welfare recipients had no job and no cash welfare, a total of 1 million poor single mothers in this "no work, no welfare" group across the country.
  • A Johns Hopkins study of current and former recipients in three cities found that when all former TANF recipients are considered ”” those with jobs and those without jobs ”” the average income gains of those who left TANF were about the same as those who had not left the TANF program.
  • Even most families previously on welfare that have found work have ended up in dead-end jobs, with median hourly wages hovering around $8.00 in 2002, and only one-third of these workers have health insurance through their jobs. As the Urban Institute writes, "Research suggests that many of these families will never 'grow out' of low-income status with age and experience."

Some apologists for these meager results of welfare "reform" -- and for the decided suffering of those left worse off -- concentrate on the benefits to the relatively small number of families that have moved from welfare to well-paying jobs.

While those gains are laudable, these mixed results pale compared to broad success of the often-derided "war on poverty" launched in the 1960s. It's worth remembering that between 1959 and 1973, the percentage of people living in poverty in the United States was cut in HALF--falling from 22.4% of the population down to just 11.1%. (See this table and graph). As aid to the poor was cut under the Reagan administration, poverty rates jumped to over 15% in the 1980s and early 1990s, only to fall a slight amount in the last decade. With 12.6% of the American population still in poverty in 2005, anti-poverty gains in the last ten years have not come close to matching the success of American liberalism a generation ago.

And as will be discussed in the next section, if some families are doing better post-1996, it has less to do with the 1996 welfare law than with states and the federal government stepping up with alternative spending for working poor families.

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How Progressive Spending Eased Implementation of 1996 Law

In talking about gains for the working poor in the 1990s, many pundits focus on the 1996 welfare law, but more significant was the expansion of the Earned Income Tax Credit (EITC) in 1993, along with state EITCs enacted as well in the last decade, the passage of federal and state SCHIP laws expanding health care for children, expanded child care subsidies for working families, and the raising of the minimum wage in states across the country. By 2002, federal and state governments were spending $131 billion on Medicaid, SCHIP, food stamps, child care subsidies and the EITC, 28 percent more than in 1996 in inflation-adjusted dollars.

EITC: The federal EITC was $39.6 billion in 2005 and was supplemented by state EITCs in nineteen states, a significant factor in easing the lives of the working poor, especially in conjunction with increases in the minimum wage.

Health Care: Making it easier for families in low-wage jobs without health insurance, most states now subsidize health care for children in families up to 200% of the poverty line. Only 22 percent of families with subsidized health coverage return to TANF, while 33 percent of families without Medicaid or SCHIP return to the program- highlighting the gains from increased spending on health care for the working poor.

Child Care: Along with new child care subsidies, TANF dollars increasingly help fund child care, a crucial support for former welfare recipients entering the workforce. Studies show that 28 percent of former recipients who did not receive government child care assistance return to TANF, compared with only 20 percent of those who receive child care assistance.

One other welcome change is that all but three states have changed their rules to allow TANF recipients to earn more income without losing TANF benefits. Because of these changes, by 2003 a single parent with two kids could work 20 hours a week at the federal minimum wage and still receive TANF benefits in most states.

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The New Federal Threat to TANF Recipients

Unfortunately, just as many states have begun expanding support for the working poor after the budget constraints due to the post-2001 recession, new federal TANF rules mandated by last fall's Deficit Reduction Act (DRA) are further restricting state's flexibility in administering TANF in their states.

Many programs that help recipients get training or education to improve their chances of getting a job will no longer qualify as welfare-to-work activities; recipients will be limited to 12 months of vocational educational training and no more than 30 percent of a state's welfare-to-work participants will be allowed to participate in such programs. As the Center on Budget & Policy Priorities (CBPP) notes, the incentives are perverse, since "The cheapest and easiest way for a state to meet the new work rules and avoid fiscal penalties is to assist fewer poor families."

Some states like Georgia are already taking this punitive approach. Between 2000 and 2005, welfare rolls in Georgia fell from roughly 30,000 recipients down to fewer than 8,000, despite the fact that most families that leave Georgia's TANF program have not found employment.

However, other states are pursuing alternative strategies that accommodate the new rules without hurting the poor. Arkansas is dealing with the regulations by keeping more working people on the rolls after they get jobs, thereby increasing the overall "work-participation rate" from 28 percent to nearly 45 percent this year. California and some other states are moving those least likely to get jobs, such as those with mental and physical disabilities or those with disabled children, into non-TANF state programs so that they don't count against their work-participation rates.

The Center on Budget and Policy Priorities and CLASP have developed a broad set of strategies for states to implement the new regulations in ways that benefit all working families rather than punishing the families whose parents cannot find work.

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Conclusion: The New Progressive Anti-Poverty Agenda

In some ways, the greatest benefit from the 1996 welfare law was that it seems to have diminished the rhetorical attacks on the poor and encouraged the growing alternative federal and state spending to combat poverty. Instead of attacks on "welfare queens" and other racially-tinged attacks, there has emerged a real debate on the rise of economic inequality in America and how best to help all working families, including those at the bottom of the economic system.

The debate on poverty is increasingly merging into the broader debate on how to create decent-paying jobs for all Americans and how to provide the health and child care support that all families need. The recent success of campaigns to raise the minimum wage highlights the broad support by the public for promoting a living wage for the working poor, just as the growing debate on universal health coverage shows similar public support for ending the gaping hole in health access for many working families. The result is a new progressive anti-poverty agenda that links a helping hand for the poorest in our society with campaigns to assure a social safety net for all families looking for help in coping with job dislocation and loss of health care coverage in our changing economy.