Suppose someone offered you the same amount of money that you currently make at your job on one condition — you don’t work. Might you be tempted? That is exactly the deal that our welfare system offers too many people today.
The federal government currently funds 126 separate anti-poverty programs at an annual cost of $688 billion. Of these, 72 provide cash or other benefits directly to poor families. State, county, and municipal governments often operate additional benefit programs. The combined benefits from those multiple overlapping programs can easily add up to the point where welfare simply pays better than work.
This week, the Cato Institute released a new study calculating the state-by-state value of this typical welfare package for a mother with two children participating in seven common welfare programs — Temporary Assistance for Needy Families (TANF), food stamps (SNAP), Medicaid, housing assistance, WIC, energy assistance (LIHEAP), and free commodities. We found that, in 2013, the value of those benefits varied widely across states, from a low of $16,984 in Mississippi to an astonishing high of $49,175 in Hawaii.
In nine states — Hawaii, Massachusetts, Connecticut, New Jersey, Rhode Island, New York, Vermont, New Hampshire, and Maryland — as well as Washington, D.C., annual benefits were worth more than $35,000 a year. The median value of the welfare package across the 50 states is $28,500.
But that doesn’t tell the whole story. Welfare benefits are not taxed, while wages are, so we calculated how much money a welfare recipient receiving these six benefits would have to earn in pretax income if she took a job and left the welfare rolls. We computed the federal income tax, the state income tax, and the FICA payroll taxes one would have to pay on wage income; we also took into account both federal and state versions of the Earned Income Tax Credit (EITC) as well as child tax credits where available (these helped increase the relative value of work but did not fully offset the taxes due).
We found that, just to break even, a person on welfare would often have to take a job that paid considerably more than the value of the forgone welfare benefits. In Hawaii, for example, a person leaving welfare for work would have to earn more than $60,590 a year to be better off. In fact, welfare currently pays more than a minimum-wage job in 34 states and the District of Columbia. In Hawaii, Massachusetts, Connecticut, New York, New Jersey, Rhode Island, Vermont, and Washington, D.C., welfare pays more than a $20-an-hour job, and in five additional states it yields more than a $15-per-hour job.