Economy & Business

Welfare Reform: Two Decades of Success

Did the 1996 law throw 3.5 million American children into third-world poverty? No.

Two decades ago, on August 22, 1996, President Bill Clinton signed a landmark welfare-reform bill (the Personal Responsibility and Work Opportunity Act) into law. At the time, liberals proclaimed that the bill would slash the incomes of one fifth of American families with children and push 2.6 million people into poverty. Senator Daniel Patrick Moynihan (D., N.Y.) famously predicted the bill would leave children scavenging in the streets, “sleeping on grates, picked up in the morning frozen.”

In reality, welfare reform cut welfare caseloads by over 50 percent. Employment of the least skilled single mothers surged, and the poverty rates of black children and single-parent families rapidly dropped to historic lows. Doomsday prophets were discredited, and welfare reform has remained enduringly popular.

Recently, however, Moynihan’s wail about “children sleeping on grates” has been revived. The Left now contends that welfare reform has thrown 3.5 million children into “extreme” third-world-style poverty, living on two dollars per day. This remarkable claim is quickly becoming liberal orthodoxy. The Washington Post and the New York Times have promoted it. Bloomberg News breathlessly informs readers that millions of Americans now have incomes lower than the “disabled beggars of Addis Ababa in Ethiopia.”

These charges stem from a recent book, $2.00 a Day: Living on Almost Nothing in America, by Kathryn Edin and Luke Shaefer. The authors claim that welfare reform has led 3.5 million children and 4 percent of all families with children to subsist in “extreme poverty” on less than $2 per person per day, the poverty standard for third-world nations. According to Edin and Shaefer, these families live in “extreme destitution” and regularly sell their blood and collect aluminum cans to survive.

Edin and Shaefer’s charge is based on the government’s Survey of Income and Program Participation (SIPP). But SIPP data reveal that, among the families living in alleged “extreme poverty,” some 86.5 percent have air conditioning in their homes or apartments, 89 percent have cell phones, 88 percent have a DVD player, digital video recorder, VCR, or similar device, and 67 percent have a computer.

Only 1 percent of these families reported that they “often” did not have “enough food to eat”; another 8 percent said they “sometimes” did not. The remaining 91 percent reported that they “always” had enough food to eat. Despite having alleged incomes of less than $2 per day, only 1 percent had been evicted during the prior 12 months.

The charge of “extreme poverty” in the U.S. is a statistical fiction based on a severe undercounting of earnings and benefits. For starters, Edin and Shaefer obtain their sensational claim that 3.5 million children live in “extreme destitution” on $2 per day by the simple tactic of excluding nearly all welfare benefits from their income count. They acknowledge that counting cash payments from the Earned Income Tax Credit (EITC) and food stamps drops the number by two thirds, down to 1.17 million children.

The authors’ claim of ‘extreme poverty’ simply reflects gaping holes in their survey instrument, rather than conditions in the real world.

But even this lower figure reflects a massive miscount of income. Each month the SIPP survey (used by Edin and Shaefer) undercounts some 22 million beneficiaries in programs such as Supplemental Nutrition Assistance Program (SNAP), Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), Temporary Assistance to Needy Families (TANF), Unemployment Insurance (UI) benefits, and Supplemental Security Income (SSI).

Remarkably, Edin and Shaefer have concluded that each month 1.17 million children live in families that lack both earnings and welfare, using survey data that fails to count some 20 million individual benefit payments distributed to recipients each month. Their claim of “extreme poverty” simply reflects gaping holes in their survey instrument, rather than conditions in the real world. This is like looking at the world through eyeglasses with cracked lenses and proclaiming that the sky is full of dangerous fissures and is about to fall.

All poverty experts recognize that government income surveys substantially underreport income, especially at the tails of the income distribution. The Labor Department’s Consumer Expenditure (CE) survey has shown for decades that poor households routinely report spending of roughly $2.40 for every dollar of apparent income. For families in “extreme poverty,” the spending-to-income ratio rises to 25-to-1.

Based on self-reports of consumer spending, “extreme poverty” has been almost totally nonexistent for 30 years. Adjusting for inflation, the CE shows, from 1984 through 2015, only 61 instances where a family reported spending less than $2 per person per day, out of a total of 272,597 quarterly family records. According to expenditure data reported by the families themselves, the number of families with children living on $2 per person per day is not 1 in 25, as Edin and Shaefer contend, but 1 in 4,469.

While consumer-expenditure data belie all claims of extreme poverty, they do show that around 550,000 families with children have quarterly spending of less than half the federal poverty line — roughly $8.50 per person per day. This standard is typically termed “deep poverty,” in contrast to Edin and Shaefer’s “extreme poverty.”

But, contrary to the charges from the left, the greatest drop in deep poverty has occurred in the group most directly affected by welfare reform: single parents with children. The expenditure data show the percentage of these families in “deep poverty” is far lower today than it was before welfare reform. The share of this group in deep poverty was around 5.5 percent before welfare reform; the rate then dropped steadily to 2.5 percent by 2007. Since then it has risen slightly to 3 percent, but this is a reflection of the current torpid state of the economy rather than reforms enacted two decades ago.

The core premise of welfare reform in 1996 was that welfare should not be a one-way handout; beneficiaries would be expected to contribute back in exchange for aid received. This idea remains extremely popular today. Nearly 90 percent of the public agree that “able-bodied adults who receive cash, food, housing and medical assistance should be required to work or prepare for work as a condition of receiving those government benefits.”

A true work-based welfare system would 1) establish firm work or activity requirements for all able-bodied adult recipients of means-tested welfare programs; 2) require individuals who cannot quickly find employment to undertake community service or training; and 3) supplement wages, through programs such as the EITC, for those low-skill parents who cannot sustain families above poverty even when employed full time.

This type of work-based welfare system would be more efficient in reducing poverty and promoting human dignity than traditional welfare. Welfare reform, now 20 years old, was a small, tentative step in this positive direction.

— Robert Rector is a senior research fellow in the Institute for Family, Community, and Opportunity at the Heritage Foundation.

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