Making Welfare Work

Article excerpt

Oct. 22 was Welfare to Work Works in Oklahoma Day. On that day, Gov. Frank Keating honored 10 of the thousands of Oklahomans who have recently left the welfare system. According to the Oklahoma Department of Human Services, welfare caseloads have dropped 25 percent in the past year alone. Oklahoma now pays just $4 million a month in cash welfare checks to about 16,000 families. That's down from a high of $14 million a month going out to more than 48,000 families in October of 1992.

The fall in Oklahoma's welfare rolls is part of a national trend. According to the President's Council of Economic Advisors, only 7.3 million people received welfare in March, down from 14.1 million welfare recipients in January of 1993.

The fall in welfare caseloads has been unprecedented, widespread, and continuous, and employment of welfare recipients has increased, said the council (for more information, see "The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads: An Update" at http://www.whitehouse.gov/WH/EOP/CEA).

Of course, a strong economy is at least partly responsible for the decline in welfare rolls. After all, the unemployment rate is at a 30-year low B just 4.2 percent. But, more importantly, in recent years, there have been enormous changes in many of the tax and welfare programs that affect low-income Americans. In particular, tax and welfare reforms have combined to greatly increase the incentive for single mothers to enter the work force.

That's a big change from the welfare policies of the 1980s. From 1982-96, the federal Aid to Families with Dependent Children (AFDC) program was characterized by a 100 percent earnings "tax" B welfare recipients typically lost a dollar of benefits for each dollar of income that they earned. And it was easy for a welfare recipient to lose Medicaid and housing benefits if she earned "too much." All in all, welfare recipients faced significant work disincentives. Not surprisingly, one study of 1988-93 Census data found that only about 20 percent of single mothers who were on AFDC continuously during the year had any labor earnings. It was as if the so-called "War on Poverty" had become a "War on Work."

More recently, however, policy-makers have placed greater emphasis on the importance of work as a way to break the cycle of poverty. With the passage of the Personal Responsibility and Work Opportunity Act of 1996 (PROWORA), Temporary Assistance for Needy Families (TANF) has replaced AFDC, and most states have now eliminated the 100 percent earnings "tax." PROWORA also increased federal child care assistance for low and moderate-income families.

Other government programs also became more work friendly. In particular, Medicaid was expanded in ways that primarily helped the working poor. For example, between 1984-95, the number of children receiving Medicaid increased 77 percent, and the number of covered adults with dependent children increased 36 percent. Also, since 1984, the federal government has significantly expanded the earned income tax credit, a refundable tax credit that goes primarily to working families with children. In 1999, for example, a family with two or more children is entitled to a refundable earned income tax credit of up to $3,816. The credit is computed as 40 percent of the first $9,540 of earned income, so welfare recipients can reap a large reward for working B even at a minimum-wage job.

In addition, a number of states have adopted their own earned income tax credits for working families with children. The Wisconsin earned income tax credit, for example, is set at 4 percent of the federal credit for families with one child, 14 percent for families with two children, and 43 percent for families with three or more children. …