Chapter IV Welfare In the current welfare debate, there is much misperception of the history of welfare. While a comprehensive history is impossible here, several important points must be clarified. There is, for example, an enduring myth that earlier in American history care of the poor was private, through charities and individuals taking care of their neighbors. In fact, welfare22 in America has always been a combination of public and private assistance. In the late 18th and early 19th centuries, for instance, city governments sometimes gave "general relief" (albeit meager) to poor people during hard economic times (usually in order to stave off riots or other civil disturbances). The poorhouses of the 19th century were attempts (albeit most often spectacularly unsuccessful) to reduce the cost of welfare by bringing all the poor under one roof and creating self-sustaining communities. After the Civil War, the Federal government offered veterans benefits (including survivor benefits to families) to those who had participated in the war (and later to all veterans). The first "widows' pensions" were to the wives of those veterans. In fact, pensions to veterans and their families were 18% of the total Federal budget just before World War I, when the program was discontinued. The current mixture of public and private assistance has been going on since the beginning of the Republic. The function of welfare has not been limited to the alleviation of distress. Historically, welfare has also functioned
- to regulate labor markets by controlling the supply and price of labor through manipulating incentives to work. (If benefits are relatively high, for instance, workers become unwilling to take low-paying jobs and will demand higher salaries, so the supply of workers will shrink. If benefits decline, the supply of workers increases and they will work for lower wages.)
- to "improve people" by regulating their behavior as a condition of relief. As part of Welfare Reform, for instance, some states deny an increase in benefits for additional children born while the mother is on welfare in order to discourage welfare mothers from having more children.
- as a mechanism for political mobilization. Public officials have frequently used local welfare payments for political purposes, distributing them to secure the votes of the poor. Ronald Reagan used his opposition to welfare as a strategic part of his campaign in the 1980s.
- Since 1960, welfare has been used as a way of reversing past racial injustice. One can see each of these purposes operative in the current debate over welfare.
The debate about who "deserves" public assistance dates back to the beginnings of modern welfare about 500 years ago in Europe. Society has always tried to separate the "deserving poor" (those who are poor through no fault of their own) from the "undeserving poor" (those who are considered to have brought their poverty upon themselves due to substance abuse, laziness, unwillingness to work, promiscuity and so on). Society generally tries to confine whatever private charity and governmental assistance it provides to the "deserving poor," while insisting that the "undeserving poor" improve their character as a condition of receiving relief. The problems with this debate are several. First, it is, in practice, impossible to distinguish with any accuracy who is "deserving" from who is "undeserving." If one tries to make this separation through governmental rules and regulations, one quickly discovers that the causes of poverty are complex and sometimes subtle and that the decidedly difficult-to-determine psychological state of a person heavily influences the state of "deservingness." (A person who on paper looks simply lazy and unwilling to work, for instance, may on closer examination be quite clearly mentally incapable of performing any useful work.) But if one tries to make this distinction locally through one-on-one determinations, one discovers that local prejudices weigh too heavily for the process to be considered just. Second, the debate substantially ignores the structural causes of poverty considered here. Third, in part because of the difficulty of separating deserving from undeserving poor, any regulations and policies designed to weed out the "undeserving poor" will also make life miserable for those who "deserve" assistance. In order that contemporary welfare not be too "attractive," for example, benefits are so low (average AFDC payments were $300 a month) that no one could survive on them. As might be expected, the definition of who is deserving changes over time. Not so long ago, for instance, poor single mothers with young children were considered "deserving" while we now consider most young welfare mothers "undeserving" of on-going assistance. The New Deal "Modern" American welfare began in the 1930s under President Franklin D Roosevelt's New Deal. During the Great Depression, millions of middle-class families were thrown suddenly into poverty. "The poor" had become "us." Attitudes toward welfare, of course, changed quickly, and there was great demand for Federal assistance to those suffering from poverty. Roosevelt quickly created the Federal Emergency Relief Administration (FERA), which gave out approximately $18 billion in relief over its history from 1933 to 1936. Roosevelt also created the Civilian Conservation Corps (CCC) and the Works Progress Administration (WPA) as ways of providing work to the unemployed, work ranging from building the Tennessee Valley Authority dams (CCC) to creating photo exhibitions of the dustbowl (WPA). There were also a number of programs initiated during the Depression that have become cornerstones of American social insurance. Unemployment insurance (which had previously comprised largely voluntary programs that differed from state to state) became mixed Federal-state programs in which the Federal government mandated uniform standards that the states were primarily responsible for enforcing. Through state law, employers were required to pay premiums for certain levels of unemployment insurance that would provide cushions for people who lost their jobs. The Social Security program, providing benefits not only for the elderly but also for the disabled, was probably the most important of Roosevelt's innovations in social insurance. Although the program initially excluded agricultural workers and domestics (and thus two-thirds of working African Americans at the time),23 it has since been significantly expanded. Sold to the public as a pay-as-you go insurance program, Social Security has nevertheless always been a form of welfare, with payments from younger, working individuals providing benefits for the retired and disabled. Illustrative of Social Security's nature as a welfare program, most beneficiaries have received approximately twice what they would have received if their payments had been simply invested in the same US Treasury bonds.24 Significantly strengthened during the 1960s, Social Security has been an enormously successful program: the poverty rate in 1997 for the elderly was just over 10%, about half the poverty rate for children. It is estimated that in the absence of Social Security payments, 50% of the elderly would be poor. The New Deal programs irrevocably tipped the balance between public and private forms of welfare. Prior to Roosevelt's administration, social welfare costs were approximately 1% of government expenses; in 1939 such costs (including Social Security and unemployment insurance as well as more commonly understood forms of relief) were 27.1% of government spending. While welfare in America has always been a combination of public and private, it is now a much greater percentage of government spending than before Roosevelt. The New Deal also cemented an ultimately untenable distinction between "social insurance" and "public assistance" that has prevented the United States from developing a more comprehensive program of economic security similar to the programs in the countries of Western Europe. In the United States, such programs as Social Security, Medicare, disability pensions, disaster relief, and so on are considered "social insurance," while payments to families with young children, food stamps, general relief, Medicaid, and so forth are considered "public assistance." It is the old distinction between the deserving and undeserving poor. In fact, social insurance and public assistance are both forms of "wealth transfer" wealth from certain groups of people (usually those who are working) to other groups (usually those who aren't working). Historian Michael Katz writes:
The resilient distinction between social insurance and public assistance reflects the long-standing suspicion of welfare. There remains a lurking assumption that many of those who ask for help neither need nor deserve it. By contrast, social insurance is acceptable because, so it is believed, it is earned. With their own wages, workers contribute to fundssupplemented by their employersthat will support them in periods of unemployment or in old age. Even though they may take out far more than they contribute, they can argue that they have paid their way. Equally important, social insurance is popular because its benefits cross class lines. Almost everybody is eligible for social security retirement benefits.25
One significant result of this distinction is that programs considered social insurance are generally administered by the Federal government with nationally uniform standards and benefits pegged to inflation, while programs considered public assistance are usually administered by state or local governments with cost-of-living benefits raises dependent on the uncertainties of the legislative process. As a result, of course, "social insurance" programs have substantially better benefits than "public assistance." In the twenty years before Welfare Reform, for instance, AFDC benefits (adjusted for inflation) had declined by 40%. The War on Poverty
During the prosperity immediately following World War II, poverty essentially disappeared from the political radar screen. Suburbanization and affluence were the watchwords, and the average American forgot that significant poverty existed in the United States. But in the heightened political consciousness of the 1960s and the Civil Rights Era, Americans rediscovered our poverty. Michael Harrington's The Other Americagraphically describing poverty in our countrysymbolized that renewed concern and was itself part of the political process that birthed the Great Society Programs under President Lyndon B Johnson. The War on Poverty, as Johnson called it, aimed to eradicate poverty in the United States. It was a time of national self-confidence: if we could put a man on the moon, surely we could end poverty. The "bifurcation of welfare into social insurance and public assistance" codified in the 30s, however,
trapped the architects of Johnson's Great Society who wanted to wage war on poverty. For it ruled out any serious attempt to redistribute wealth, guarantee incomes, or tamper with the structure of American capitalism. Unwilling to explain poverty as an inescapable consequence of American political economy, they had two alternatives. One was to place the blame squarely on individuals and to redefine poverty as evidence of moral or intellectual incompetence. The other was to see it as the result of artificial and unjustifiable barriers inimical to the open and competitive structure of American life. In practice, explanations drifted between both poles.26
Johnson's programs were grandly conceived, creating a significant increase in spending for social welfare. Unfortunately, the War in Vietnam intervened, and funding for almost every program conceived was severely limited. According to Katz, the Office of Economic Opportunity (the hub of the War on Poverty) received less than 10% of the most conservative estimate of what it needed to reach its goals. According to Michael Harrington, "It never cost even one percent of the Federal budget and never reached the 'takeoff' point that is normal in most Federal programs." Despite these limitations and despite some spectacular failures, there were important successes in the War on Poverty. Headstart, Legal Aid, the Job Corps, Medicaid, Medicare, Food Stamps and other major programs largely succeeded in their aims despite (with the exception of Medicaid and Medicare) inadequate funding. The common wisdom that the Great Society programs failed simply does not match the evidence of their successes. What is true about this common wisdom was that poverty increased during the period of the Great Society programs, largely due to massive economic shifts against which the inadequately funded War on Poverty was helpless. What is not usually recognized is that social welfare programs expanded greatly under the Republican president Richard Nixon as well. Despite Nixon's anti-welfare rhetoric, government spending on welfare and public housing increased more during his administration than during Johnson's. A major change in welfare during this period was the expanded use of the Aid to Dependent Children program, which had existed since the New Deal. The program was initially small and mostly confined to widows with dependent children; it had remained so until the 1960s, when the increasing feminization of poverty meant a drastic increase in applications, mostly from women who were divorced, separated, or never-married rather than widowed. Other political forces encouraged or at least allowed a higher fraction of the eligible to apply, a fraction that increased from about one in three in the early 60s to more than nine out of ten by 1971. ADC (eventually changed to Aid to Families with Dependent Children [AFDC]) became a large program supporting many families in the inner city. It is this program that most people call "welfare." The Medicaid program, which provided grants to states intended for medical assistance to the poor, has become more than four times as costly as AFDC. The cost of Medicaid ballooned primarily for four reasons. First, the program was an "entitlement," meaning that the government had legally committed itself to provide whatever funds were necessary to cover anyone who fit the guidelines, regardless of the cost. Second, the number of poor people and the depth of their poverty increased. Third, Medicaid covered the growing costs of nursing home care (often to formerly middle-class elderly who had become poor by virtue of illness). Fourth, and probably most significant, the cost of medical care rose precipitously over the next decades. Although Medicaid became a most important program, nationally only about a third the people living below the poverty line have been eligible for its benefits.27 By far the most massive of the social welfare programs of the Johnson and Nixon administrations and certainly the most effective were not directed specifically toward the poor at all. During this time, the expansion of Social Security and the creation of Medicarefrom which everyone benefiteddwarfed funding for all of the other social welfare programs combined. It is not coincidental that these two programs were also the most effective in alleviating poverty. Because they targeted everyone, they enjoyed broad political support. Not only have they been adequately funded but (unlike AFDC, for example) their benefits increase automatically with inflation. As a result, however, the Federal government spent about 75% of its social welfare budget during this period on the non-poor! The War on Welfare By the mid-1970s, the Great Society programs had not lived up to their promise and the general perception grew that they had failed. Black poverty in the inner city was highly visible and growing rapidly, which threatened white voters. Most liberal voices had withdrawn from the debate over black poverty. The political mood shifted dramatically, and American governmentfrom local to Federal levelhas waged war on welfare since. Due to the many factors considered earlier, poverty in the large cities worsened into the mid-seventies. As a result of this increasing poverty, the exodus of the middle-class suburbs, and the flight of industry to the Southwest and abroad, the tax base of the American city declined at the very same time that the need for services was increasing. As the cities declined, their credit ratings slipped, and state voters became less willing to subsidize their losses. Voters in most states also rescinded their support for general relief to the poor, which disproportionately affected the cities. As affluent people left, the cities lost much of their political power. The Federal government had previously given considerable assistance to the cities, accounting for approximately 22% of urban expenses. In the early 1980s, however, the Federal government decided that supporting the cities was a state responsibility and so cut its support back from 22% to about 6% of city expenses. The states received these previously allocated urban funds as "block grants" intended for the cities. Given the loss of urban political power, the states merely substituted the Federal money from the block grants for their own, so the total state dollars to cities remained the same, meaning that the cities had to absorb the Federal cuts in their entirety. The effect was deadly! Schools collapsed, crime and violence soared, city services (especially social services) declined precipitously. As a result of their increasingly troubled status and the tax-cutting mood of the country, most city governments were forced into austerity budgets. Since many other government functions (maintaining the roads, police protection, picking up the trash, etc.) require a constant level of funding regardless of the government's decisions, the social welfare budgets were most directly affected. The cities were forced to cut many of their direct services to the poor: general relief, housing assistance, medical assistance to the majority of poor people not eligible for Medicaid, child protection, and so on. State and local governments had always provided some level of assistance to poor people: general assistance programs for those not eligible for Federal money, medical assistance for those not eligible for Medicaid, and so on. Most of these programs had originally been given to people on the basis of their income alone: if you were poor enough, you received the benefits. During the seventies, the states and cities began restricting eligibility to "unemployables." Although the definition of "unemployable" varied from locale to locale, the restrictions generally meant that childless, able-bodied adults were no longer eligible for help. It didn't matter whether there were appropriate job openings or not. If you were able to work you couldn't receive benefits even if you couldn't work. The other tack was to tighten the regulations restricting eligibility, excluding, for instance, those who were unable to work because of alcoholism or drug addiction. Thousands of people lost their eligibility, and benefits for most others declined. The Federal government also participated in the attack on welfare. President Ronald Reagan was elected to office in 1980 on a campaign that featured anti-welfare rhetoric. He promptly set about dismantling welfare. The Reagan administration attempted to cut not only public assistance but also other forms of social insurance. Political reaction, however, immediately precluded significant change in Social Security or unemployment insurance. His administration was successful, however, in cutting into disability insurance, part of the Social Security Act intended for anyone who had been disabled for at least a year. Charging fraud and waste, the administration tightened requirements (which required no approval from Congress) and almost 200,000 people lost their eligibility. Among those declared ineligible were people whose poverty was a result of addiction and manychildren suffering from illness. Of those former recipients who had the resources to challenge their administrative termination, over half of them had their eligibility reinstated on appeal. The vast majority of those cut, however, never challenged and lost eligibility. Public assistance programs were more successfully targeted. By 1983, 300,000 families had lost their eligibility for AFDC, "saving" the government over a billion dollars a year. Eligibility and benefits for food stamps, school lunch programs for the poor, Medicaid, extended unemployment benefits, and other programs were cut. The Federal housing budget was slashed from over $30 billion to $7 billion, virtually precluding any new construction of housing for the poor. By 1992, political support for curtailing social welfare programs was bipartisan, and in most places it was political suicide to campaign on the basis of increasing the amount the government spent on programs for poor people. The Welfare Reform Act of 1996 was the capstone of this process. Welfare Reform After campaigning on a promise to "end welfare as we know it," Democratic President Bill Clinton joined with a Republican Congress in 1996 to pass the Personal Responsibility and Work Opportunity Reconciliation Act, popularly known as "Welfare Reform." (Because this legislation uses the term "welfare" to refer to the Aid to Families with Dependent Children [AFDC] program, I will follow that usage in the next paragraphs.) Among the most important features of the legislation were the following.
- Most importantly, the national "entitlement" to welfare (established by Roosevelt in the 30s) was rescinded. According to previous legislation, poor families with young children were entitled to benefits, that is, if you qualified you got benefits. During periods of recession when poverty increased, the welfare budget increased automatically to take care of the additional families entitled to welfare. Under the new law, however, the Federal block grants are essentially capped amounts that will not rise even with additional need.
- AFDC and several smaller programs were abolished and replaced with Temporary Assistance to Needy Families (TANF), a program comprising Federal block grants to the states and a set of broad guidelines about how that money could be used. While the recipient states must provide some form of welfare, there is great latitude in how that assistance may be provided. For instance, there is no requirement to give cash to recipients; the entire program could consist of vouchers or services. States would also be allowed to transfer up to 30% of the block funds into two other block grants. There was also latitude for changing the administration of the programs, for instance, through privatization. Instead of a single national AFDC program, there are now 51 separate TANF programs.
- Work requirements were mandated. Recipients would have to go to work, sometimes within two months of receiving aid. The numbers gradually increase over the life of the program so that by 2002 at 50% of any state's recipients will have to work at least 30 hours a week or Federal funds to the state will be cut.
- Time limitations were instituted. Getting recipients "off welfare" became a central goal of the program. The states would be penalized (through reductions in funding) if defined percentages of their welfare population were not off the roles within defined periods of time. Individual recipients could receive assistance for only five years during their lifetime. Federal money could not be used for additional support. The freedom that the states had under the broad guidelines of the legislation to individualize their programs did not extend to modification of this basic goal: to get people off welfare.
- Eligibility for Medicaid-a most important benefit-was not changed. Families who would have qualified for AFDC under pre-reform regulations may still receive Medicaid. Evaluating the impact of welfare reform has been hampered by at least four variables. The first is that there is no longer one program to evaluate but more than fifty. Some states have created programs that appear to be better than the previous ones; other states have allowed the programs to slide.
The second is that no comprehensive evaluation has been mandated. In fact, one response from several states to the concern that too many people are sliding off the rolls and into poverty has been to stop studying the issue. The third is that the United States economy has enjoyed an uninterrupted boom since the passage of the act, and this prosperity has increased employment, slowed the growth of poverty (and more recently reduced the percentage of people living below the poverty level), and increased both state and local tax coffers. States thus have had less poverty and more tax money than is likely to be average over the next few years. Since the amounts of the block grants were based on states' needs during the base period 1992-95 (when needs were relatively greater), the states are now receiving proportionally more (in both tax revenue and block grants) per poor person than they will during more recessionary times. With more income and fewer recipients the states should be doing quite well. The real test is yet to come. Fourth, many time limits (most importantly the five-year lifetime cap on benefits) have not yet kicked in. Few people have been forced out of the program as a result of using up all their time, so the deleterious effects of the time limits have yet to be felt. On the positive side, there has been no rush on the part of the states to reduce cash benefits and there has in some cases been additional money allocated for childcare (which is necessary if parents of small children are to go to work as mandated). It does appear that many families are leaving the welfare roles, thus reducing welfare costs. And the percentage of those in poverty continues to decline, although this is most certainly due to economic factors, especially the level of employment, which is higher than it has been in decades. On the negative side, it appears that many of the families leaving the welfare rolls are leaving because of sanctions imposed for noncompliance with program rules. Unfortunately, there has not been much follow-up, so we don't know what has happened to those families. Since the average poor family became $200 poorer in 1997, the concern is that many of those families may have dropped through the safety net. We do know that many of the people who have left the rolls have had to take jobs that give them incomes below the poverty level and many families have returned to welfare within a few months. Despite the action of some states to increase subsidized childcare, there is still far too little available. Among single mothers with a high school diploma or less, a relatively small number of will find childcare they can afford, certainly one of the major reasons for early return to welfare. Elements of American Welfare in 1999 So, what is left? What are the major elements of American Welfare in 1999? Social insurance (e.g., Social Security, Medicare, and unemployment insurance) dominates public welfare spending in America, and the gap between social insurance and public assistance (e.g., TANF and food stamps) continues to increase with time, in part because the former are pegged to inflation while the latter are not, in part because public assistance programs have been severely curtailed in the last twenty years. The cost of food stamps plus AFDC was $47 billion in 1992 while the cost of Social Security was $238 billion. The cost of Medicaid (the most important program for the poor that has kept up with inflation) was $96 billion; even so Medicare benefits totaled $120 billion. Probably the most important and certainly the most overlooked anti-poverty program is the Earned Income Tax Credit (EITC). An idea backed and turned into legislation by the Reagan and Bush administrations and expanded enormously under Clinton, the EITC offers low-income working people a maximum of $3,65628 in yearly tax credits. If these credits are more than Federal tax due, the family receives the balance as a cash benefit. The credit varies with family size and with income. For very low-income families the credit increases with increasing income, providing an extra financial incentive to go to work, while families with more income gradually lose the tax credit until it phases out (at just under $30,000 for a family of three). Studies have shown the EITC to be very effective at raising people out of poverty. For instance, the program encourages single parents to find work. Recent Census data show that among working families, the EITC lifts substantially more children out of poverty than any other government program or category of programs. Although there has recently been more criticism of the program, it has been politically popular, presumably because it provides no disincentive to work; indeed, it is only available to working people. Supplemental Security Income (SSI and SSD) and mandatory Workers' Compensation benefits provide at least some income for disabled people and prevent total indigence. While SSI benefits (for the never- or little-employed disabled) are less than $500 a month currently and will not raise an individual out of poverty and SSD benefits (for those who have worked consistently) are higher than SSI (they vary with previous income) yet still relatively meager, both are pegged to inflation so that their value remains constant (in contrast to AFDC payments). While Social Security benefits the poor and non-poor alike, it is an extraordinarily important and effective anti-poverty program for the elderly, keeping the official poverty rate for the elderly at approximately 10%. Similarly Medicare is available to all elderly persons and thus disproportionately benefits the poor, especially those who would not qualify for Medicaid. Temporary Assistance to Needy Families (TANF), despite the cutbacks, remains an important program for families with small children as does Medicaid, which covers not only young families but the disabled. What has largely been missed in the welfare debate is the fact that AFDC (the precursor to TANF) was never intended to make people self-reliant. Its purpose has been to alleviate poverty through direct cash grants rather than change the conditions in which the poor live. To call welfare a failure because it has not raised people out of poverty is like calling the fire department a failure for not preventing a city's fires. While welfare funds are a necessary bridge to keep people out of poverty, they must be accompanied by other programs if they are to give people the resources to escape the "Surround." The Food Stamp program, administered through the Department of Agriculture, is available to all the poor, not just to young families. Initiated during the New Deal as a small program, it was expanded greatly during the War on Poverty. Research has indicated that food stamps have been effective in virtually eliminating hunger in the United States. Despite the massive cutbacks in the early 1980s, there is still some public housing (with rents proportional to income) as well as "Section 8" vouchers to subsidize some housing costs. While many poor people would be eligible for such housing assistance and while the programs are very important to the people they serve, the waiting lists are long (as long as ten years in the District of Columbia), so the large majority of poor people do not benefit at all from these programs. At the state and local level, Public Assistance (general relief to anyone who is poor) has largely disappeared over the past twenty years. Most state and local assistance is now in the form of social services (child protection, shelters for the homeless, grants to voluntary institutions to provide particular services, and so on) rather than as cash grants. It is a raggedy assortment of programs that is especially hard on poor children. The United States separates public assistance from social insurance and then tries to distinguish between the deserving and undeserving poor as it hands out benefits. Compared to other nations, our programs do very little to pull people out of poverty. 22 The term "welfare" can be confusing, for it has historically meant any form of public assistance to people in economic trouble. Local relief payments, certain disability payments, medical assistance, aid to families and so on are all "welfare." Today, however, the term often refers specifically to public assistance to single-parent families (now called Temporary Assistance to Needy Families [TANF], previously called Aid to Families with Dependent Children [AFDC]). 23 Social Security was part of the Economic Security Act of 1935. Also in the act was a matching grant program that encouraged the states to assist the elderly who hadn't worked long enough to collect benefits under Social Security. Although administered by the states (meaning that benefits varied greatly from state to state and were usually not sufficient to live on), such old-age assistance did not discriminate as much against blacks. This program was, for the most part, what American knew as "welfare" until the mid-50s. 24 Perhaps the greatest indication of the actual nature of the program is the funds that are in the trust. Any true insurance program should have enough money so that it could stop taking in new business today and have enough money in the trust to meet all of its future obligations. This has never remotely been the case for Social Security, which, at the end of 1996, had $567 billion in its trust fund and liabilities of $8 trillion (or $8,000 billion). Social Security has always been a transfer of income from the working to certain people who were not working, not an insurance program. 25 Katz, Michael, In the Shadow of the Poorhouse, p. 246 26 Ibid, pp. 259 & 263 27 Although partially federally funded, Medicaid is a locally administered program. Not enough funds have been appropriated to cover all who are poor, so each state decides how to allocate those funds. The District of Columbia, for example, gives benefits only to those poor who are completely disabled or parents of small children. 28 1997 figure for a family with two or more children that has earnings of at least $9,140 and adjusted gross income less than $11,930.