American Poverty and Welfare Reform


Perspectives, Vol. 2, No. 6

I. Poverty in America

Ironically, poverty may well be the richest country's most serious social problem. According to the March 2000 Current Population Survey, over 32 million Americans - 11.8 percent of the population - were poor. A family, and every individual in it, is considered poor if its total income is below the poverty threshold, which was $17,029 for a family of four in 1999. A typical poor family needed an extra annual income of $6,687 to escape poverty.

The poverty experience varies by family type and age group. Female-headed families with no husband present had the highest poverty rate - 28 percent of those families were poor, compared with only 5 percent of married families. Although only 18 percent of all families were female-headed families, they made up 53 percent of poor families. Children (under 18 years old), regardless of their race or ethnicity, are especially vulnerable. In 1999, about one in six American children lived in poverty, representing 38 percent of the total poverty population.

Among the racial and ethnic groups, blacks and Hispanics suffered particularly high rate of poverty (24 percent and 23 percent, respectively), about three times higher than the rate for non-Hispanic whites in 1999 (8 percent). The poverty rate for Asians and Pacific Islanders was 11 percent.

Poverty is not a recent social problem. It has a long history in the United States. In 1960, 22.2 percent of American population lived below the federal poverty threshold; between 1970-1990, roughly 11 percent to 15 percent of the population experienced poverty. The poverty rate of 1999 was the lowest in two decades.

Poverty weighs on the national conscience because the poor are primarily the most vulnerable members of the American population - single parent families, children, the least well educated, the aged, and the handicapped. Poverty is also interwoven with other costly social problems such as crime, substance abuse, homeless, out-of-wedlock births, poor education achievement, and domestic violence. It is also a costly social problem in that each year federal and state governments spend billions of dollars on programs that assist the poor.

II. The History of Aid to Families with Dependent Children

Given the size, cost, and consequence of poverty, the government and the public have a substantial stake in preventing this situation and in helping as many of the poor as possible to become self-sufficient. The first government welfare programs were established in response to the Great Depression, which started in 1929. The Social Security Act of 1935 created Aid to Dependent Children (ADC) program, which was later renamed Aid to Families with Dependent Children (AFDC) in 1950. Since single mothers and children living with them have long been the most vulnerable population, AFDC was designed to provide cash assistance to single parents with children (mostly single mothers with children). Beginning in the 1940s, more and more federal welfare programs have been created, especially in the years after 1965. Besides AFDC, there are Medicaid, Food Stamp, Supplemental Security Income (SSI), and Women, Infants, and Children (WIC), etc. The term "welfare", however, has long been identified with the AFDC

The primary reason that a poor family became eligible for AFDC was that the father was absent. Until the early 1980s, divorce or separation had been the major reason for the absence of the father. By 1983, out-of-wedlock births became the primary reason of being a single mother. By 1995, almost 60 percent of all AFDC families were headed by unmarried mothers, while only slightly more than 24 percent were divorced or separated. The huge increase in the number of unwed mothers and their children was the most significant and unexpected change in AFDC recipients in the history of the program. Another significant change in welfare recipients was that a growing percentage of all AFDC families resulted from births to teen mothers. In sum, the composition of welfare mothers shifted from separated, divorced women to poorly educated, never-married women who had no income other than welfare.

Since the expectation of welfare was that the program would only serve a small number of single-mother families, AFDC placed little emphasis on job training or support services to help single mothers leave welfare and become self-sufficient through employment. Consequently, it became a huge program that supported millions of families headed by single mothers who were unattached to the work force.

American public supports giving assistance to those who cannot expect to support themselves, along with temporary assistance to the able-bodied to help them establish in the labor force. However, the huge shift in the composition of single mothers invariably changed the public's conception of the welfare system. Both the public and the government fear that welfare contributes to the high non-marital births and low work effort among welfare recipients.

In August 1996, President Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), promising to "end welfare as we know it." The 1996 welfare reform legislation completely changed the philosophy of welfare policy and substantially altered the structure of income support for poor families in the United States. Among other changes, PRWORA replaced Aid to Families with Dependent Children, then commonly known as welfare, with the Temporary Assistance for Needy Families (TANF) program. TANF imposes strict work requirement and time limits on the receipt of cash assistance. By September 30, 2002, TANF must receive congressional reauthorization.

III. Key Elements and Impacts of Temporary Assistance for Needy Families

A. Key Elements

One theme of the 1996 welfare reform is the change in federal funding. Under AFDC, the federal government used to match state expenditure on welfare programs at a specific matching rate. The 1996 welfare reform abandoned open-ended federal matching funding. Instead, each state receives a lump sum of federal funds, roughly the amount the state received in AFDC and AFDC-related funds during 1994-95. To receive this grant, each state must meet a maintenance-of-effort requirement - they must spend at least 75 -80 percent of a state's previous spending for low-income benefits and services. States must also meet other federal requirements, such as work requirements, sanctions, and a cumulative five-year time limit on federal cash assistance. Nationally, TANF lump sum funds to states have totaled about $16.5 billion per year for six years. States are given broader discretion and greater flexibility in using TANF funds and designing programs than under AFDC.

The second theme is that federal entitlements to cash welfare were eliminated under TANF. Under the AFDC program, all families whose income fell below state income standards were entitled to receive cash assistance. Now they must meet certain work requirement to be eligible.

The essence of the new welfare system is work requirement and the emphasis is placed on helping recipients become self-support through employment. Adult welfare recipients are required to begin work within two years, or a shorter period of time at state discretion. Recipients who fail to meet the work requirement will have their benefits reduced, and more than 30 states have adopted sanction policy that terminates their entire cash TANF benefits. States that do not place a specific percentage of their welfare recipients in work or work preparation programs suffer federal financial penalties.

A crucial feature of the 1996 welfare reform is to put five-year lifetime limit on welfare recipients. States may not provide TANF assistance to families that have an adult who has received federal-funded TANF assistance for five years. This feature establishes welfare's temporary nature and pushes recipients to work and leave the program to preserve their lifetime months of eligibility. States may exempt up to 20 percent of their recipients from time limits.

Besides work requirement, TANF also encourages family formation by promoting marriage and two-parent families and reducing out-of-wedlock births. States are given more flexibility to serve two-parent families, and those with the highest reduction in their non-marital birth ratio and also reduction in abortion rate are rewarded through the establishment of "illegitimacy bonus." In addition, TANF includes $85 million a year in federal and state financing for "abstinence only" programs for five years.

Overall, the purpose of the 1996 reform is "to end dependency of needy parents on government benefits by promoting job preparation, work and marriage." Welfare is intended to provide assistance only temporarily and should not be a way of life.

B. Impacts

Studies examining the impacts of welfare reform tell a mixed story. The most widely cited impacts of welfare reform are the decline in the welfare caseload and the increase in the employment rate of single mothers. The national welfare caseload reached its peak in 1994, with 5.1 million families receiving welfare. In June 2000, the caseload declined to 2.2 million, more than 50 percent reduction since the peak in 1994, and about 60 percent of those who left welfare were working. The employment rate of single mothers has risen to a historically high level, and by 1999, 71 percent of single mothers were employed, exceeding that of married mothers. Not all these changes can be ascribed to the welfare reform, of course. Strong economy and public policies that "make work pay" also played a substantial role in both the decline of the caseload and the increase in employment.

The impact on earnings and income is less encouraging. Former welfare recipients who left welfare for employment typically enter jobs with low wages and do not receive employer-provided benefits such as health insurance, paid sick leave, or vacation. For many families the total income has increased very little, as the increase in the earnings is offset by the loss of welfare benefits. Another concern is that although overall poverty rate and child poverty rate have declined to the lowest level since 1979, they have not fallen as much as the caseload. The incomes of the poorest one-fifth of single-parent families have continued to fall, and many poor families have become poorer.

Compared with the evaluations on caseload, employment, and poverty, the impacts of the 1996 reform on family formation have received much less attention, and the few studies that have taken place show little impact.

IV. TANF Reauthorization Issues

TANF program will receive congressional reauthorization in the fall of 2002. Many issues have been raised for consideration in the TANF reauthorization debate. Among them, the followings have received special attention from researchers, advocates, and policy makers.

A. Focus of TANF
The current focus of TANF is caseload reduction. While it is successful in the sense that the overall caseload has declined by 50 percent, the reduction in poverty is not as much. Many liberals argue that the focus of welfare reform should be shifted from caseload reduction to poverty reduction. However, many conservatives argue that the welfare reform should focus on reducing out-of-wedlock births.

B. TANF Funding
TANF funding was based on the size of caseload in 1994. Given the dramatic decline in the caseload since then, some argue that TANF funding should be reduced, while others argue that the funding should be increased as child care, work programs, and other supports funded by TANF will become more costly over time.

Another dispute concerns how the lump sum funds would work in recession. Fixed TANF funding shifts the financial risk to states, as each state will have to bear the financial burden during an economic recession when caseload increases. Although the welfare law sets up a federal "emergency fund," which is supposed to provide states with additional fund in a recession, many believe it will be inadequate.

C. Time Limits and Sanctions
Time limits and sanctions are two of the most controversial features of the 1996 welfare reform. Supporters argue that five-year lifetime limit on federally funded welfare receipt provides an important symbolic role in specifying that welfare is temporary and not a way of life, and states can use their own money to continue support of those families who reach their time limit. Critics are worried that those families could face hardship when they are forced off welfare and have no other income source.

Most states use sanctions to cut benefits to families who do not meet work requirements. Many of the sanctioned families are the most vulnerable in that they are the least well educated and face severe barriers to employment.

D. From Welfare to Work
The 1996 welfare reform emphasized the "work first" approach, and most states gave priority to helping welfare recipients find a job, but placed little emphasis on education and job training. Welfare evaluation studies find that welfare leavers generally hold low-paid jobs, face high levels of job instability, and have very poor chance of job promotion. Moreover, about 40 percent of those who have left welfare are not working. Families who stay on welfare and families who left welfare without work appear to have severe and multiple barriers to employment, such as poor education, lack of work experience, poor physical or mental health, substance abuse, or a chronically ill or disabled child.

Many welfare researchers and advocates argue that "work activities" should place more emphasis on education and training, and expand the education and training opportunities for low-wage workers. More emphasis should also be placed on the support for poor working families in areas such as child care, tax relief, and transportation assistance. The needs of the "hard to employ" families should also be recognized and addressed.

E. Family Formation
One of the purposes of the 1996 welfare reform was to reduce non-marital births and promote marriage and two-parent families. Although the law explicitly urged states to "encourage the formation and maintenance of two-parent families, " this provision has received little attention and very few states have made any attempt to promote marriage or reduce the out-of-wedlock births. It is widely expected that conservatives will fight hard to allocate millions of dollars for marriage promotion, including marriage education, requiring states to end income tests that discourage parents from getting married, and rewarding single mothers with cash bonus if they marry the child's father. A very radical notion that comes up during the debate is for states to offer women at high risk of out-of-wedlock childbearing $5,000 if they get married, with an additional $1,000 in each of the next five years if they stay married.

For many Democrats, the marriage promotion issue is very difficult. They acknowledge that two-parent families help lift children out of poverty, but many fear that the assistance to the needs of single families will be reduced or denied under marriage promotion programs. Opponents also argue that government involvement in marriage is not appropriate, as marriage is a very important and personal behavior. Feminist groups generally are suspicious of marriage-promoting programs, arguing the government should encourage work and self-sufficiency among poor women, not to marry them out of poverty. They point out that marriage-promotion initiative has little regard for the women who leave marriage, or choose not to marry, because of domestic violence.

Overall, the debate over the appropriateness of promoting marriage as a way to reduce poverty is controversial, and often veers into a discussion of politics, religion, and traditional values.

Other issues that have been debated include supporting non-custodial parents (most of them fathers), keeping fragile families (headed by cohabiting couples) together, different impacts of welfare reform on racial and ethnic groups, and the accessibility and quality of child care.

V. Conclusion

The replacement of Aid to Families with Dependent Children by Temporary Assistance for Needy Families in 1996 is a dramatic turning point in American poverty policy. It transformed the way people think about welfare. It is widely agreed that welfare reform reduced caseload dramatically and increased the employment of single mothers to a historically high level; child and family poverty has declined, though not as much as the decline in caseload; it improved the financial well-being of many current and former recipients, but also had adverse effects on the most vulnerable population.

By the fall of 2002, Congress must decide upon the future of TANF and also review other programs critical to low-income families. The national debate about welfare, poverty, and other public policies affecting low-income families is heated, but few liberals are pushing to restore the old system and few conservatives are pressing to cut the support for the poor. It is expected that policy makers would reach a convergence around a reasonable, effective set of policies designed to assist low-income families trying to work their way out of poverty.

(The author is an economist at the Institute for Women's Policy Research, a public policy research organization in Washington, D.C.)

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