menu ☰
menu ˟

Why Welfare Needs Reform

22 Jan 2018

Vanessa Brown Calder

With Congress back in session, what’s one of the more
controversial items potentially on 2018’s legislative docket?
Speaker of the House Paul Ryan says welfare reform is in the
cards.

That’s encouraging, because U.S. welfare programs are in
desperate need of change. Welfare programs in the U.S. regularly
fall short of their purported goals. These failures should concern
individuals that care about effective institutions, poverty
reduction and good governance.

But for some reason, these issues often don’t concern the
right people. Political interest groups often ignore
welfare’s existing problems largely to preserve coalitions
and signal their ardent commitment to redistributive policy.

Members of Congress
should ensure that welfare reform ends up being a legislative
priority this year, rather than wasting away on a wish
list.

This is short-sighted. A variety of welfare programs suffer
major losses due to structural flaws and mismanagement on a
recurring basis. And despite what advocates of welfare programs
say, these problems are well-documented by objective sources, not
some figment of a powerful imagination or extreme ideology.

As an example, take the Earned Income Tax Credit: the program
currently pays 21-26 percent of its payments “in
error,” according to the Internal Revenue Service’s own
estimates located under the “fraud” tab of its website.
Much of these improper payments are attributable to the
program’s complex design, and administrative changes that
simplify the filing process may reduce billions of dollars paid out
by mistake.

Similarly, consider the benefits provided by the Temporary
Assistance for Needy Families (TANF): one-third of federal and
state TANF spending and 50 percent of state TANF spending were in
“other areas,” according to the Center for Budget and
Policy Priorities. “Other areas” includes non-welfare
state services. But individual states should be required to fund
those activities themselves, rather than require the nation
at-large to subsidize state activities.

Not only are current federal programs poorly overseen or
mismanaged, they are often duplicative. Consider the 342 economic
development programs; 130 programs serving the disabled; 130
programs serving at-risk youth; 90 early childhood development
programs; 50 homeless assistance programs; and 40 separate
employment and training programs, just to name a few federal
examples. To contend that running this many unique programs with
unique rules is anything but wasteful requires willful
delusion.

Many of these programs have nearly exact overlapping missions.
Consider the five federal programs with the purpose of providing
school meals: the National School Lunch Program, the School
Breakfast Program, the Summer Food Service Program, the Child and
Adult Care Food Program, and Special Milk. Lobbyists need each to
exist in order to protect their own benefit streams. And as
researchers point out, legislators have reason to like these
inefficiencies because more individual programs mean more
legislation to take credit for.

These problems are just the tip of the welfare iceberg, but
other problems lie beneath. For example, welfare programs benefit
all sorts of people who are not their intended beneficiaries.
Lawyers, developers, and financial intermediaries capture a
majority of Low-Income Housing Tax Credit benefits while low-income
tenants receive just a fraction — an estimated one-quarter
— of the subsidy in rent savings. Yet the program still
receives broad bipartisan support: special interest groups
aggressively lobby for its maintenance and expansion (see: tax
reform) and praise it as a success.

Or consider the Community Development Block Grant, an economic
development program to “ensure decent affordable housing, to
provide services to the most vulnerable in our communities, and to
create jobs.” In practice, CDBG funds yuppie pipe dreams like
craft beverage trails, breweries, microbreweries, minor-league
baseball stadiums, the expansion of an art museum, a Louisiana
marina, and more. Given that 75 percent of qualifying low-income
tenants do not receive federal housing vouchers, the Department of
Housing and Urban Development’s allocation of CDBG funds is
particularly galling.

Finally, U.S. welfare programs create various widely publicized
behavior incentive issues. Incentives abound to reduce work to meet
poverty requirements in order to capture benefits or delay marriage
to avoid marriage penalties.

These issues are surprisingly pervasive. The Earned Income Tax
Credit, roundly touted by conservatives as a helpful pro-work,
pro-family welfare program isn’t even immune: academic
research consistently finds the EITC increases the number of
recipients in the labor force but does not increase work. In fact,
evidence suggests that the EITC even reduces hours worked for
married men and women.

Yet despite various issues, arguments advanced in certain
quarters maintain that U.S. welfare programs are “working
perfectly” as-is. Available information does not support this
argument.

Indeed, there is room for improvement. And if political
operatives and public intellectuals were honest, they
couldn’t help but agree that welfare programs are in need of
it. Members of Congress should ensure that welfare reform ends up
being a legislative priority this year, rather than wasting away on
a wish list

Vanessa Brown
Calder
is a policy analyst at the Cato Institute.

Click here to view the full article which appeared in CATO Journal