Michael Tanner's provocative Op-Ed in The Times on Thursday tries to make the case that welfare benefits are too generous because they leave the recipients better off than they would be if they held a job. His argument is undermined by a number of important factors he leaves out of his calculations, such as the benefits available to low-income workers. Still, he (unwittingly) makes a good case for the provisions in the 2010 healthcare law that make insurance coverage more available and affordable to low-income Americans.
Tanner is a senior fellow at the libertarian Cato Institute, which has been a vocal critic of Obamacare (formally known as the Patient Protection and Affordable Care Act), so I doubt he would agree with my assessment. His solution, after all, is for the government to make poverty less hospitable for the poor, not to make it easier for them to climb out of poverty.
But I digress.
Tanner's Op-Ed is based on a recent Cato study that calculates the total cash value of five major safety-net benefits for a single parent with two young children: cash assistance (based on the maximum available grant, which assumes minimal income and assets), food stamps, Medicaid (known as Medi-Cal in California), housing subsidies, energy subsidies, emergency food supplies and Women, Infants and Children grants. The study found that the combined value exceeds the after-tax income of a minimum-wage worker in 35 states.
That's a striking assertion, but the study's model left out several important real-world factors. As Tanner and coauthor Charles Hughes acknowledge, not every impoverished person receives all those benefits, or is even eligible for them. Housing subsidies, for example, can be hard to come by because the demand outstrips the supply.
More important, most of the aid cited in the study is available to anyone who's poor enough to qualify, including those with (ahem) minimum-wage jobs. Tanner and Hughes admit this too, but say they still excluded the value of those benefits when comparing the attractiveness of welfare to that of the working life.
"This study does not examine whether it is better to both work and receive welfare; however, theory indicates that would almost certainly be the case at any income level," they write. "Rather, this study simply asks whether an individual would be better off if he or she were self-supporting through work or dependent on the state through welfare."
Evidently, Tanner and Hughes dismiss the thinking behind Congress' landmark -- and widely, if not universally -- praised welfare reform legislation in 1996. Lawmakers recognized that cash assistance goes primarily to families with young children -- in California, 80% of the recipients in deep poverty are kids. Even if their parents had marketable skills, which many don't, they can't meet several of the prerequisites for joining the workforce, such as obtaining child care and transportation. That's why the law was predicated on states providing subsidies for such things as job training and child care -- aid that Tanner and Hughes seem to disparage as the tools of dependency -- so that poor Americans could get off welfare.
Here's where Obamacare comes in. For a family with health problems, moving from welfare (and Medicaid) into a job that offers no health benefits is a nonstarter. The 2010 law would remove that barrier by offering premium subsidies pegged to a person's income.
Those who earn too much to qualify for Medicaid can still qualify for subsidies that limit their premiums to no more than 6.3% of their income (if it's up to twice the federal poverty line). Those earning up to four times the poverty line would pay no more than 9.5% of their income in premiums. Although that's a sizable chunk, it's more affordable than the insurance might be otherwise.
In that sense, Obamacare is part of the solution to welfare dependency because it makes low-wage work a viable option for those on the dole. It is one of the rungs in the ladder that society provides to help families climb out of poverty.
Which brings me to one last point. Tanner concludes his Op-Ed by urging states to put more pressure on the poor to get off welfare by beefing up the requirements that they join the workforce and reducing their benefit levels. Yet the data gathered by Cato indicate that such efforts probably wouldn't yield Tanner's intended result.
As the report shows, much of the increase in benefit value has been in noncash programs such as Medicaid and housing aid. The value of the cash provided to welfare recipients has declined in 48 states since the program's inception, in some cases considerably. In California, years of cuts shrunk the maximum cash grant cut by more than 20% in inflation-adjusted terms, despite a recent increase, and reduced by half the time that residents can receive the full set of welfare-to-work benefits.
Meanwhile, the reduction in the cash welfare rolls, which had been dramatic in the aftermath of the 1996 welfare reforms, slowed sharply in the wake of the 2001 recession, and started to reverse after the 2008-09 downturn.
Those data suggest that the amount of aid isn't as important as the availability of jobs, and at the moment the United States is in the throes of its second consecutive "jobless recovery." The prospects have been especially bleak for low-skilled workers and those whose schooling stopped in high school. The resulting competition for low-wage jobs increases the challenge facing many of those on welfare, who don't have the work history or education of many of the laid-off workers looking for a paycheck.
That's all the more reason for lawmakers to focus on economic growth. The post-1996 decline in welfare rolls corresponded with a period of rapidly expanding employment, albeit one based in part on the tech bubble. The issue here isn't whether welfare recipients should work; lawmakers on both sides of the aisle agree that, with few exceptions -- such as mothers of newborns -- they should. The issue is whether the jobs are available.
Granted, Obamacare doesn't necessarily help on that front; there are plenty of anecdotal reports about companies cutting workers' hours to avoid the law's now-delayed mandate on employers to provide health benefits to full-time workers. But there's little evidence in employment data to support the anecdotes. And while federal statistics show a growing percentage of part-time workers, the average number of hours worked isn't dropping.
Besides, getting folks into the workforce is only one part of the solution. Just as important is for those people to move beyond entry-level jobs -- for the sake of the economy and U.S. competitiveness, not just the individuals concerned and the taxpayers who foot the bill for aid programs. That's a challenge for policymakers, especially when many of the jobs being created are in low-wage service industries. But it's also a topic for another day.
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