February 20, 2009
By Robert Rector and Katherine Bradley
welfare reform in the mid-1990s was a major public policy
success leading to a dramatic reduction in welfare dependency and
child poverty. Little-noted provisions in the House and Senate
stimulus bills actually abolish this historic reform.
In addition, the stimulus bills will add nearly $800 billion in
new means-tested welfare spending over the next decade. This new
spending amounts to around $22,500 for every poor person in the
U.S. The cost of the new welfare spending amounts, on average, to
over $10,000 for each family paying income tax. Since the House and
Senate bills are nearly identical in their welfare provisions, we
can expect these features to continue in any final bill.
New System Worse than AFDC
The welfare reform of 1996 replaced the old Aid to Families with
Dependent Children (AFDC) with a new program named Temporary
Assistance to Needy Families (TANF). Although much emphasis has
been placed on the time limits on assistance in the new TANF
program, in reality, the time limits were full of loopholes and
The true key to welfare reform's reduction in dependency was the
change in the funding structure of AFDC.
Under the old AFDC program, states were given more federal funds
if their welfare caseloads were increased. By contrast, federal
funds to a state were cut whenever the state caseload fell. This
created a strong incentive for states to swell the welfare rolls.
It should be no surprise that, prior to reform, one child in seven
was receiving AFDC benefits.
When welfare reform replaced the old AFDC system with TANF, this
perverse financial incentive to increase dependence was eliminated.
Each state was given a flat funding level that did not vary whether
the state increased or decreased its caseload. In addition, states
were given the goal of reducing welfare dependence (or at least of
requiring welfare recipients to prepare for employment).
The House and Senate stimulus bills will overturn the fiscal
foundation of welfare reform and restore an AFDC-style funding
system. For the first time since 1996, the federal government will
begin paying states bonuses to increase their welfare caseloads.
Indeed, the new welfare system created by the stimulus bills is
actually worse than the old AFDC program because it rewards the
states more heavily to increase their caseloads. Under the stimulus
bills, the federal government will pay 80% of cost for each new
family that a state enrolls in welfare; this matching rate is far
higher than in old AFDC program.
The stimulus bill thus eliminates the reform goal of reducing
dependence and returns to the old policy of providing states
incentives to build up their welfare caseloads. The House bill
provides $4 billion per year to reward states to increase their
TANF caseloads. The Senate bill follows the same policy but
allocates less money.
Proponents of the stimulus plan might argue that these changes
are necessary to help TANF weather the current recession. This is
not true. Under existing TANF law, the federal government operates
a TANF "contingency fund" with nearly $2 billion in funding that
can be quickly funneled to states that have rising unemployment.
(Note: The existing contingency fund ties increased financial
support to states to the objective external factor of unemployment.
It specifically avoids a policy of funding states for increased
welfare caseloads, recognizing the perverse incentives this could
If the authors of the stimulus bills merely wanted to provide
states with more TANF funds in the current recession, they could
have increased funding in the existing contingency fund. But they
deliberately did not do this. Instead, they completely overturned
the fiscal and policy foundations of welfare reform.
Writing in Slate, liberal commentator Mickey Kaus
criticizes the stimulus bill welfare provisions as a "liberal
conspiracy to expand the welfare rolls." He laments, "Why use the
aid specifically to encourage expansion of welfare? At the
very least the extra aid to the states shouldn't be triggered by
caseload expansion. (You could, for example, give states aid
in proportion to their local unemployment rate.)" These are
reasonable suggestions. The authors of the stimulus bills pursued a
different policy precisely because they wish to overturn welfare
reform and increase dependence on government.
But overturning welfare reform is just the beginning. In his
recent press conference, President Obama explained that the
stimulus bill would provide "tax relief" and "direct investment" in
infrastructure. He neglected to mention that of the $816 billion in
new spending and tax cuts in the House stimulus bill, 32% or $264
billion is new means-tested welfare spending. (The figure in the
Senate bill is about 15% lower.)
Means-tested welfare programs give cash, food, housing, medical
care, and targeted social services to poor and low income persons.
In a means-tested program, benefits are limited to persons below a
specified income level. The cut-off income level varies from
program to program but is typically less than 150% of poverty or
around $33,000 per year for a family of four.
For example, food stamps and public housing are means-tested (or
limited to lower-income persons), while Social Security and postal
service are not. Means-tested welfare also includes "refundable"
tax credits. With a refundable Credit program, the government gives
cash grants to persons who owe no income tax. Like conventional
means-tested programs, refundable credits give aid to poor and
The federal government runs over 50 means-tested welfare
programs, including Temporary Assistance to Needy Families,
Medicaid, food stamps, the Earned Income Tax Credit (EITC), the
Women, Infants, and Children (WIC) food program, public housing,
Section 8 housing, the Community Development Block Grant, the
Social Services Block Grant, and Head Start.
Largest Expansion Ever
In the first year after enactment of the stimulus bill, federal
means-tested welfare spending will explode upward by more than 20%,
rising from $491 billion in fiscal 2008, to $601 billion in fiscal
2009. This one-year explosion in welfare spending is, by far, the
largest in U.S. history. But spending will continue to rise even
further in future years. The stimulus bill is a welfare spendathon,
a massive down payment on Obama's promise to "spread the
While $264 billion in new welfare spending may seem like a lot,
it is only the tip of the iceberg. If the stimulus bill is enacted,
the real long-term increase will be far higher. This is because the
stimulus bill pretends that most of its welfare benefit increases
will lapse after two years. In fact, both Congress and President
Obama intend for most of these increases to become permanent. The
claim that Congress is temporarily increasing welfare spending for
Keynesian purposes (to spark the economy by boosting consumer
spending) is a red herring. The real goal is a permanent expansion
of the welfare system.
The House and Senate bills contain a half-dozen or more new
welfare entitlements or expansions to benefits in existing
programs. The pretense that these welfare expansions will lapse
after two years is a political gimmick designed to hide their true
cost from the taxpayer. If these welfare expansions are made
permanent -- as history indicates they will -- the welfare cost of
the stimulus will rise another $523 billion over ten years.
Once the hidden welfare spending in the bill is counted, the
total ten-year cost of welfare increases will not be $264 billion
but $787 billion. This new spending will amount to around $22,500
for every poor person in the U.S. The cost amounts, on average, to
over $10,000 for each family paying income tax in the U.S.
The overall ten year fiscal burden of the bill (added to the
national debt) will not be $814 billion but $1.34 trillion. To this
must be added the interest on the debt issued to finance this
$127,000 Cost per Household
Even without the stimulus bill, means-tested welfare spending in
the U.S. is already at an historic high and growing rapidly. In
2008, federal, state, and local means-tested spending hit $679
billion per year. This vast outlay was the result of a fairly
steady growth in welfare spending over the last two decades, and is
not a temporary surge due to the recession. Without any legislative
expansions, given historic rates of growth in welfare programs,
federal, state, and local means-tested welfare spending over the
next decade will total $8.97 trillion. The House stimulus bill will
add another $787 billion to this total, yielding a ten-year total
of $9.8 trillion. The total ten-year cost of means-tested welfare
will amount to $127,000 for each household paying federal income
Both the Senate and House stimulus bills are Trojan horses that
deliberately employ hysteria about the current recession to conceal
a permanent revolution in the U.S. welfare system. The fact that
the stimulus proponents seek to conceal the bill's massive
permanent changes in welfare is a clear indication that they
understand how unpopular these changes would be if the public
became aware of them. Far from an exercise in "unprecedented
transparency," as President Obama claims, the stimulus bills are an
example of unprecedented deception.
Robert Rector is Senior Research Fellow in
the Domestic Policy Studies Department and Katherine Bradley is a
Research Fellow in the DeVos Center for Religion and Civil Society,
at The Heritage Foundation.
First appeared in Human Events
Welfare reform in the mid-1990s was a major public policy success leading to a dramatic reduction in welfare dependency and child poverty. Little-noted provisions in the House and Senate stimulus bills actually abolish this historic reform.
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