A major public policy success, welfare reform in the mid-1990s
led to a dramatic reduction in welfare dependency and child
poverty. This successful reform, however is now in jeopardy:
Little-noted provisions in the U.S. House of Representatives and
U.S. 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.
Ending Welfare Reform
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). The key to welfare reform's
reduction in dependency was the change in the funding structure of
Under the old AFDC program, states were given more federal funds
if their welfare caseloads were increased, and funds were cut
whenever the state caseload fell. This structure created a strong
incentive for states to swell the welfare rolls. 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 would
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 percent of cost for each
new family that a state enrolls in welfare; this matching rate is
far higher than it was under AFDC.
It is clear that--in both the House and Senate stimulus
bills--the original goal of helping families move to employment and
self-sufficiency and off long-term dependence on government
assistance has instead been replaced with the perverse incentive of
adding more families to the welfare rolls. 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
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. It
should be noted that 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 entail.
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 percent or
$264 billion--is new means-tested welfare spending, providing cash,
food, housing, and medical care to poor and low income Americans. (The
figure in the Senate bill is about 15 percent lower.)
In the first year after enactment of the stimulus bill, federal
welfare spending will explode upward by more than 20 percent,
rising from $491 billion in FY 2008 to $601 billion in FY 2009.
This one-year explosion in welfare spending would be, 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
Hidden Welfare Spending
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 10 years.
Once the hidden welfare spending in the bill is counted, the
total 10-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 10-year fiscal burden of the bill (added to the
national debt) will not be $814 billion but $1.34 trillion. To this
figure must be added the interest on the debt issues to finance
this spending deluge.
A Trojan Horse
Both the Senate and House stimulus bills are Trojan horses that
deliberately exploit anxiety about the current recession to conceal
their destruction of the foundation of welfare reform and a massive
expansion of the welfare system. Since its enactment in the
mid-1990s, such reform has proven to be a very successful policy
that dramatically reduced welfare dependency and child poverty. 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.
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 largely symbolic.
Under the bills, the new TANF funding structure
will ostensibly last only two years; in reality, the fundamental
changes to TANF provided in the bill are intended to be
Welfare programs are programs specifically
designed to aid poor and low income persons. Most are means-tested
aid programs giving 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. For example, food stamps and public housing are means-tested
(or limited to lower income persons) while Social Security and the
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 lower income persons. Federal Welfare spending also
includes targeted grants to schools with large numbers of poor
students. (This is a relatively small portion of overall federal
There are seven Welfare expansions in the House
Stimulus bill that will almost certainly become permanent if the
bill is enacted. These include expansions to food stamps, the EITC,
the refundable child credit, Medicaid eligibility standards, Pell
grants, and Title I education grants. The bill also creates a new
"Make Work Pay" refundable credit. The aggregate annual cost of
these Welfare expansions will be nearly $60 billion per year. The
Senate bill contains all of these programmatic Welfare increases
except the expansion of Medicaid eligibility.
Assumes a 4 percent annual increase in the
outlays of these provisions.