Wednesday August 21, 2013

Eighteen years ago, as Congress was passing its landmark Welfare to Work statute, the libertarian Cato Institute published an influential economic analysis of welfare benefits versus work. This month, it published an updated version of that study, "The Work versus Welfare Tradeoff 2013" (available at www.cato.org). Vermont didn't come off very well.

Before looking at the findings, it's appropriate to recall that it's difficult to make exact cross-state comparisons of "welfare benefits". That's because there are dozens of means-tested Federal and state welfare benefit programs, and there is no unequivocal way to compare all the combinations. Nonetheless, Cato made reasonable assumptions about the "welfare package" available to households in the fifty states, and it's not likely that any other methodology would produce significantly different results.

The welfare benefit package for the profiled family includes Temporary Assistance for Needy Families (TANF, welfare), Supplemental Nutrition Assistance Program (SNAP, food stamps), Medicaid, Housing Assistance, Woman Infant and Children (WIC, nutrition), TEFAP (nutrition), and Utility Assistance (LIHEAP).

Here are the basic findings, drawn from government data sources.

Vermont ranks eighth in the country for the model benefit package: $28,338 in 1995, increased by dollar depreciation to $37,705 in 2013.


Advertisement

This increase of $9,367 was the largest among the fifty states. Vermont's current benefits carry a value equal to 193 percent of the Federal Poverty Level.

Vermont ranks eighth in pretax wage equivalent of the welfare benefit package, at $42,350. This number, representing what the household would have to earn to pay for the benefits after taxes, has increased by $10,770 since 1995, by far the largest increase of any state.

Vermont ranks eighth in the hourly wage a full time worker would have to earn to receive the after tax benefits: $20.36.

If only TANF, SNAP and Medicaid are computed, a full time worker would have to earn $8.13 an hour just to cover the value of those benefits. (The Vermont minimum wage is $8.60).

Vermont ranks twelfth in the level of Medicaid benefits provided. A private insurance policy offering equivalent coverage would cost $14,436 in Vermont (where state government has made health insurance premiums among the most expensive in the country.)

Vermont ranks second in the ratio of the pretax wage equivalent to the state median salary ($42,350 vs. $34,019): 124.5 percent.

Vermont's food stamp benefit level of $5,004 is, surprisingly, 49th in the country. This is because the Federal SNAP program takes into account Vermont's high TANF payments and adjusts its SNAP benefits downwards.

Vermont ranks third in the country for Utility Assistance ($900/year).

The fraction of Vermont TANF recipients who actually participate in "work activities" is 30.2 percent, compared to a national average of 41.6 percent. Vermont ranks 47th in "work activity" participation -- and "work activity" includes numerous escape hatches from actually working, such as training, education and "job readiness."

The Cato computation does not consider Federal disability programs such as SSDI and SSI, the most rapidly rising category of income transfer payments.

The Cato study concludes that "it is undeniable that for many recipients -- especially long-term dependents -- welfare pays more than the type of entry level job that a typical welfare recipient can expect to find. As long as this is true, many recipients are likely to choose welfare over work."

"This is unfortunate for taxpayers who must foot the bill for such programs, but even more so for the recipients themselves. By making a rational short-term choice, recipients who forgo work for welfare may trap themselves and their families in long-term dependence."

In a civilized society taxpayers must help take care of those who are unable to provide for themselves -- fair enough. Those who are able but not willing are another matter.

Vermont has become so generous with its means-tested public assistance programs that for thousands of people, there is a large temptation to game the system, draw all available benefits, and enjoy a life unburdened by gainful employment -- other than occasional transactions, licit and otherwise, performed off the books.

Programmatically, the solution is to increase the economic incentives for recipients to start working and hopefully climb up the income ladder; assure that recipients can acquire the skills and habits to become productive; expect recipients to take greater responsibility for their own behavior; and, more broadly, strengthen the institutions of civil society to include recipients within a cultural and social matrix that values work and respects everyone committed to pulling his or her own weight.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).