Monday, May 4, 2015

A Look at TANF and Whether the Government Should Be Providing Welfare

Living in poverty can be one of those soul-crushing conditions of life. Living paycheck to paycheck while struggling to provide the bare essentials for you and your family is a challenge. Within about the past century, government has inserted itself into an increasingly active role to alleviate poverty through the mechanism of providing various forms of welfare. In an American context, we really start to see this during the New Deal, and then see it stepped up a notch during Lyndon B. Johnson's War on Poverty. In 1996, America enacted a series of welfare reforms to help ultimately scale back on the aggrandized scope of government that evolved over the years. One such reform was Temporary Assistance for Needy Families (TANF).

TANF was created as a block grant to states in order to provide indigent families with time-based cash assistance. The reason TANF was created as temporary welfare was that the work requirements were meant to incentivize people to get off welfare and live more self-sufficient lives. I had to wonder about TANF's efficacy after reading a report from the Government Accountability Office (GAO) that was released last week about TANF and a Congressional Budget report from January 2015 that analyzed TANF. Some key findings from the GAO report:

  • Between 1997 and 2014, the number of families who received TANF funds decreased from 3.9 million families to 1.5 families (GAO, p. 2). 87 percent of the decline was attributed to a change in the eligibility requirements (p. 3). 
  • Only 66 percent of funds were directly used for providing cash assistance to low-income families. The remainder goes to other forms of aid, which is to say that TANF is a flexible funding stream for unintended uses (p. 3). The competing priorities put strain on TANF funds for their intended use (p. 10). 
  • Many states have reduced their caseload in order to meet their work participation rate. As a result, states have only engaged a third of work-eligible cash assistance families in work activities (p. 4-5). 
  • Using certain job readiness and training activities disincentivizes long-term employment (p. 11).
  • The lack of program evaluations limits the incentive to try new methods to improve upon the system (p. 11). 

These findings seem to support what the Left-leaning Center on Budget and Policy Priorities says about TANF, at least in part. CBPP put out a list of five TANF-related facts, one of which was few of TANF funds go to cash assistance for poor families. Their other gripe is that TANF has provided assistance to fewer and fewer families over time (see below), although I can assure CBPP that TANF was mostly responsive during the Great Recession.

While this claim is technically true (CBO, p. 8), it is misleading because it gives the misimpression that the government is doing less to help those in need, particularly since the Great Recession. If we want to answer the question of whether the government is doing enough, then we need to look at the question in the larger context of the welfare system as a whole. Most families on TANF receive other welfare benefits, including Medicaid, food stamps, and the earned income tax credit (CBO, p. 18; see below).

Libertarian think-tank Cato Institute published a study in August 2013 showing how the welfare system as a whole creates a disincentive to find work because the benefits are lavish enough. The fact that welfare benefits can pay more than minimum wage in 35 states, and can exceed a $15 per hour job is baffling, especially when considering that welfare benefits are tax-exempt.

I bring up the welfare system as a whole not only because we should look at TANF in a greater context, but also because it should give us serious doubts and reservations as to whether the government can tackle poverty without created serious unintended consequences. This criticism can easily be lobbed at TANF.

TANF was supposed to a poster child for welfare reform because it was supposed to combine both a short-term safety net and long-term employment prospectives. As Manhattan Institute scholar Diana Furchtgott-Roth brought up in her excellent study on welfare in America, even with statutory work requirements, 22 states had effective work requirements of zero (Furchtgott-Roth, p. 9). It's no wonder that HHS has had such a low success rate with keeping workers gainfully employed.

At the most, the government should provide a temporary safety net that provides cash assistance until families can get back on their feet so they can boost the worker-participation rate. Per the aforementioned CBO report, there are certain reforms we can implement in order to turn TANF into what it was intended to be back in 1996. We can change the amount we fund TANF (CBO, p. 25). We can link TANF funding to the unemployment rate and/or inflation, or find better ways to be more responsive to high bouts of unemployment to deal with counter-cyclical demand (ibid). There is the option of shortening the time limit for which one can receive TANF benefits since the average family stays on TANF for two years (Furchtgott-Roth, p. 9). With the effects that long-term welfare have on families and individuals, I would be in favor stricter limits of receiving assistance. Since workforce requirements were a important part of the 1996 welfare reform, we need to maintain stricter work requirements. Looking at TANF standards, community service programs, vocational education, and searching for a job count as work. These lax standards exacerbate the effects of the loopholes and exemptions that states use to maintain TANF work requirements.

The fact that TANF's efficacy is so far off from what it intended to do should make us all stop and think of whether government should be in charge of providing welfare to the people. While I think it would be great if we can reach a point at which private charity could replace the welfare system, I would settle for a TANF program that actually provides enough of an incentive to get families off of welfare sooner than later.

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