Poverty

See also: Poverty by U.S. Census Bureau

Living in poverty is living is uncertainty; one not knowing what will come of the days ahead. Will one have food to eat, a place to sleep, or clothes to wear? These are questions people living in poverty must ask themselves every day.
The United States government works diligently to reduce poverty.



Definition of Poverty

See also: Poverty on Wikipedia
Poverty is the shortage of common things such as food, clothing, shelter and safe drinking water, all of which determine our quality of life. It may also include the lack of access to opportunities such as education and employment which aid the escape from poverty and/or allow one to enjoy the respect of fellow citizens (Poverty).

Measurement

Poverty can be measured is two ways, relative and absolute poverty.
Relative poverty, also known as relative income inequality, is “the amount of income the poor have relative to the rich.”
Absolute poverty/absolute deprivation is “the amount of income the poor have relative to some measure of ‘minimally acceptable’ income” (Gruber 480-481).

United States’ federal government chose to use the absolute deprivation measurement of poverty, the poverty line. The poverty line was developed in 1964 by Molly Orshansky, a social Security Administrator, who wanted to compute a minimal living standard for the United States. According to the poverty line a person is considered poor if his or her income level falls below some minimum level necessary to meet basic needs. Poverty lines can vary in time and place, and each country uses lines which are appropriate for to its level of development.
Information on consumption and income is obtained through sample surveys, in which households are asked to answers questions on their spending habits and sources of income. These surveys are conducted more or less depending on the country and the willingness of families to participate. The participatory approaches illustrate:
· The nature of risk and vulnerability · How cultural factors and ethnicity interact and affect poverty · How social exclusion sets limits to people’s participation in development · How barriers to participation can be removed


Poverty is will be a problem until it is eliminated completely, but has made a big step towards achieving that goal. Poverty is gradually declining and affecting the lives of many by.
· Infant mortality rates have fallen from 87 per 1,000 births to 54.
· Life expectancy has risen from 60 to 66 in these countries with the highest poverty rate.
· Adult literacy has risen from 77% to 86% in males and 60% to 74% in females.
For these numbers to continue to improve and someday have a world without poverty we need to constantly research poverty by understanding were it begins.

Causes of Poverty

See also: Causes of Poverty by GDRC
The worst part about poverty is it can be a kind of downward spiraling cycle. One might be born into poverty, attend a bad school in a bad school district, and not have enough money to pay for college resulting in their own poverty cycle as an adult. Poverty is such a pressing issue because it is can be hard to go out of the rut once you are born into it.
Poverty is the result of many controllable and uncontrollable aspects. Poverty can be explained by the economic state. Most likely when a country is in a recession or depression the unemployment rate is up. Unemployment can be a major cause of poverty. When people get laid off and can’t find a job quick enough they can become homeless. According to the article, the only way to correct generic poverty is to create stable jobs and job markets. Poverty can also be explained by, among other aspects, discrimination. When dealing with poverty and discrimination most people think of feminization of poverty


Women in Poverty


See also:
Feminization of poverty at Wikipedia

The poverty rate for females has surpassed that of men in many cases. The United Nations Development Program stated in 1995 that 70 percent of the world’s poor are women. A 1992 report on developing countries found that poverty among rural women increased by almost 50 percent in the previous twenty years. According to V. M. Moghadam of
UNESCO, the main causes of this trend is: (1) the growth of single mother households, (2) inequalities and bias against women and girls, and (3) temporary structural adjustments and transition effects after socialist societies undergo free market reforms (Moghadam 2005).

Within the United States, the fact that the poverty rate for females surpassed that of men was first observed in the 1970s. Demographic factors such as changes in mortality and life expectancy, rates of marriage, rates divorce and separations, and out-of-wedlock births left women as the main caregiver for their children. Women generally received must less pay than men at that time as well (Moghadam 2005). Also, welfare programs such as Aid to Families with Dependent Children (AFDC) made it more feasible for women to stay at home to take care of their children rather than to work and have to pay for child care, their welfare benefits shrunk as they worked. Thus, those who were in poverty were oftentimes doomed to stay there due to this cycle (Gruber 495-496).

Between 1966 and 1986, women represented over 55 percent of families in poverty.(Moghadam 2005) This ratio stayed relatively constant in the 1970s, and it actually became more gender neutral in the early to mid 1980s (Fuchs 1986).

President Barack Obama kisses Henrietta Hughes, a homeless woman who had just appealed to him for help, on the cheek.
President Barack Obama kisses Henrietta Hughes, a homeless woman who had just appealed to him for help, on the cheek.

Redistribution & Pareto Efficiency

Redistribution is “the shifting of resources from some groups in society to others” (Gruber). This is often associated with a Robin Hood kind of idea, taking money from the rich and giving it to the poor to promote income equality.
Pareto Efficient is when you can successfully redistribute income and make one group happy without harming the other group. So long as it is efficient to redistribute and there is no net utility loss experienced by anyone it is Pareto efficient.


Consumption vs. Income

See also: You Are What You Spend from NY Times

The US poverty rate is inherently flawed because it measures the incorrect information. The poverty line is calculated based on a family's income reported on any given year’s tax returns, and then this number is compared to an inflation adjusted basket of goods from more than 40 years ago. This method fails on many levels, but most of all it does not determine if a family has the ability to consume at a level greater than subsistence.

In 2006 the top 20% of households reported an income of $149,963 on average while only consuming $69,863 worth of goods. However, the bottom 20% reported an income of $9,974 and consumed $18,153 of goods. How can this be? If we compare the incomes of the top and bottom 20%, we will see that there is a 15 to 1 ratio. If we choose to compare the actual consumption of these same two groups we will find a difference of 4 to 1. This is a significance difference.

If we take this a step further, let us examine the difference between the numbers of persons in each household. The average family in the top 20% of income earners contains 3.1 people. On the other hand, the families in the bottom 20% average only 1.7 people per household. Using consumption numbers we can now see the difference between the top and bottom quintiles is a 2 to 1 ratio. This is a far cry from the original numbers comparing the incomes of $149,963 per household to $9,974 per household.

Income statistics do not present an accurate measure of an American family’s “economic status.” Consumption information gives us a more direct picture of a household’s standard of living.




Welfare Policy in the United States


Methodologies

The United States possesses several welfare programs to help its needy citizens. The programs are commonly divided into four broad categories based on two different sorting methods. (Gruber, Chapter 17)

1) Categorical and Means-Tested Programs:
Categorical welfare programs restrict individuals by some demographic characteristic, such as single-motherhood or disability. On the contrary, a means-tested welfare is a type of welfare program that restricts individuals on the basis of things such as income, amount of total wealth, and so on.
2) Cash and In-Kind Programs:
Cash welfare programs provide cash benefits to their recipients. On the other hand, in-kind welfare programs deliver goods, such as medical care or public housing, rather than money. (Gruber, Chapter 17)




Major programs

The three major cash welfare programs in the United States are the 'Earned Income Tax Credit', 'Temporary Assistance for Needy Families', and 'Supplemental Security Income'.

The Earned Income Tax Credit (EITC) is the nation's single largest cash antipoverty program. According to Brookings Institute analyst Elizabeth Kneebone, it is also the most successful welfare program in America and keeps 4 million people out of poverty every year. The EITC is a refundable tax credit given to people who work but earn low incomes. The inherent idea of the EITC arose from the "negative income tax" advocated by Nobel Prize-winning economist Milton Friedman in his book Capitalism and Freedom. Congress enacted it in 1975 and handed over its management and administration to the Internal Revenue Service. Unlike many other government policies, the EITC receives very little press coverage and it possesses widespread support from Republicans and Democrats alike. Jeffrey Jones of the Hoover Institution, a conservative think tank, has called it "a federal anti-poverty program that actually works". President Ronald Reagan labeled it "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress." (Kneebone, 2009) (Jones, 2004) (Vance, 2004)



Graph Displayed in EITC Wikipedia Page
Graph Displayed in EITC Wikipedia Page

In 2007, it delivered about $45 billion in wage supplements with an average of about $1900 per recipient. It can add up to $4,000 per year in some circumstances and it can also be claimed going back three years. For example, a family earning less than $40,000 a year can obtain about $12,000. John Bryant, a member of the President Obama’s Advisory Council on Financial Literacy, has stated that that's "more money in many cases than they’ll ever see in their life... it’s transformational”. However, application rates vary significantly and only 25% of people eligible for it actually do apply in some areas.(Kneebone, 2009) (Salmon, 2009) As well, the EITC has a strong error rate, around 30 percent, that is significantly higher than other social welfare programs. Part of this comes from the fact that the program relies on people to report their own incomes rather than pre-screening individuals. Potential screening methods are deeply controversial. (Jones, 2004)


Growth of the EITC program as modeled by the Hoover Institution
Growth of the EITC program as modeled by the Hoover Institution

Temporary Assistance for Needy Familes (TANF) is jointly funded by the federal government and the states and it provides support to low-income families with children. It stated with the signing of The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996. For more information about PRWORA, see the later 'History of Welfare' section. The federal government gives states block grants, which allows them to specifically tailor the way in which they run their programs. They can use the money for in-kind benefits rather than cash assistance if they wish. Each state has a flat funding level that does not vary whether or not it increases its caseload. Given the overall flatness of the funding, TANF policymakers devised a "contingency fund" with nearly $2 billion in extra money to give to states during an economic recession. In the booming economy of the 1990s, this was not an issue. Recently, some critics have argued that, in times with serious recessions or depressions, this level of funding is not enough.(Rector, 2009) (Moffitt, 2001)


The number of recipients modeled by the Department of Health and Human Services
The number of recipients modeled by the Department of Health and Human Services

The federal government imposes both time limits and work requirements on TANF recipients. Participants cannot receive benefits for more than 60 months, five years, over the course of their lives. However, state governments can shorten this deadline or extend it in specific circumstances. For example, 20% of all caseloads in the nation are over the 60 month mark. Michigan has no time limit at all and Arizona has one for adults but not for children. The federal government also requires welfare recipients to work after receiving, at most, 24 months of TANF benefits, although states can choose shorter deadlines. Single mothers must work at least 30 hours per week, and nuclear families must work even more. (NCCP, 2007) (Moffitt, 2001)

States have the official goal of reducing welfare dependence, moving welfare recipients eventually to normal employment.
According to the National Center for Children in Poverty, eligibility limits and benefit levels vary widely among states, with one-third having an income limit of less than 50 percent of the federal poverty level while others give to people at 100 percent of the poverty line. A single-parent family of three can receive from $200 to around $1,000 per month.(NCCP, 2007) (Moffitt, 2001)

In 2006, 1 billion adults along with 3.2 billion children received TANF funds. Total spending added up to $9.9 billion.(NCCP, 2007) The Heritage Foundation, a conservative think tank, has argued that "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."(Rector, 2009) University of Massachusetts economist Nancy Folbre has argued in The New York Times that TANF "was premised on the assumption that single mothers would be able to find work if they just tried hard enough. That assumption no longer holds. (Folbre, 2009)

Supplemental Security Income (SSI) is a program that provides cash welfare to the aged (defined as people over 65), the blind, and the disabled who have low incomes.
President Richard Nixon signed it into law in 1972. Essentially, the job of SSI is to fill holes that are left by the incomplete nature of two of the major social insurance programs- Social Security and disability insurance. (SSA, 2007) (Sweeny, 2005)

According to The Center on Budget and Policy Priorities, a liberal think tank,
the average SSI benefit in 2003 given to a disabed recipipent was around $433 a month. As well, nearly 30 percent of all recipients had no other income besides it. The program is means tested so that people with assets of over $2,000 for an individual or over $3,000 for a couple are ineligible. However, essential things that one needs such as their car and their house are not included in this count. In December 2004, 1.98 million Americans total received SSI funds. (SSA, 2007) (Sweeny, 2005)



Where disabled-worker families in December 1998 got their income
Where disabled-worker families in December 1998 got their income



Problems associated with redistribution of income

How could the Government effectively transfer money from the rich (high income group) to the poor (low income group) with the minimun amount of waist? This process has been termed a "leaky bucket" by the economist Arthur Okun because carrying money from the rich to the poor, some of money leaks out along the way. The Government is faced with a moral hazard issue.

The 'iron triangle' problem

The iron triangle of cash welfare programs indicates that there is no way to reform a simple cash welfare program in order to simultaneously achieve the three goals of welfare programs. These goals include: (1) Encouraging work, (2) Redistributing income, and (3) Lowering costs. Government has only two tools to work with in order to make these alterations. It can change the level of benefit guarantee, and it can change the benefit reduction rate. There is no way to change these two parameters and meet all of these goals.(Gruber, Chapter 17, Page 494.)

For example, suppose the government lowers the benefit reduction rate for a given guarantee level. This would not encourage work or lower costs. Suppose the government reduces the guarantee for a given benefit reduction rate. This will encourage work and lower costs, but it will decrease the amount of income redistribution since the poor will receive less in a system with a lower guarantee. If the government raises the guarantee, this will increase income redistribution, but it will not encourage work or lower costs.(Gruber, Chapter 17, Page 494.)


Ordeal mechanisms

In order to solve the problem of welfare abuse, the government can use ordeal mechanisms that have features of welfare programs that make them unattractive, leading to the self-selection of only the most needy recipients. One example of an ordeal mechanism is the work or training requirements that are a feature of the TANF) program. Such requirements impose a cost on lazy individuals who are just using welfare as a means of increasing their leisure. For those who are using welfare because they simply can't make ends meet despite working hard, however, these requirements are not costly. Indeed, such low-ability individuals might welcome the training that is provided through such ordeal mechanisms.(Gruber, Chapter 17, Pages 497-498.)

In his book The Working Poor, David K. Shipler described the potential negative effects ordeal mechanisms can have on welfare recipients who are honestly trying to earn their keep and who are not trying to ‘play’ the system:

"The opening balance on [her food stamps] card was chipped away as Christie inched up in salary. It makes sense that the benefit is based on income: the less you need, the less you get. That’s the economic side. On the psychological side, however, it produces hellish experiences for the beneficiaries. Every three months Christie had to take half a day off from work (losing half a day’s wages) and carry an envelope full of pay stubs, utility bills, and rent receipts to be pawed over by her ill-tempered caseworker, who applied a state-mandated formula to figure her food stamp allotment and her children’s eligibility for health insurance. When Christie completed a training course and earned a raise of 10 cents an hour, her food stamps dropped by $10 a month... That left her $6 a month ahead, which was not nothing but felt like it. Many former welfare recipients who go to work just say good riddance to the bureaucracies that would provide food stamps, medical coverage, and housing. Some think wrongly that they’re no longer eligible once they’re off welfare; others would rather forfeit their rights than contend with the hassle and humiliation."

"Officials… design Kafkaesque labyrinths or paperwork that force a recipient of food stamps or Medicaid or welfare to keep elaborate files of documents and run time-consuming gauntlets of government offices while taking off from work…If you want a job, you need day care for your children, and if you can’t afford it, you have to get a day-care voucher, and if you want a voucher, you have to prove that you’re working. Getting a voucher involves multiple visits to multiple offices – during working hours, of course…Every demand for a document provides an opportunity for a cutoff…"
(Shipler, 2004)




The History of Welfare Systems in the United States (Prior to The Personal Responsibility and Work Opportunity Reconciliation Act of 1996) Welfare’s Beginnings
Welfare systems in the United States can be traced back to the American Colonies, who adopted an agenda similar to the British Poor Laws. These laws simply sent the poor to work, regardless of fairness or treatment of these individuals. Most were treated as slaves, and the problem of Welfare was not resolved in either Great Britain They proved to be a controversial and disliked system by many in the latter country, and reforms would eventually take place. These laws made a distinction between those who were unable to work due to their age or physical health and those who were able-bodied but unemployed. The former group was assisted with cash or alternative forms of help from the government. The latter group was given public service employment in workhouses.


U.S. Welfare Systems During the 19th Century

The British Poor Laws served as the framework of which many colonies and states would use up until the early 19th century, the point at which states began to assist counties and municipalities in helping the poor and underprivileged. Most states implemented help in four ways. The first way was to auction those people deemed “poor” to bidders who would use them for their own work interests. The second way was to contract the needy person or persons with a rich family to take care of them. The third way was to designate the individual to a workhouse, and the fourth system was to provide through cash or goods. In the middle 19th century, a similar but altogether different welfare Pension plan came into effect during the American Civil War. In 1862 Congress passed The Civil War Pension Program, which helped individuals and their families overcome economic hardships caused by the war. More specifically, it rewarded veterans of this war by guaranteeing disability and old age benefits. By the late 19th century, social work began to play into welfare. Deemed the Scientific Charity Reform Movement, it saw that caseworkers counseled the poor in the subjects of importance or and ethics of a working existence. Many supporters of this system opposed straight cash relief, and some even succeeded in stopping it for a time. The United States government also saw to poor and single mothers in the nation around this period. Between 1911 and 1921, 40 states had developed mother’s pensions in order to provide support for these women. During the early 20th century, worker’s compensation had developed as well.


Social Security, Social Welfare, and The New Deal
During the 1920’s, the United States citizens saw a huge rise in personal well-being, wealth, and health. Coined “The Roaring Twenties,” this era proved to be one of the most economically triumphant times in U.S. history. By the end of the decade, however, the country sank into the Great Depression. One-fourth of the labor force had become unemployed, and those working had a hard time making end’s meet for themselves. (Two-thirds of all families could be considered poor by today’s standards according to Encarta.) U.S. President Franklin Roosevelt realized a need for government to intervene in order to fix the suffering economy. Welfare would soon become a more organized system, with more federal government involvement. Roosevelt soon introduced his “New Deal” which would provide citizens with more opportunities for work and overall government aide. The New Deal included the Social Security Act of 1935, as well as various programs such as the Old-Age and Survivor’s Insurance, the Aid to Dependent Children, all which gave the respected parties aid in one way or another.


The Start of Social Security
In 1934, President Franklin D. Roosevelt created the Committee on Economic Security (CES). The CES was assigned the task of studying the need for an economic security system to provide income for the elderly and disabled. Care for those unable to work was traditionally provided by family members or, in limited cases, by the government. Roosevelt recognized the need for a national system. In January 1935, the CES issued a report to President Roosevelt outlining a plan for a national program of economic security. This plan ultimately became the Social Security Act (SSA), which was passed by Congress on August 14, 1935.

The SSA created a social insurance program covering a variety of individuals. The law provided a monthly benefit to individuals age 65 and older and no longer working. The monthly benefit was paid to the primary worker when he retired; the amount received was based on the individual’s payroll tax contributions. The SSA also provided unemployment insurance, aid to dependent children, and grants to states for medical care. The Social Security Board was established and charged with implementing a system to enroll employees, report earnings, and collect payroll tax contributions. Under the initial SSA, monthly benefits were to begin in 1942; from 1937 until 1942, Social Security would pay out a single lump sum to anyone retiring. This “payback” sum was given to those paying into Social Security but not having sufficient contributions to vest in monthly benefits.
On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54. Miss Fuller, a Legal Secretary, retired in November 1939. She started collecting benefits in January 1940 at age 65 and lived to be 100 years old, dying in 1975. She worked for three years under the Social Security program and paid a total of $24.75 into the program. During her life she collected $22,888.92.

Further Government Programs After the New Deal

Under President Franklin D. Roosevelt, the Social Security Act was enacted in 1935. The act, which was amended in 1939, established a number of programs designed to provide aid to various segments of the population. Unemployment compensation and AFDC (originally Aid to Dependent Children) are two of the programs that still exist today. However, The Aid to Families with Dependent Children program (AFDC), which was part of the New Deal, began to suffer criticism during the 1950’s. Many argued that the program had become more of a source of full time income from which whole generations of families could live off of without holding a job of any kind. During the 1950’s, and 60’s, government began to place restrictions on welfare. For example, the “Man in the House” Rule limited aid to those who had a male provider figure in many states, and several illegitimate children of Welfare recipients were denied aid due to large costs to the government. (These statutes were later repealed due to the Equal Rights Clause of the 14th Amendment to the U.S. Constitution.) During the Lyndon Johnson administration, the President announced his new plan to declare a “War on Poverty.” To fight this war, he created “The Great Society” in-kind programs, which included Medicaid, the Job Corps, food stamp programs, and Head Start. Johnson’s successor, Richard Nixon, tried to pass his Family Assistance Plan, which included work incentive pay for Welfare recipients, as well as direct monetary assistance. Also, all recipients (save for women with small children) were required to work. This program, however, was rejected. Nixon succeeded, however, in forcing all states to supply food stamps to the needy. He also increased aid for Supplemental Security Income, and tax credits for the working poor through the Earned Income Credit program. Ronald Reagan proved to be one of the most controversial U.S. Presidents as far as welfare and its reform. Reagan’s administration cut AFDC spending by the government and reduced many benefits of the working poor. Reagan did, however, help promote what would become the Family Support Act of 1988, a “work-to-welfare” program that helped train and educate those who needed it in order to work. This plan was seen as somewhat of a failure by the 1990’s, as many states could not afford this system and only 1 in 5 welfare recipients were in education or training in the program. Also, round this time, Welfare had around 75 means-tested-programs, and many felt that welfare was being relied upon too much for income, draining the economy. This would set the stage for the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.
http://en.wikipedia.org/wiki/Poor_Law- An Explanation of the British Poor Lawshttp:encarta.msn.com/encyclopedia_761575466_2/Welfare.html - MSN Encarta article on Early History of Welfarehttp:law.jrank.org/pages/11266/Welfare-BRIEF-HISTORY-WELFARE-REFORM.html - Article on the History of Welfare Reform.----REFORMING WELFARE


Personal Responsibility and Work Opportunity Reconciliation Act of 1996
Note: The PRWORA Act of 1996 is also referred to as "welfare reform". “One of the most important, if hardest to document, gains from taking families off welfare is their greater self-respect when they provide for themselves. Mothers on welfare convey the impression to their children that it is normal to live off government handouts. In such an environment, it is difficult for children to place a high value on doing well at school and preparing for work by seeking out training on jobs and in schools. “- Gary Becker


Beginning in the eighties and going on through the nineties the public’s opinion of welfare, following a general trend in politics, became more conservative. The Personal Responsibility and Work Opportunity Reconciliation Act, or PRWORA, of 1996 is arguably the most important change in the history of the American welfare system. Under the Act, long term guaranteed benefits have been eliminated and replaced with short term assistance programs to assist poor families when searching for work and each state has tailored these federal programs to meet the specific needs of their citizens. The goal of welfare reform was to end welfare dependence through the creation of efficient work incentives and provide states with sufficient power to accomplish this task, States shifted away from a welfare system based on entitlement, and towards one focused on finding employment and personal responsibility.


The number of families in need will usually rise in times of economic downturns. As a result, each episode of welfare collection is allowed to last up to two years with a lifetime collection limit totaling five years. This ordeal mechanism was put in place to make it difficult for those who are not in need to collect welfare and discourage fraud. It also encourages citizens to work when jobs are available so they have something to fall back on when times are not so good. Additionally, PRWORA affected the Food Stamp program. In spite of the decentralization of the welfare system the food stamp program has remained a federal responsibility, benefits were limited to three months every thirty-six months for every able-bodied adult without dependents, unless they are working. As a result of these changes there has been a significant reduction in caseloads. “Since passage of the Personal Responsibility and Work Opportunity Act of 1996, the number of people receiving federal cash welfare payments has dropped by roughly 58 percent. Moreover, that reduction in caseload has been accomplished without causing undue hardship for former welfare recipients.” ( New 2002)

Welfare reform has been a resounding success in inducing unmarried mothers to find jobs. This revolutionary approach to welfare is based on the appreciation that the vast majority of families do much better when treated as responsible adults and offered effective incentives to help themselves.” -Gary Becker


Key Changes resulting from PRWORA
• Replaced an entitlement program, Aid to Families with Dependent Children (AFDC), with Temporary Assistance to Needy Families (TANF, which is funded through block grants to states.
• Emphasizes moving from welfare to work by imposing a five-year lifetime limit on receipt of benefits.
• Replaced entitlement programs with federal block grants
• Shifted responsibility for welfare programs from federal to state government
• Emphasizes getting off welfare and back to work through time limits and work requirements
• Changed eligibility requirements of children
• Created stricter rules for new applicants and eligibility redetermination
•Encouraged states to enforce child support collections
•Restricted immigrants eligibility for welfare and other public benefits
• Denied illegal aliens most public benefits, except emergency medical situations
• Restricted most legal aliens from receiving food stamps and SSI benefits until theybecome citizens or work for at least ten years
• Restricted most new legal aliens from receiving federal cash assistance for five years but allows states the option of using state funds to provide cash assistance to non-qualifying aliens
• Limits receipt of benefits to three months in every three years by childless, able-bodiedadults age 18–50 unless working.


Welfare shifted from federal entitlement program to a state controlled one. States were given block grants enabling them to create their own plans and implement them. According to a University of Vermont article, the four underlying principles of welfare reform in this act were:1) Cumulative lifetime and employment time limits2) Increased child support enforcement,3) Reduction in teenage pregnancy4) Creation of work programs and supportive services(Innovations In Welfare Reform. Michelle Bellavance. May 1, 2000.)http://www.uvm.edu/~vlrs/doc/welfare_reform.htmFor a breakdown of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996please visit http://www.ncsl.org/statefed/hr3734.htm and http://www.uvm.edu/~vlrs/doc/welfare_reform.html


Major provisions of Welfare Reform
Cash welfare was changed from an entitlement, for which the federal government paid at least half of a state's benefits costs, to a block grant, where the federal government simply sent each state a check for a fixed amount to finance welfare programs. This change is equivalent to moving from retrospective to prospective federal reimbursement of states for welfare costs. # States were allowed, and encouraged, to experiment with alternative structures of welfare cash payments, such as reducing the benefit reduction rate or allowing women to keep more of the child support payments made by their children's fathers. # Time limits were imposed on welfare recipients. According to the class notes, welfare recipients were limited to receiving welfare benefits for a maximum of five years (or 60 months) and states had the right to make exceptions to 20% of the welfare amount and allow certain individuals to exceed the five-year time limit. These time limits did not exist before PRWORA. # Work requirements were imposed on welfare recipients. According to the class notes, able-bodied individuals were required to work in order to receive the welfare benefits. Work requirements were much weaker before PRWORA. # New efforts to limit unwed motherhood were introduced: teenagers who want to qualify for benefits must live with their parents and attend school; there is a 25% reduction in benefits for mothers who do not identify the paternity of their children; and states are allowed to impose a "family cap" whereby benefits don't increase as women have more children.(Public Finance & Public Policy, Jonathan Gruber. Second Edition. Chapter 17. Page 506.)

The United States welfare programs have a very controversial history. Although a lot of nations have welfare systems, the US has always been torn in deciding what exactly constitutes welfare and who should receive it. In recent years the term “fair” has also created a lot of controversy. In the late 1990s the United States welfare system underwent significant changes to reduce the number of people receiving some types of welfare in reaction to the political and economic changes that caused Americas to reexamine the purpose behind their welfare programs.


Significant Dates Regarding Welfare Reform
Ø August 22, 1996 - President Clinton signed into law the Personal Responsibility and Work Opportunity Reconciliation Act. Legal immigrants not enrolled as of this date are barred from the Food Stamp Program until they become citizens or are exempted based on work history
Ø November 14, 1996 - Louisiana becomes the first State to receive waivers from the new food stamp work requirements for able-bodied adults without dependents in areas with an unemployment rate greater than 10 percent or in areas where there are too few jobs to provide employment.
Ø March 1, 1997 - Under the Act’s able-bodied work provision, States can begin to terminate food stamp benefits for jobless adults age 18 to 50 who have used 3 months of benefits in a 3-year period.
Ø June 12, 1997 - The Murray/Gorton Amendment (P.L. 105-18) is signed into law. Under the amendment, USDA may grant approval for a State to issue food stamp benefits to people who would otherwise lose Federal Food Stamp Program benefits as a result of the noncitizen restrictions or able-bodied adult work requirements.
Ø July 1, 1997 - This is the deadline for States to submit to the U.S. Department of Health and Human Services their required plans outlining how they intend to conduct their TANF program. OnceStates submit their TANF plans, the work requirements and 5- year time limit begin.The Child and Adult Care Food Program’s two-tier reimbursement system becomes effective.
Ø August 5, 1997 - The 1997 Balanced Budget Reconciliation Act is enacted. As a result of a provision in the Act, States may exempt an additional15 percent of able-bodied adults with out dependents who are not otherwise exempt from the 3 months in 3 years time limit.
Ø August 22, 1997 - Ineligible legal immigrants are prohibited from participating in the Food Stamp Program.
Ø September 30, 2002 - The Food Stamp Program is reauthorized through this date.
Ø October 1, 2002 - All States are required to have implemented Electronic Benefit Transfer (EBT), unless granted a waiver by USDA.

Synopsis of the information about welfare reform from the U.S. Department of Transportation website:Transportation is one of the primary difficulties for people who are leaving welfare programs to work in regular jobs. This transportation barrier is adversely affecting low-income Americans who typically do not have reliable means of transportation services to get to their jobs. In an effort to reduce this transportation barrier, the U.S. Department of Health and Human Services (HHS) and Labor (DOL) are offering guidance to States that would define the specific resources that is necessary to provide the welfare recipients adequate transportation needs. This is a great example of the government trying to provide incentives to people to leave the welfare programs and be more productive with their lives. (United States Department of Transportation Federal Transit Administration. July 18, 2008. [[http://www.fta.gov/funding/grants/grants_financing_3715.html|http://www.fta.gov/funding/grants/grants_financing_3715.html)For more details read about welfare reform on the United States Department of Transportation Federal Transit Administration http://www.fta.dot.gov/funding/grants/grants_financing_3715.htmlRead about welfare reform on wikipedia article

Graph of market equilibrium and the effects the TANF program has on it.
Welfare_implications.jpg
Welfare Implications of TANF
Here in this graph we see market equilibrium at point X. When TANF is first introduced, me move from point X, to point Y on the graph. This is a drop in the supply in labor. At this point, a Dead weight loss of the area (X, Y, V) has been created. Once the benefits start to end or individuals go back to work, the market equilibrium moves to point Z with a dead weight loss area of the shaded grey triangle. As long as there are government benefits, the market equilibrium will be shifted left. When this model is applied to an example such as single mothers, we can see that this encourages mothers to stay home and collect benefits rather than seek jobs. An example of this choice to choose the benefits over employment can be seen below on the budget constraint graph.

Equity
TANF creates D.W.L., so why even keep the program if is more efficient for this program to not exist? The reason for having such programs is equity. Equity in this case is the belief in fair distribution of resources to people who are in need. Point X may be the social efficiency maximizing point, but not the social welfare maximizing point. A large portion of single mothers already live below the poverty line and cutting TANF benefits would hurt an already suffering portion of the population. A simple way to look at this is by numbers. If everyone else is earning $60,000 and single mothers are earning $15,000, cutting TANF benefits might boost everyone else's income to $60,300 with a gain of $300, while moving single mothers income down to $9,000 for a loss of $6,000. The loss is much greater to the single mother than is the gain to everyone else.

Example:
How to calculate and graph how much time someone can allocate between leisure and labor when receiving welfare:
Divide the amount of welfare the person would receive when not working by the amount their benefit would be reduced (If their benefits are reduced 20 cents for every dollar earned, then divide the dollar amount of benefits by 0.2). This dollar value is your vertical-intercept (y-axis) on your graph. Divide this value by the person's hourly wage-rate if they choose to work, and you will have the desired number of hours he/she should work.

This graph below illustrates the welfare problem, and how the changes made change work incentives.
$/hour = 7.00
hours/week = 100
Here is how to construct the graph:
  • Multiply the $ per hour by the hours per week
  • $7.00 x 100 hours = $700.00 place this number on the vertical axis as the highest possible income able to be reached.
  • 100 hours goes on the horizontal axis. Connect the two points to construct your budget constraint.
  • Receiving $140.00 in welfare when not working is shown by the red line. All time is spent on leisure and income is $140.00.

If working 30 hours per week:
  • $7.00 x 30 hours = 210.00 this is the blue line

To get hours worked:
  • 100 - 30 = 70
If benefits are reduced by .20 for each dollar earned:
  • $0.20 x 210.00 = $42.00 the reduction in welfare
  • $42.00 - $140.00 = $98.00 this is received in additon to her earnings
  • $98.00 + 210.00 = $308.00 this is the purple line.
The indifference curve 1 shows this is the optimum level of earnings and welfare.

bc1.jpg


Endnotes



Gruber, Jonathan. Public Finance and Public Policy. New York: Worth Publishers, 2007.

"Stimulus Bill Abolishes Welfare Reform and Adds New Welfare Spending". By Robert E. Rector and Katherine Bradley. Heritage Foundation. WebMemo #2287. February 11, 2009.

"Welfare for Bankers". By Nancy Folbre. The New York Times. April 20, 2009

"Temporary Assistance for Needy Families (TANF) Cash Assistance". National Center for Children in Poverty (NCCP). September 2007.

"The Temporary Assistance for Needy Families Program". By Robert A. Moffitt. NBER Conference. December 2001.

"SUPPLEMENTAL SECURITY INCOME: Supporting People with Disabilities and the Elderly Poor". By Eileen P. Sweeney and Shawn Fremstad. Center on Budget and Policy Priorities. August 17, 2005

"Supplemental Security Income (SSI)". United States Social Security Administration. SSA Publication No. 05-11000, June 2007, ICN 480200.

"Economic Recovery and the EITC: Expanding the Earned Income Tax Credit to Benefit Families and Places". By Elizabeth Kneebone. Brookings Institution. January 26, 2009.

"The problems of financial illiteracy". By Felix Salmon. Reuters Blogs. April 29th, 2009.

"The Mother of All Tax Credits". By Jeffrey M. Jones. Hoover Institution. Originally published at FoxNews.com on March 31, 2004

"Tax Credit or Income Transfer?" By Laurence M. Vance. LewRockwell.com Published April 14, 2004.


The Working Poor: Invisible in America. By David K. Shipler. Alfred A. Knopf. February 3, 2004. ISBN 978-0375408908

Fuchs, Victor R. "The Feminization of Poverty?" (May 1986). NBER Working Paper Series, Vol. w1934, 1986.

"The 'Feminization of Poverty' and Women's Human Rights". By Valentine M. Moghadam. SHS Papers in Women’s Studies/ Gender Research. July 2005.

“Guess What? Welfare Reform Works”, Gary S. Becker. Business Week. (Industrial/technology edition). New York: May 24, 1999. Vol. 3630, Iss. 270409104; pg. 18.)

“Welfare Reform Affects USDA’s Food-Assistance Programs”. Victor Oliveira

“Rural Dimensions of Welfare Reform” 2002W.E. Upjohn Institute for Employment Research

“As the Dust Settles: Welfare Reform and Rural America”, Leslie A. Whitener.

“Economic Research Service, U.S. Department of Agriculture”,
Bruce A. Weber.
Oregon State University and Rural Policy Research Institute //

“Complex Problems – Complex Data: Welfare Reform and the Survey
of Program Dynamics”, Peter Fronczek, Patricia Doyle, Robert Kominski, and Charles Nelson
United States Census Bureau


The Impact of Welfare Reform:Balancing Safety Nets and Behavior Modification, Christopher R Larrison PhD, Michael Sullivan PhD, 2005

Welfare Reform In America, Shenhar Venakhi.
Nova Science Publishers 1996


Welfare in America, Stanley W. Carelson-Thies. James W. Skillman.
Eerdmans Publishing Co. 1996


Welfare Reform and Political Theory, Lawrence M. Mead. Christopher Beem.
Russell Sage Foundation 2008


Welfare Reform and Beyond: The Future of the Safety Net, Ron Haskins.

The Brookings Institution 2002


http://www.ers.usda.gov/Emphases/rural/gallery/Food_Stamps_2005.gif



Poverty. Wikipedia. 8 May 2009. http://en.wikipedia.org/wiki/Poverty