Welfare Costs – The Big Gorilla in Our National Budget

Everyone realizes that our country spends quite a bit of money on welfare programs.  Just how much money and how many programs exist?

Late last year, Jeff Sessions, a ranking member of the US Senate Budget Committee, requested that the Congressional Research Service (CRS) provide just that information to his committee.  The most recent year that the data was compiled was 2011.  What did they find?  The CRS identified 83 overlapping federal welfare programs that together represented the single largest budget item in 2011.  These expenditures exceeded what our government spent on Social Security, Medicare, or national defense.  The total amount spent by the federal and state governments exceeded $1.03 trillion, with the federal government providing $746  billion of that cost.  As a comparison, in 2011 the annual budget expenditure for Social Security was $725 billion, Medicare was $480 billion, and defense was $540 billion.

The exclusively federal share of spending on these federal programs is up 32 percent since 2008 and now comprises 21 percent of our federal outlays.

As a historical comparison, spending on the ten largest of the 83 programs (which account for the bulk of federal welfare spending) has doubled as a share of the federal budget over just the last 30 years.  In inflation-adjusted dollars, the amount expended on these 10 programs has increased by 378 percent over that time.

So how did our country get itself into this situation?

Welfare in the US actually began with the New Deal in the 1930s .  But that form of welfare was much different than today.  The government went above and beyond by creating agencies that created jobs for unemployed workers.  Read the previous post, “Working at Reducing Unemployment” for more specific information on these programs.

In 1940, the Aid to Families with Dependent Children (AFDC) was established.  FDR wanted this legislation to assist poverty-stricken families in which the woman was the head of the household.  The principle intent was because these women were widows.

The year 1964 will be remembered for Lyndon Johnson’s War on Poverty and for the Economic Opportunity Act that passed and was commonly known as the “Great Society.”  For the first time a person who was not elderly or disabled could receive need-based aid from the federal government.  This aid could include general welfare payments, health care through Medicaid, food stamps, special payments for pregnant women and young mothers, and federal and state housing benefits.  In 1968, 4.1% of families were headed by a woman receiving welfare assistance. By 1980, the percentage increased to 10%.  In 2008, 28.7 percent of households headed by single women were considered poor.

In my opinion, no other piece of legislation from this era had as much economic or societal impact on the US as LBJ’s “Great Society.”

The glut of baby boomers were coming of age and entering the workplace.  As a result, tax revenues increased.  Unemployment was low because of the Vietnam War.  I am sure that the view from the Washington puzzle palace could only be seen through rose-colored glasses.  Their thinking must have been that the time had arrived to become more socialistic by passing the Economic Opportunity Act.  An outsider not following closely what was going on in Washington would have been misled by the name.  It sounded like a “get to work” act, when it was exactly the opposite.  (As a note: in the following years, as LBJ made Saigon the 23rd largest American city by population, Social Security contributions were used to balance the budget for the first time.  More on that in the next post.)

The societal impact of this legislation proved to be devastating.  The family unit, as we knew it, was blown apart.  Divorce rates increased dramatically.  Today’s rate is approximately 50%.  The divorce rate before this legislation was less than 22%, but divorce rates are misleading.  You can only get divorced, if you were married first.  And that is where the rub becomes apparent.  Women began having children without ever having a husband for support.  And that is exactly where this legislation led the country.  In their infinite wisdom, our legislators sanctioned illegitimate births.  With more births, families received more welfare.

Bill Clinton attempted to revise the system with the passage of the “Personal Responsibility and Work Opportunity Reconciliation Act of 1996”.  This is the latest welfare reform legislation.  Before this act, welfare assistance was “once considered an open-ended right,” but welfare reform converted it into “a finite program built to provide short-term cash assistance and steer people quickly into jobs.”  Prior to this reform, states were given “limitless” money by the federal government, with funds increasing per family on welfare, under the 60-year-old AFDC program.  This gave states no incentive to direct welfare funds to the neediest recipients or to encourage individuals to go off welfare benefits, as the states lost federal money when someone left the system.  Talk about counterproductive!  Nationwide, one child in seven received AFDC funds, which mostly went to single mothers.

After these reforms, which Clinton said would “end welfare as we know it,” amounts from the federal government were now given out in a flat rate per state based on population.  Each state must meet certain criteria to ensure recipients are being encouraged to work themselves out of welfare.  The new program is called Temporary Assistance for Needy Families (TANF).  It encourages states to require some sort of employment search in exchange for providing funds to individuals, and it imposes a five-year lifetime limit on cash assistance.  The bill restricts welfare from most legal immigrants and increased financial assistance for child care.

Following these changes, millions of people left the welfare rolls, employment rose, and the child poverty rate was reduced.  A 2007 Congressional Budget Office study found that incomes in affected families rose by 35%.

So what happened?  Why are we facing the fiscal problems today when what appeared to be sensible welfare reform was instituted in 1996?

Let me provide a few more statistics based on a US Department of Health and Human Services report of October 15, 2012

Total number of Americans on welfare:                                        4,300,000

Percentage of US population on welfare                                       4.1%

Number of Americans on food stamps                                          46,700,000

Number of Americans on welfare over 5 years                              19.6% of all recipients

I am becoming confused.  Aren’t food stamps a form of welfare?  Assuming a US population of 330 million, my trusty slide rule tells me that  is 14.1% of the entire US population!  What about the 5 year limit for welfare recipients?  Almost 20 % of all people receiving benefits have exceeded the intended 5 year limit established with the 1996 welfare reform legislation.  Why isn’t that 20% number reduced to 0% after 5 years?

There are a number of reasons why the system is not working properly.  Do you remember who is administering the welfare programs?  The individual states manage their respective welfare programs with billions of dollars infused by the 83 federal programs.  A person on welfare today can make up to $1000 per month without loss of benefits.  Everyone would agree that a family would be hard pressed to survive on that amount of income.  In addition, each state establishes the amount of welfare received.  Now here are some further interesting and disturbing statistics.  As of today, the minimum wage established by the federal government is $7.25 per hour.  Did you know that 40 of the states pay welfare equivalent to an $8.00 per hour job?  Did you know that seven of the states pay welfare that is equivalent to a $12.00 per hour job?  The real shocker is that nine of our states pay welfare that exceeds the average salary of a teacher in the US!  The highest welfare-paying state, Hawaii, pays welfare at a rate equivalent to a $17.50 per hour job!

Now I am not totally heartless, just mostly heartless.  So before my liberal friends and relatives (yup, I am acquainted with a few) get their undies in a bunch, I realize that some people are not capable of supporting themselves.  These are the mentally handicapped, emotionally disturbed and physically impaired people. But I do believe when the five-year clock strikes twelve, it’s time for all capable people to get a job.  Period!  Many of those 83 federal programs are for job training, and job retraining.

I believe that welfare should be gauged on academic achievement.  Everyone in the US does have the right to twelve years of public education.  It is indeed criminal that a college-educated teacher makes less money than a high school drop-out who can live on welfare as a result of producing illegitimate children.  A friend of mine suggested that welfare payments should be paid dependent on school completed, ie; if you drop out after completing the 9th grade, which is 75% of your education, you should receive 75% of your welfare benefit.

This may be a little harsh, but where is the incentive to leave welfare when the benefits are larger than if the recipient were to get a job?  I would surmise that if you were to lose your benefits, you would find a job – just as what happened in 1996 when 60% of the welfare recipients left the welfare rolls.

As mentioned, aspects of the welfare system vary from state to state.  Michigan requires recipients to spend a month in a job search program before benefits can begin.  Saying that it is “unfair for Florida taxpayers to subsidize drug addiction”, Florida Governor Rick Scott signed the Welfare Drug-Screen Measure which requires welfare applicants to undergo drug screening.  The law went into effect on July 1, 2011.  It was later revoked by a Federal Judge.

All of us have been in the checkout lane of a grocery and observed someone using food stamps.  This does not bother me for a family in need, but I am infuriated when I see these stamps being used for cigarettes, dog food, or beer.  Even though these items may be excluded from the food stamp program; the high school cashier is placed in the position of the governing authority.

The abuse is widespread and costly.  These welfare abusers are “stealing” from the working taxpayers. If they attempted to take those items without paying, they would be in jail.  Abusing the food stamp program makes it legalized stealing.

Looking back, the US should not have implemented the “Great Society,” because it was everything but great in the long run.  People survived very nicely before the implementation of that program.  I was a teenager at the time, and I do not remember seeing any starving or dying people in the street.

Once intended as a temporary “band-aid” to help those during tough personal times or during recessions, these programs have become permanent entitlements.  They inhibit one’s personal growth in life and undermine a person’s own decisions, resulting in weakened family foundations.  These entitlements may have been created with good intentions to help those in need.  However, they have increased America’s need for more assistance and handouts.  As the saying goes, “The road to hell was paved with good intentions.”

26Feb13     Today it was announced that a grocer in the state of Illinois, bilked the food stamp program for $866,000.  He did this by paying food stamp recipients 50% of the face value of the food stamps in cash, and then reselling them for 90% face value.  The federal government should get out of the welfare business, and push it to the states.  You could then be assured that because the states would then be responsible without the big bucks of the federal government to back them, they would become more judicious administrators of the welfare programs in their respective states.  A quick way to reduce the federal budget by over $700 billion.

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