Welfare programs cost too much, foster dependency, and tear families apart. Consequently, they actually increase and perpetuate the very poverty which they are intended to remedy. What is required now is a sharp break from prevailing practices-a new philosophy of public assistance. This special report argues that Lansing lawmakers must restructure our state's welfare programs to provide incentives to keep families together and encourage people to work their way off welfare. The sixteen-point program for Michigan welfare reform, the first comprehensive proposal on the subject after the 1990 election, sparked a vigorous statewide debate. Dr. Gerald Miller, then director of the Michigan Department of Social Services, stated in June 1992, "Eleven of the Center's proposals were incorporated into Governor Engler's program." 7 pages.
On the subject of public welfare, a bipartisan consensus is emerging in state legislatures across America – a consensus about current policy, if not the details of a new one. The fact is that public welfare costs too much, fosters dependency, and tears families apart.
New Jersey State Assemblyman Wayne Bryant, who represents his state's poorest district, argues that "Welfare, as it is today, is a form of slavery."
Dissatisfaction with the welfare status quo was apparent at a well-attended legislative breakfast sponsored in Lansing by The Mackinac Center for Public Policy in late January. Legislators from both parties and every point on the ideological spectrum agreed that change of some sort is necessary.
One change that is occurring with increasing frequency in the states is outright reduction or elimination of certain benefits. Michigan's abandonment of General Assistance welfare last year is a case in point. At least a dozen other states have dramatically curtailed payouts in similar programs. New York Governor Mario Cuomo recently announced his goal of saving $1 billion in welfare costs. Over the last year, seven states have cut payments in the Aid to Families with Dependent Children (AFDC) program while nine more have tightened standards for eligibility. Real (afterinflation) benefit levels are falling in most of the remaining states.
New Jersey adopted a rule in January making it the first state in the nation (pending federal approval) to deny additional payments to welfare mothers who have more children. California's Governor is pushing an initiative that would copy the New Jersey rule plus cut AFDC checks by 10 percent and require teenage mothers to live with their families and stay in school to continue receiving benefits.
A pioneer in welfare reform is the state of Wisconsin. Innovative programs to remove the anti-work, anti-family, and anti-marriage biases in current policy are being watched and copied in several other states. Here in Michigan, the Wisconsin reforms may form the basis for the Engler administration's new approach to welfare, which reportedly is to be announced soon.
Changes in Michigan are long overdue. At the start of this decade, nearly one in eight Michiganians were receiving some form of public assistance. There is little evidence that the system has really "worked" and much evidence that unless new policies are adopted, the state may be "stuck" with this expensive problem for the forseeable future. The victims are not just working citizens but increasingly they are the recipients themselves.
In the past, stringent federal welfare rules hampered the freedom of states to innovate. In recent years, that policy has been relaxed by the granting of selective waivers and the Bush administration has announced its intention to make it even easier for states to secure permission to waive federal welfare rules in the future. A more flexible waiver policy is intended to encourage the states to experiment with their own welfare reforms and it appears that the states are eager to take up the challenge. The next several years are certain to produce 50 "mini-laboratories" of reform, and Michigan will hopefully become a leader in that national effort.
Hundreds of billions of dollars have been spent on public welfare and social service programs over the past 30 years. Michigan is consistently among the most generous states, andwill devote nearly 30 percent of its $21 billion gross budget to this area in 1992. [1]
Whereas once the welfare debate focused simply on the short-term "good" that assistance could accomplish for specific needy people, that debate has now matured as the facts and figures suggest that the long-term harm has been substantial. Below are two of the main problems that have contributed to the emerging consensus that changes are needed:
Welfare undermines the institution of marriage and hence, actually increases and perpetuates the very poverty it is intended to remedy.
Marriage and the marriage contract were once the pillars of strong family life in which the working husband was the typical breadwinner. Most people would acknowledge that anything which encourages divorce and discourages marriage, or prompts the father to leave the home and his responsibilities, would tend to exacerbate poverty. That's precisely what welfare programs have done, as evidenced by the fact that today, slightly more than half of all families below the poverty line are headed by females with no husband present.
High benefits are one cause of this problem. Dr. Robert Hutchens of Cornell University has shown that a 10 percent increase in AFDC benefits in a state will cause a decrease in the marriage rate of all single mothers in that state by 8 percent. [2] Significantly, Michigan's average monthly AFDC payment of $459 is exceeded by only one Great Lakes neighbor, Wisconsin, which pays $517. Ranking 14th in the nation, Michigan's generous payments are well above Illinois' $367, Ohio's $334, and Indiana's $288.
Public policy today has built-in financial incentives that induce low-income single individuals to have children out-of-wedlock and refrain from marrying or remarrying. Similar incentives also encourage existing families to break up. If a poor young couple have a child, welfare will step in to help mother and child. But if the two marry and the father goes to work, benefits are cut and the government starts to tax the father's earnings. In effect, the policy "informs" the single mother that she will continue receiving checks as long as she doesn't work and does not marry a male with a job.
Add to this the destructive "no-fault" divorce rule as it exists in Michigan and what results is a policy that "says" to poor people, "Don't work, don't marry, abandon your responsibilities, have children, leave the family, and get a check." In fact, the more one is "faithful" to these prescriptions, the bigger the check.
Overlooked in the welfare debate is the need to strengthen the role of churches and private charities. To the extent that government has become the provider and counselor to the welfare poor, we have lost the emphasis that these private groups used to place on moral values, parental responsibility, and the sanctity of the marriage contract. Public policy which encourages a restoration of the role these groups once played in American society would be a step in the right direction.
Clearly, the erosion of the family in Michigan and across America is exacting a horrendous toll on society, not just in terms of the costs and dehumanizing effects of public welfare, but also in terms of crime, substance abuse, child neglect, and a general collapse of values, the very glue that holds us together. Nothing could be more important for the long-term health, even survival, of American life than the strengthening of the family unit.
Welfare, rather than the temporary way-station to personal independence and self-reliance it was meant to be, has instead become a trap and a permanent lifestyle for too many people.
Dependency has a deeply demoralizing effect upon the psyche of almost everyone who falls victim to it. Figures from the Michigan Department of Social Services indicate that 40.4 percent of AFDC recipients are on assistance for between 6 and 10 years over a 10-year period.
The welfare system deliberately prevents its clients from earning a sufficient income while receiving benefits. When welfare recipients find work, they face not only the loss of their benefits, but the prospect of incurring work-related expenses and paying taxes as well. "In America today," says Secretary of the U.S. Department of Housing and Urban Development Jack Kemp, "a welfare mother has to earn $15,000 to $18,000 to bring home the equivalent of the average tax-free welfare payment." [3]
Minor incentives introduced when federal law was changed in 1988 simply haven't had much effect. The transition from dependency to employment is still a painful and costly one for welfare recipients, whose "marginal tax rate" for going to work can far exceed what the wealthiest American pays in taxes on the next dollar he earns.
Reducing benefits as one begins to earn an income by working has the effect of levying a tax on work. In that sense, the highest "tax" rates in America today are not paid by the rich, but by the welfare mother or unemployed father who wants to take a job.
Another way to think of this built-in disincentive is to consider the value of a minimum wage job vis-a-vis welfare benefits. A full-time minimum wage job today, though it may well represent an opportunity – a start up the economic ladder – nonetheless pays well under $10,000 and may not include any health benefits. The total value of all assistance that can accrue to a welfare recipient in Michigan is in the range of, on average, $14,000 per year. Assume for a moment that because of few skills, inexperience, or poor education, a minimum wage job happens to be the best the market offers a particular welfare recipient. Why should that person entertain that option for even a second? Staying on welfare pays more, even though doing so means the recipient may never get on even the bottom rung of the economic ladder of success and self-reliance.
On top of this work penalty, Michigan's overall tax and regulatory burden continues to close doors to the poor. The fourth highest property taxes in the nation have helped to put home ownership beyond the reach of many and have crushed the ability of would-be entrepreneurs to start new businesses. In Detroit, home to one of the most oppressive anti-enterprise climates of any major city in America, public policy seems almost intended to manufacture poverty. Part of the solution to the welfare mess has to be the kind of new directions represented by cuts in public spending and taxes, privatization, deregulation, and the removal of barriers to work, incentive and private property.
Additionally, the government monopoly school system is perpetuating poverty in our inner cities. A shoddy education in a violent environment is no way for the poor to escape their plight. Measures to improve education are vitally necessary, and all the evidence here suggests that more money isn't the answer, and that things like choice, competition, accountability, and access to private schools are key pans of the answer.
Policies which strengthen the family and create incentives for getting off welfare will in the long-run prove beneficial to the individuals who need help and the taxpayers who are picking up the tab. Michigan must act now to put such policies into effect.
The past quarter-century of social engineering has been dominated by the "no questions asked" philosophy, in which public aid is given to all qualified individuals, regardless of whether recipients are making real efforts to improve their own fiscal and social condition. What is required now is a sharp break with prevailing practices – a new philosophy of public assistance. It is important that policy makers in Lansing recognize that to be effective, public assistance programs should require that society's obligation to the poor be matched by the poor's sense of obligation to society.
Wisconsin's welfare reforms deserve close attention because they are an attempt to implement this kind of thinking. Foremost among the Wisconsin initiatives is the "Learnfare" program.
For rich and poor alike, education is the key to long-run economic success. Launched in 1987, Learnfare ties the receipt of welfare benefits to a welfare family's success in keeping their children in school. In effect, it rewards families who seize the best way to escape the cycle of welfare dependency – education.
Learnfare requires all teenagers on AFDC who have not graduated from high school or earned a high school equivalency diploma to attend school regularly. A series of sanctions are designed to encourage school attendance:
If a teenager has been a dropout, has ten or more unexcused absences during a semester, or is unable to verify attendance in the previous school semester, that teen is subject to a monthly attendance requirement.
If a teen with a monthly attendance requirement has three or more full days of unexcused absences during a calendar month, AFDC benefits are reduced for one month. Dropouts are simply removed from the AFDC grant until they return to school and meet the monthly attendance requirements for one month.
Learnfare is a law with sharp teeth: under the plan, a welfare family with a habitually truant teenager loses $77 per month – about 15 percent of its grant. Teenage mothers must return to school or forfeit $200 a month – 45 percent of their grant. [4]
The program recognizes, however, that many teenagers have legitimate reasons for not attending school and it includes "good cause" reasons for non-attendance.
AFDC heads of households are notified in advance as to the reasons for any potential benefit reduction, and informed about their right to, and the process for, a fair hearing. An AFDC recipient can ask for a fair hearing within 45 days of the effective date of the agency action.
The Wisconsin plan is not without its problems. Alternative schools, where counseling and peer support often succeed at keeping former dropouts enrolled, are in short supply. The sanctioning process is so complicated, and school attendance records are so spotty, that payment mistakes are frequent. More importantly, the soundness of a policy that assumes welfare families can influence their children's behavior has been questioned by critics and supporters alike. As Jerome Brandl, principal of Milwaukee's Washington High School, said, "If he didn't listen to you before, he's probably not going to listen to you because of $100 either." [5] To get around this problem, states could adopt a Learnfare program that applies only to parents of children under age 10 (who are usually more "manageable" by parents than are teenagers) and to teenagers who are parents themselves.
Learnfare's critics also have questioned the wisdom of penalizing an entire welfare family for the failure of a child to attend school. According to Wisconsin Governor Thompson, however:
My answer is that it is the parents' responsibility to get Johnny and Suzie to school, and that they should lose some of their benefits if they don't live up to their obligation. I call the policy "tough love," and it works. The parents feel more responsible and accountable. More of the children stay in school. Hopefully, they willget a high school or vocational education, and then go on to further their training at the university or on the job. [6]
Wisconsin is also home to the most ambitious state initiative for addressing the problem of teenage pregnancy. Adopted in 1991, Wisconsin's Parental and Family Responsibility Initiative is a welfare plan that encourages marriage, responsible parenting, and keeping the nuclear family intact. It is based on the following goals and incentives:
Remove disincentives for young low-income parents to marry. The Wisconsin plan makes young couples with no work experience eligible for AFDC, job training, and day care – the same benefits currently available to single parents.
Promote schooling, work and self-sufficiency. Newly eligible two-parent families will be subject to Learnfare requirements if the mother or father has not completed high school, and will be required to participate in mandatory job training programs.
Reduce teenage pregnancies. Currently, AFDC grants increase with the size of the family, in effect "rewarding" new births. The new initiative limits the size of the supplemental AFDC grant when a second baby is born, and does not increase the grant if additional children are born. In addition, minor mothers would be required to live at home rather than set up their own apartment, which often leads to long-term welfare dependency.
Strengthen child support collection. Counties are encouraged to expedite parental establishment for all AFDC applicants. A $300 bonus is to be paid to counties for paternities established within one year for babies born to women under 20 years of age, who are the target group for this initiative.
Certainly, each and every plank of this new attempt at reform has its critics, but the failure of existing programs may be the best argument yet for giving them a try. Michigan ought to keep an eye on Wisconsin and begin implementing some of our neighboring state's good ideas right now.
Welfare reformers in Michigan should learn from the mistakes of past policies, borrow the best of the good ideas from other states, and implement additional changes tailored to this state's particular fiscal needs and social problems. The Mackinac Center for Public Policy recommends the following:
Cut AFDC payouts by 5 percent, beginning October 1, 1992, to be followed by a further 10 percent a year later, and then a freeze at that level. That would reduce the average monthly per family payment first to $436 and then to $393. At that level, Michigan would still rank well above levels in neighboring Illinois, Ohio, and Indiana.
Place a time limit on continuous AFDC grants. DSS figures showing that about 40 percent of AFDC recipients are on assistance for 6 years or more are unacceptable. A limit of 5 years (60 months) over any 8-year (96-month) period would be a good way to start moving away from welfare as a permanent lifestyle for otherwise able-bodied adults.
Simultaneously, cap welfare benefits for people who move to Michigan to the level of benefits in their state of origin for a period of no less than one year. This would have the obvious effect of reducing or eliminating whatever incentive people now see in moving to Michigan because of our state's relatively high benefit levels. This is likely to be challenged on constitutional grounds, but the complexion of today's Supreme Court suggests it might ultimately be upheld.
Institute a Michigan "Learnfare" program. Wisconsin's program should serve as the pattern here, though we advise that a Michigan plan apply only to parents of children under 10 years of age and to teenagers receiving AFDC themselves. Broadening it to include all children could come at a later date, if the enforcement problems are worked out and if the paperwork can be effectively minimized.
Create new incentives for charitable giving to private groups, including churches, which have their own programs to assist people in getting off public welfare. These incentives could be in the form of tax credits, or a policy of publicly spotlighting particularly effective private programs, or both. Michigan should seek the widest possible latitude from the federal government to permit more experimentation with the privatization of social services.
Specifically, we propose pilot programs be established in selected counties around Michigan in which churches, religious organizations and other groups would be authorized to provide family mentoring and training in job-seeking and job-holding skills. New applicants for AFDC would be offered the opportunity to select this alternative plan with the expressed goal of moving clients off welfare altogether and into independence in as short a period of time as possible. Individual clients would be allowed to choose which church or other organization he/she would like to work with. Or the client could simply choose to go with the "regular" AFDC program. Funding for these private programs could be totally private if donors would receive a substantial state tax credit for donations.
Curtail additional AFDC benefits to welfare mothers who choose to have more children. This move would send a clear signal that welfare recipients must become more responsible for their sexual behavior. The additional benefit provided when a second child is born into welfare should be reduced from present levels, and no additional benefit should be provided at all for having three or more children on welfare.
Reform divorce laws to discourage divorce. As things stand now, it is easier to dispatch an unwanted spouse than it is to fire an unwanted employee in Michigan. "No-fault" divorce has accomplished little beyond creating more poor, single-parent, female-headed households. The marriage contract, as any other contract, must be respected and enforced so that those who wish to breach it will know that it is a costly endeavor.
Reform paternity laws. New technology makes paternity establishment much easier than was the case even a decade or two ago. However, the mother's cooperation is still needed in establishing paternity. Tougher sanctions, including reduction or even elimination of welfare benefits, should be imposed on women who refuse to cooperate in establishing the paternity of the child they would like taxpayers to support.
The state should also consider measures to tighten up child support collection as Wisconsin has, and increasing the penalties for abandonment of parental responsibilities to children.
Improve and increase the privatization of child and family services. Michigan has a long history of successful private-public cooperation in this area, with a substantial network of private child and family service agencies. These agencies have proven that they can provide a wide array of services, especially to troubled children and families, with the sort of care and counseling often needed and at a cost that is well below what the DSS bureaucracy can do by itself. The state should aggressively seek ways to professionalize this relationship so that private groups are not subject to the arbitrary rules, unexpected changes in reimbursement procedures, and the absence of master contracts that have hampered the relationship in recent times. A more effective partnership with private agencies will help to hold families together and reduce the long-term welfare burden.
Require that minor mothers remain at home in order to receive benefits, except in those cases where abuse is present. Such a policy would clearly signal that parents and their unwed children who have children themselves owe some obligation to society, and not just the other way around. Responsibility for situations like this should not be entirely that of the taxpayer.
Tighten up work requirements for the able-bodied father in two-parent AFDC homes. Standards should be established and enforced which require fathers to actively seek job training, further education, and/or gainful employment. If nothing else, these men could serve as volunteers in programsadministered by community Voluntary Action Centers or United Way programs, as opposed to remaining idle at home or in the streets. The penalties for leaving the family to escape these rules should likewise be toughened.
Expand education and work requirements for all able-bodied adults on AFDC. As previously stated, all able-bodied adults on AFDC have an obligation to work towards self-sufficiency, and not to regard welfare as a permanent lifestyle. This can be achieved through education, job training, and actual work experience. Anyone who lacks skills or sufficient education should be expected to gain these things as a condition for public assistance.
Reduce the "work penalty" by enacting enhanced Earned Income Tax Credit plans. EITC serves as a wage supplement to parents trying to support families on low wage jobs and rewards self-sufficiency rather than dependence. Michigan legislators and the governor should support expansion of the federal EITC and enact a state counterpart as well.
Under the federal EITC, the maximum credit now is $1,192 for families with one child and $1,235 for larger families. EITC claimants are also eligible for a maximum credit of $357 if they have a child under one and another credit of up to $428 to cover out-of-pocket health costs.
The EITC benefits people who want to work without creating a bureaucracy and without adding burdens to employers. Six states (Iowa, Maryland, Minnesota, Rhode Island, Vermont, and Wisconsin) now offer their own EITC as a further work incentive, calculated as a percentage of the federal EITC. Michigan should do the same, as generously as the state's fiscal condition might permit.
Train AFDC adults to help other AFDC adults. For example, AFDC mothers can be trained to provide day-care services to other AFDC mothers who are participating in education, job training, jobs, or volunteer work.
Support the most promising educational reform – competition through choice. A 1991 Mackinac Center report, Educational Choice for Michigan, made plain the case for maximum parental choice in education, including a voucher plan that would involve private schools. Welfare and low-income people desperately need an education system that works, that gives them the opportunity to pull themselves up. No reform promises to accomplish that better than choice.
Continue to downsize state government, encourage privatization at all levels of the public sector, and unshackle the job-creating potential of free enterprise by cutting the tax and regulatory burdens in Michigan. The best "welfare" money can buy is a meaningful and productive job in the private sector. We cannot continue to strangle enterprise in Michigan and be surprised that welfare seems the only resort to so many people.
Governor Engler's '92-'93 Executive Budget puts Social Services at $6.244 billion, 29 percent of the gross budget of $21.191 billion. Social Services spending in the General Fund is pegged at $2.235 billion, 28 percent of the $7.928 billion General Fund budget.
Robert Rector and Mike McLaughlin, "A Conservative's Guide to State-Level Welfare Reform," to be published by The Heritage Foundation, Washington, D.C., in March 1992.
Jack Kemp, "Adopt a Strategy for Empowerment in the War on Poverty", Point of View, The Heritage Foundation, June 13, 1990.
Ronald Brownstein, "In Welfare Cases, States Impose Codes of Conduct," Albany Times Union, December 1, 1991.
Patricia Chargot, "Cut Class, Get a Smaller Check," State Legislature, October 1991.
Adam Myerson, "Land of Milk and Money: Governor Thompson's Wisconsin Showcase," Policy Review, Spring 1991.
This Special Report was prepared by the following co-authors:
Lawrence W. Reed, President The Mackinac Center for Public Policy, Midland, Michigan
Randall J. Hekman, Executive Director Michigan Family Forum Lansing, Michigan
Edwin S. Rubenstein, Adjunct Fellow The Empire Foundation Albany, New York
This report has been provided as a public service by The Mackinac Center for Public Policy to the Michigan Legislature and Governor's Office, to the Director of the Michigan Department of Social Services, and to print and broadcast media in Michigan. Nothing herein is intended as an endorsement of any party, candidate, or specific legislation.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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