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July 25, 2014

America Has A Fever And The Only Cure Is…Welfare Reform?

“Reform conservatism” is all the rage in the GOP these days. From middle class plans in “Room to Grow” to anti-poverty reform ideas from Marco Rubio and Paul Ryan, many on the right are rushing to prove they can “govern” (you know, use the levers of big government not actually shrink the government).

Ryan unveiled his plan yesterday in a presentation at AEI. The centerpiece of his idea is “the opportunity grant”.

In participating states, the federal government would consolidate a number of means-tested programs into a new Opportunity Grant (OG) program. The largest contributions would come from SNAP, TANF, child-care, and housing-assistance programs, and the funding would be deficit-neutral relative to current law.

First of all, “deficit-neutral” means we’re not cutting any money or programs here, we just spending it differently.

So now that saving money is off the table, what’s so great about how this money will now be spent?

Participating states would have to offer at least one alternative benefit provider other than the state.

In the envisioned scenario providers would work with families to design a customized life plan to provide a structured roadmap out of poverty. When crafting a life plan, they would include, at a minimum:

• A contract outlining specific and measurable benchmarks for success

• A timeline for meeting these benchmarks

• Sanctions for breaking the terms of the contract

• Incentives for exceeding the terms of the contract

• Time limits for remaining on cash assistance


The OG program will also be more responsive to different needs. For example, it makes little sense to provide a household with a consistent stream of SNAP benefits when what the household may need most is reliable transportation to and from work. Giving providers this kind of flexibility will allow them to intervene early on with targeted benefits in cases where short-term assistance can prevent someone from falling into deeper poverty

Some of this is silly but all of it is unrelated to government as it actually works in the real world.

Does anyone think an army of federally subsidized state worker or charity based life coaches are going to effectively sit down with millions of people on public assistance to create a personal “roadmap out of poverty” complete with a timeline of milestones to be met? Is the problem of poverty (at least the deep inter-generational kind) that people don’t have a game plan? The real problems of poverty are often poor life choices, terrible luck in being born into some horrific circumstances, finding yourself locked not into an education system but a union pay and pension racket and on and on. No amount of positive affirmations and tricks from the Seven Habits of Highly Successful People are going to undo that.

And why will know this new and exciting approach is working better than the old way? We’ll do studies!

Similarly, states should rigorously test the results via randomized controlled trials when possible. The federal government should partner with states and contract with independent evaluators in order to find out what works. States must work with the third-party evaluator to evaluate any benefits or problems with a new program. With a number of different approaches, we can find how best to expand opportunity.

Although the state will help design the new assistance programs, the service provider must show results. To the extent that the state allows non-profits or for-profits to use new techniques, then they need to be held accountable. The state should work with evaluators to ensure that they can measure the performance of all service providers.

This is where Ryan’s faith in the nimbleness and accountability of government is naïve at best. We have studies that show two of the shining lights of the welfare state, Medicaid and Headstart, don’t deliver but they live on.. Forever. Promises that “it will be different this time!” ring hollow compared to decades of evidence.

Ryan also has a faith that government or its approved private sector charities will be responsive to individual needs is again counter to all experience.


Are there great private charities (who in fairness often receive public support) that do great work with individuals? Absolutely. Will that last when they are full on deputies of the state? I have…doubts. State and federal bureaucrats will partner with some great groups (and undoubtedly horrible ACORN like ones) and then take whatever good they do and ruin it. Federal bureaucrats will have to monitor and control how the states spend the money, state workers will then start to micro-manage and regulate the charities because everyone will be most interested in keeping the funding going, not helping people. Eventually we will see Veterans Affairs level of book cooking because that’s what government programs inevitably become. It is a blunt instrument that cannot possibly know what is in an individual’s best interest and will never have the flexibility to react at that level. It just doesn’t work that way. Never has, never will.

In addition to life coaching the Ryan plan will expand the Earned Income Tax Credit to childless workers. The idea behind this makes sense, payroll taxes hit low income workers hardest (since they usually pay little to no income tax). The EITC serves as an off-set to those taxes thus making work a more attractive option compared to staying unemployed and living off the combined income generated through welfare programs.

As a tax credit people get this money either against their income tax liability or if they don’t have an income tax bill, they get the value of the credit back in cash from the government. Here’s the problem…we’d be taking even more people off the tax rolls. As we learned in 2012 that’s a terrible message but it is a problem. Sure as conservatives we want people to pay as little in tax as possible and arguing for more people to pay more taxes, especially low income people, is…politically problematic. But we also realize there’s a moral hazard involved in removing around half the population from having a financial stake in federal budget decisions.

If you ask people, “Would you like more spending that you don’t have to pay for? “Yes, please” is a pretty easy and understandable response.

Now you may note that sending people checks out of the federal treasury will cost money and Ryan says this will be “deficit-neutral” so how are we making up for this new cash welfare spending?

To pay for an expanded EITC, this proposal would eliminate a number of ineffective programs, such as the Social Service Block Grant, the Fresh Fruits and Vegetables Program, the Economic Development Administration, and the Farmers’ Market Nutrition Program. It also would reduce fraud in the Additional Child Tax Credit by requiring the use of Social Security numbers.

Uh-huh. Because the track record of the federal government eliminating duplicative and ineffective programs is so good.

Ryan recognizes a number of real problems with existing welfare programs and his focus on the difference between long standing inter-generational and situational poverty (someone falling on hard times due to an event or unfortunate circumstance beyond their control) is most welcome. But his proposed solutions don’t address the fundamental issues that prevent government from being an effective tool in lifting people out of poverty. You’d think that after 50 years of government anti-poverty programs that have resulted in no change in the poverty rate we’d try something really radical, but you’d be wrong.

The EITC extension is an effort to increase the gap between the income generated by entry level/low skill jobs the poor are often qualified for and the income that can be generated by the basket of public sector benefits currently offered. That people react to incentives is not ground breaking news and trying to shift the incentives to work is a worthwhile goal. The problem is Democrats are going to win elections every now and then, mostly “now and always” in big, deep-blue state. They will constantly push to up the public assistance benefit package, which will force increases in “conservative” incentives to work (larger EITC). In the end, government will grow, spending will increase, and poverty will remain unchanged.

The reality is the best way to create a larger gulf between welfare and work is to decrease welfare benefits. Two problems with that…it’s politically untenable and can be hardest on innocent children who, because their parents are unable or unwilling to get work, could find themselves with even less than they already have.

This is where the new GOP emphasis on “anti-poverty” is worrisome. It ignores the one thing that will make a difference…a growing economy. Even if Ryan’s life coaching plan works perfectly and more people are made ready for jobs, what good it is in an economy that isn’t generating growth, jobs or increasing income for people already in the workforce?

On a side note, it’s interesting that Ryan wants to help people transition to work while simultaneously trying to increase competition for those jobs by supporting amnesty for millions of illegal aliens.

It made sense for conservatives to focus on poverty and welfare reform in the 80s and 90s. Not only had those programs grown bloated, ineffective and riddled with fraud, it was a real problem that in a time of great economic growth there were people who were trapped in government dependency. It was cruel to leave so many of our fellow citizens behind and locked in a cycle of poverty when they should be sharing in the bounty of prosperity, not as wards of the state, but as contributing fellow citizens.

Just because Mitt Romney was a terrible messenger for the idea that the best anti-poverty program is a job and that the government needs to stop hindering economic growth and job creation doesn’t mean it wasn’t true.

If the GOP decides to focus on “best practices” for welfare programs it will soon find itself facing the same problem Democrats have…government can’t redistribute wealth until someone in the private sector creates it.

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posted by DrewM. at 10:34 AM

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