When you hear the term “welfare state,” most people think of Europe and countries like Denmark or France. No doubt those countries offer a wide range of benefits targeted to the middle class, retirees, and so forth. But according to a new study released by the Cato Institute this week, someone who is poor might just be better off here in D.C.
The federal government currently funds more than 100 anti-poverty programs. While no one participates in all of them, many can and do collect assistance from multiple programs.
In D.C., a mother with two children under the age of five who participates in six major welfare programs — Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP or food stamps), housing assistance, home energy assistance, Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and free commodities) would receive a benefits package worth $34,963 per year.
Using a similar measure, Cato found that benefits in Europe ranged from $38,588 per year in Denmark to just $1,112 in Romania. In fact, the District’s welfare system can be more generous than every country included except Denmark. The benefits package is higher than in well known welfare states as France ($17,324), Germany ($23,257) and even Sweden ($22,111). Moreover, this benefit package doesn’t include Medicaid, which would be worth roughly $8,140 for this household, because Europe’s health care systems are not targeted to the poor, unlike Medicaid.
Of course, D.C. has the second highest benefit package in the United States, but overall the U.S. fits comfortably in the middle of the pack when it comes to providing for the poor.
One of the problems with these welfare systems is that they can create situations where participants have little incentive to increase work effort because they would lose most of their earnings through lower benefits or higher taxes, while also having to bear the costs associated with going to work like transportation: these people would see little tangible improvement in their standard of living by taking up a job, working more hours or moving up the job ladder.
People in these programs are not lazy, but they are also not stupid. Like everyone else, they respond to incentives. If welfare pays better than work, people on welfare will be less likely to work.
Indeed, economists often discuss the danger that high marginal tax rates can discourage economic activity. But some of the highest effective marginal tax rates in the world are for someone leaving welfare for work.
By creating such a big disincentive for work, our tangled, ineffective welfare system can harm the same low-income people it is supposed to help, in addition to the taxpayers who must fund nearly $1 trillion per year in anti-poverty spending. After all, the evidence strongly suggests that work, even in a low-paying entry level job, is an important route out of poverty: fewer than 3 percent of Americans who work full-time are poor.
Many EU countries have recognized some of these problems and begun to reform. For example, several countries have consolidated multiple programs in their patchwork welfare systems. Others have strengthened work requirements or established time limits for benefits. Still others have established or expanded work-based tax credits or transitional assistance to increase the value of work. In many cases, these reforms are tentative, but they are steps in the right direction.
In that sense, despite the conventional wisdom that welfare in Europe is more expansive and entrenched than in the United States, at least some of these countries are farther along than the United States in terms of recognizing some of these problems and taking steps to address them.
The District’s welfare system has a poor track record of helping people transition to work. It exempts able-bodied adults without dependents, who made up a 28 percent of participating households in 2013, from SNAP’s work requirements. Only 22 percent of applicable TANF participants fully participate in the work requirements. Long-term TANF participants have fared worse: an auditor’s investigation focusing on people who received benefits for over 60 months found that only 12 percent were able to maintain a job for six months.
In one glimmer of positive progress, the District was able to raise the number of participants who exited due to increased income from 1,058 in 2013 to 1,708 in 2014, but low work participation rates could limit further gains.