using the crisis to spread the wealth. [rquoter]Stimulus Bill Abolishes Welfare Reform and Adds New Welfare Spending by Robert E. Rector and Katherine Bradley A major public policy success, welfare reform in the mid-1990s led to a dramatic reduction in welfare dependency and child poverty. This successful reform, however is now in jeopardy: Little-noted provisions in the U.S. House of Representatives and U.S. Senate stimulus bills actually abolish this historic reform. In addition, the stimulus bills will add nearly $800 billion in new means-tested welfare spending over the next decade. This new spending amounts to around $22,500 for every poor person in the U.S. The cost of the new welfare spending amounts, on average, to over $10,000 for each family paying income tax. Ending Welfare Reform The welfare reform of 1996 replaced the old Aid to Families with Dependent Children (AFDC) with a new program named Temporary Assistance to Needy Families (TANF). The key to welfare reform's reduction in dependency was the change in the funding structure of AFDC.[1] Under the old AFDC program, states were given more federal funds if their welfare caseloads were increased, and funds were cut whenever the state caseload fell. This structure created a strong incentive for states to swell the welfare rolls. Prior to reform, one child in seven was receiving AFDC benefits. When welfare reform replaced the old AFDC system with TANF, this perverse financial incentive to increase dependence was eliminated. Each state was given a flat funding level that did not vary whether the state increased or decreased its caseload. In addition, states were given the goal of reducing welfare dependence (or at least of requiring welfare recipients to prepare for employment). The House and Senate stimulus bills will overturn the fiscal foundation of welfare reform and restore an AFDC-style funding system. For the first time since 1996, the federal government would begin paying states bonuses to increase their welfare caseloads. Indeed, the new welfare system created by the stimulus bills is actually worse than the old AFDC program because it rewards the states more heavily to increase their caseloads. Under the stimulus bills, the federal government will pay 80 percent of cost for each new family that a state enrolls in welfare; this matching rate is far higher than it was under AFDC. It is clear that--in both the House and Senate stimulus bills--the original goal of helping families move to employment and self-sufficiency and off long-term dependence on government assistance has instead been replaced with the perverse incentive of adding more families to the welfare rolls. The House bill provides $4 billion per year to reward states to increase their TANF caseloads; the Senate bill follows the same policy but allocates less money. Unnecessary Changes Proponents of the stimulus plan might argue that these changes are necessary to help TANF weather the current recession. This is not true. Under existing TANF law, the federal government operates a TANF "contingency fund" with nearly $2 billion in funding that can be quickly funneled to states that have rising unemployment. It should be noted that the existing contingency fund ties increased financial support to states to the objective external factor of unemployment; it specifically avoids a policy of funding states for increased welfare caseloads, recognizing the perverse incentives this could entail. If the authors of the stimulus bills merely wanted to provide states with more TANF funds in the current recession, they could have increased funding in the existing contingency fund. But they deliberately did not do this. Instead, they completely overturned the fiscal and policy foundations of welfare reform.[2] Writing in Slate, liberal commentator Mickey Kaus criticizes the stimulus bill welfare provisions as a "liberal conspiracy to expand the welfare rolls."[3] He laments, "Why use the aid specifically to encourage expansion of welfare? … At the very least the extra aid to the states shouldn't be triggered by caseload expansion. (You could, for example, give states aid in proportion to their local unemployment rate.)"[4] These are reasonable suggestions; the authors of the stimulus bills pursued a different policy precisely because they wish to overturn welfare reform and increase dependence on government. Welfare Spendathon But overturning welfare reform is just the beginning. In his recent press conference, President Obama explained that the stimulus bill would provide "tax relief" and "direct investment" in infrastructure. He neglected to mention that of the $816 billion in new spending and tax cuts in the House stimulus bill--32 percent or $264 billion--is new means-tested welfare spending, providing cash, food, housing, and medical care to poor and low income Americans.[5] (The figure in the Senate bill is about 15 percent lower.) In the first year after enactment of the stimulus bill, federal welfare spending will explode upward by more than 20 percent, rising from $491 billion in FY 2008 to $601 billion in FY 2009. This one-year explosion in welfare spending would be, by far, the largest in U.S. history. But spending will continue to rise even further in future years. The stimulus bill is a welfare spendathon, a massive down payment on Obama's promise to "spread the wealth." Hidden Welfare Spending While $264 billion in new welfare spending may seem like a lot, it is only the tip of the iceberg. If the stimulus bill is enacted the real long-term increase will be far higher. This is because the stimulus bill pretends that most of its welfare benefit increases will lapse after two years. In fact, both Congress and President Obama intend for most of these increases to become permanent. The claim that Congress is temporarily increasing welfare spending for Keynesian purposes (to spark the economy by boosting consumer spending) is a red herring. The real goal is a permanent expansion of the welfare system. The House and Senate bills contain a half dozen or more new welfare entitlements or expansions to benefits in existing programs.[6] The pretense that these welfare expansions will lapse after two years is a political gimmick designed to hide their true cost from the taxpayer. If these welfare expansions are made permanent--as history indicates they will--the welfare cost of the stimulus will rise another $523 billion over 10 years.[7] Once the hidden welfare spending in the bill is counted, the total 10-year cost of welfare increases will not be $264 billion but $787 billion. This new spending will amount to around $22,500 for every poor person in the U.S. The cost amounts, on average, to over $10,000 for each family paying income tax in the U.S. The overall 10-year fiscal burden of the bill (added to the national debt) will not be $814 billion but $1.34 trillion. To this figure must be added the interest on the debt issues to finance this spending deluge. A Trojan Horse Both the Senate and House stimulus bills are Trojan horses that deliberately exploit anxiety about the current recession to conceal their destruction of the foundation of welfare reform and a massive expansion of the welfare system. Since its enactment in the mid-1990s, such reform has proven to be a very successful policy that dramatically reduced welfare dependency and child poverty. The fact that the stimulus proponents seek to conceal the bill's massive permanent changes in welfare is a clear indication that they understand how unpopular these changes would be if the public became aware of them. Far from an exercise in "unprecedented transparency"--as President Obama claims--the stimulus bills are an example of unprecedented deception. Robert Rector is Senior Research Fellow in the Domestic Policy Studies Department and Katherine Bradley is a Research Fellow in the DeVos Center for Religion and Civil Society, at The Heritage Foundation.[/rquoter]
Welfare increased during the New Deal as well. It was successful then, and we've seen the figures on much the economy benefits from such spending. It sounds great to me as a stimulus non-permanent measure. It's been shown to be an investment that pays off. Investing this kind of thing into the economy is exactly what we need.
I know this is a crazy theory, but in the middle of the worst financial crisis in 80 years, there may in fact be more families with dependent children 1) in need of aid and 2) more importantly from a stimulus perspective, willing to consume goods and services as a result.
Welfare reform just took away people's abilities to live on welfare for several years though. It also increased the demands on the recipient to work hours per week while receiving the assistance. I don't remember anything in the reform that decreased short term help right?
No it is not crazy. Welfare is one of the economic stabilizers that kicks in when the economy goes down. Antoehr problem is that in this recession there are fewer laid off people receiving unemployment benefits, than in the past with all the "contractors", part-timers etc than before.
[rquoter] "Dead Dogmas of the Past" The middle class is anxious, the rich are defensive, the poor are humiliated angry and suspicious. The national outlook is grim and the bulk of Americans are having to endure a period of contraction and anxious fear. But leaving out the anguish of the human toll of this vast economic failure, one of the most dismaying feature of the current discussion of our plight in the media is the ineradicable staleness of its terms – it is as though the crisis of the 1930s had not happened. For example, when Sen. Shelby came out a day ago and described govt intervention in the form of spending for relief as “socialism”, he sounded as if he had just stepped out of a time capsule – as if the operations of business, finance and the banks were spontaneous responses to free market stimuli, free of manipulation or corruption. One truly wonder what reality does this reflect except Sen. Shelby’s own? It appears to me that the Republicans appear to have found the only way to try and tarnish President Obama is to attack him in terms of the Calvin Coolidge Presidency. We are a civilization of business, Coolidge said and such a civilization must have a business government, he said. Such a government would run itself for the benefit of business, and it justified itself only to the extent that it did. In the 1920s, before the crash, there were many business spokesmen who claimed that business had purged itself of the gross and greedy aspects of its realm. The spur of profit was pure, an ennobling force, they said. This complacent conceit was not unusual to the community of business. The Republicans have always been full of flattering illusions about themselves. For decades, republicans have claimed that business was the noblest and most authentic expression of the American soul. Just before the First World War, JP Morgan was asked by a congressional committee whether commercial credit was not based primarily on property. Morgan replied, “The first thing is character.” Before money or property? “Before money or anything else,” said Morgan. In 1925, the Chamber of commerce of the United States called the American businessman, the most influential person in our nation.” Richard Whitney president of the New York Stock Exchange said the exchange was “one of the most perfect instruments created by man.” (Whitney would do five years in prison for fraud.) Yet at the time when it was exalting itself as the ultimate expression of man’s aspiring impulses, business in fact, was attempting to rig the operations of the free market in its favor in an effort to suppress competition and the actual operation of free and competing interests. The swindle began with sec of commerce Andrew Mellon’s incessant attempts to lower income taxes for the rich. Mellon himself Jerry-rigged a tax break for himself that gave him “a larger personal reduction than the aggregate of practically all the taxpayers of the State of Nebraska,” said George Norris, a congressman from that state. Mellon employed all sorts of methods of tax avoidance, including one still current – selling hundreds of millions of stock to a relative for a dollar and then buying it back later on. And let us not forget the “broker’s loan,” insiders getting money without adequate collateral, added to a wave of consolidation, of a complex and impenetrable web of holding companies and investment trusts that sought to ensure that profit earned by a business was siphoned off to its other such companies and kept out of the hands of stock holders. That was not all. Speculation ran wild. The banking system was a wreck, the corporate structure was tottering and about to fall, profits went to the richest portion of the country. The idea that the challenge of earning wealth might not consist of sitting back and growing fat on it but to distribute the gains of productivity in a manner that would maintain employment and prosperity sank out of sight The business community is more capable of self-insight now that it was then. When the country was afflicted with soup kitchens, breadlines, hours of waiting to eat a bowl of tasteless gruel without seasoning, the congress invited Walter S. Gifford, president of AT&T to testify. It was a truly memorable performance: he did not know how many people were unemployed, he did not know how many were receiving aid, he did not know what standards of assistance were in the various states, he knew nothing of the ability of local communities to raise relief, he did not know relief needs in rural or urban areas, he did not consider this information important to his job. When he said,”I hope you’re not criticizing me for looking at life optimistically,” a congressman asked him if he could supply the committee with the reports on which his optimism is based, he replied, “I have none, Senator.” Gifford, like today’s Republicans, did know one thing; Federal aid was sinister. “I think there is a grave danger in taking the determination of these things into the federal government,” said Gifford. He hadn’t bothered about such things, but somehow he knew that it would prove dangerous if the government did. And hence we got a flood of bigoted sewage from businessmen of the day who said that giving relief to common people so that they might eat would undermine the national character of self help and sturdy self reliance. It’s pathetic enough to bring tear to the eyes. The business community of the 1920s didn’t even pay attention to one of their own who was farsighted -- Henry Ford, whose grasp of essentials far exceeded theirs. Ford is not an entirely savory figure, he carried a gun, hated Jews and bankers, believed in reincarnation and personally spoke to God, believed that mass production was capable of anything and in his philosophy of business prized these things: the new objectives of business had to be high output, low prices, and high wages. Only if wages kept rising and only if prices fell could the business community command the buying power of the mass of people. Expand credit, Ford said, boost purchasing power at all hazards. The goal was to keep demand high. Ford was ignored, of course. The Republican dogma was to balance the budget, adhere to the gold standard, have a healthy foreign trade balance and to direct federal government to help to the poor was “meant to poison people’s minds” and rot the national character in all its soundness. It is not surprising that Coolidge, who had worked hard to weaken any regulation of business, would be Reagan’s favorite president. Reagan, like Coolidge, felt business represented what was most noble and energetic in America, and thus he dismantled or weakened any government controls over it. Thus, we had the wonderful era of junk bonds, billions of dollars of mergers and acquisitions financed by mountains of new debt which had the first claim on earnings, leveraged buy outs, the S&L crisis – the single worst financial scandal in U.S. history up to that time –worst in U.S. Treasury losses, worst in the number of institutions involved, worst in the sheer extent of sheer fraud that was involved except this time government aid was not despised, just as it wasn’t despised in the stock market crash of 1987 when a complicated jumble of financial structures used to finance profits by debt suddenly nose-dived on Oct. 19-20 when all trading in stocks came to a halt,, inflicting the largest stock market losses since 1929, the crisis ended only when the government did exactly what Reagan had mocked it for doing – it intervened. The Federal Reserve stepped in decisively to ensure there was plenty of liquidity. Now we are in the soup again, and once again government aid is being called “socialism.” It seems to me that once again we are witnessing a flood of corporate larceny, and it’s clear that, not only the Republicans but vast portions of the population have surrendered to lures of getting rich without spending any effort, rewards to come from an ever increasing series of credit mechanisms of tortured ingenuity. We saw in it in the 1920s, the 1990s, in 2001 and Silicon Valley, the advent of derivatives, which truly are sinister, and finally the collapse of the housing market, always touted as the one sure thing to bet on. It seems to me that the goal of any economic system is to produce and distribute sufficient goods and services and to distribute these in a way that allows a people, through work, to be able to live an ample and secure standard of life. Clearly, it is not simply greed, but grave structural flaws that lie at the basis of our crisis, and if the government is the most efficient agent to correct these then let the government do it. Instead we have let petty bickering over outworn principles, dogma so old that it has frayed to ribbons in our day, take over the debate which should be centering on tactics. It is time for all factions to do away with self righteousness, to rid themselves of whatever prompts them to belittle another while they blindly think well of itself. As John Kennedy said, We are all in this together an we will all rise or fall together.” With good wishes to all, Richard Sale [/rquoter]
