House Budget Committee Chairman Paul Ryan’s upcoming poverty plan will likely showcase the 1996 welfare law, which replaced Aid to Families with Dependent Children (AFDC) with Temporary Assistance for Needy Families (TANF) — a block grant with fixed federal funding but broad state flexibility — as a model for reforming other safety net programs. A careful examination of the record, however, indicates that the 1996 law’s results were mixed and that if the goal is to reduce poverty, especially among the most disadvantaged families and children, there are serious downsides to embracing the 1996 law as a model. The record shows:
- A booming economy contributed far more than welfare reform to the gains in single mothers’ employment in the 1990s, and many of those gains have since disappeared. A highly regarded study by University of Chicago economist Jeffrey Grogger found that welfare reform accounted for just 13 percent of the rise in employment among single mothers in the 1990s. The Earned Income Tax Credit (which policymakers expanded in 1990 and 1993) and the strong economy were bigger factors, accounting for 34 percent and 21 percent of the increase, respectively.While the booming economy helped many families move from welfare to work during the 1990s, the labor market situation is much weaker today. The share of single mothers without a high school degree with earnings rose from 49 percent to 64 percent between 1995 and 2000 but has since fallen or remained constant almost every year since then. At 55 percent, it’s now just slightly above its level in 1997, the first full year of welfare reform (see first graph).
- TANF provides a safety net for very few families and failed to respond to increased need during the Great Recession. The welfare law’s relatively modest contribution to raising employment among single mothers came at a substantial price. TANF now serves only 25 of every 100 families with children that live below the poverty line, down from AFDC’s 68 of every 100 such families before the welfare law (see second graph). The Great Recession provided the ultimate test of whether states could do better than the federal government in providing a safety net for poor families, as the welfare law’s proponents had claimed, and the results are very unsettling. As the number of unemployed Americans doubled in the downturn’s early years, TANF caseloads rose by just 13 percent nationally; in 22 states, the number of assisted families rose little or not at all. In the face of rising need, many states scaled back their TANF programs to save money — tightening time limits and cutting already low benefit levels despite the lack of available jobs — leaving the poorest families poorer. As a result, TANF emerged from the downturn an even weaker safety net.
- TANF does little to help recipients succeed in today’s labor market. Chairman Ryan has spoken of the importance of helping people get the skills they need to move out of poverty. Yet TANF’s extensive restrictions on what are considered acceptable work activities discourage states from providing TANF recipients with opportunities to increase their education and job skills. Restrictions on participation in vocational education and GED or high school completion programs leave many recipients unable to compete in today’s labor market. And although most states’ cash assistance caseloads fell substantially in the late 1990s, states generally haven’t used much of the freed-up resources to improve the job prospects of poor parents with barriers to employment. Only 8 percent of state and federal TANF dollars directly support work activities for cash assistance recipients. Even when you add in funds that support working families like child care assistance and the refundable part of state earned income tax credits, states spend only one-third of their federal and state TANF dollars to promote and support work.