Religion & Liberty Online

In Welfare Systems, Two Plus Two May No Longer Equal Four

“You are a slow learner, Winston.”
“How can I help it? How can I help but see what is in front of my eyes? Two and two are four.”
“Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.” – George Orwell, 1984

In a calculation that surely qualifies as “new math,” the government has created an equation in which $29,000 is equal to $69,000. Within the current welfare structure a single mother is better off making $29,000 per year in income and subsequent welfare benefits, than she is making $69,000 per year in income alone. This perverse incentive is what perpetuates the cycle of poverty and condemns impoverished moms to dependence on a paternalistic state. Social Security, Medicare, Medicaid, and SNAP (food stamps) are all larger than ever before with no subsequent reversal in the level or scope of poverty.

The “Welfare Cliff,” an economic model developed by Gary Alexander, the Secretary of Public Welfare in Pennsylvania, shows the amount of net income a person would need to receive in order to match their current net income plus welfare benefits. This is called a cliff, as there are drastic drop-offs in welfare benefits as one increases their income. In this graph, “the single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income & benefits of $57,045.” In fact, if a single mother were to raise her income from $29,000 to just $30,000, she would lose nearly $10,000 in welfare benefits per year.

The incentives provided under this system replace the desire for individual development with the maintenance of the status quo.  A single mother is highly unlikely to spend the time, effort, or capital in order to gain skills that result in receiving a lower disposable income.

The state forcing itself into a paternalistic role through welfare programs has an even greater negative effect than merely providing incentives that keep single moms in poverty. In fact, this system could explain why there are so many single moms in the first place. Michelle Castillo of CBS News states that, “By 30, two-thirds of women will have had a child out of wedlock.” When the state begins to replace the role of actual fathers, out of wedlock births are sure to increase. Who is hurt most by these out of wedlock births? It’s the children themselves. Children born in single mother households are more likely to drop out of school, do drugs, runaway, and have anger issues.

How do we fix the welfare system in order to remove perverse incentives that condemn the poor to the status quo? A great starting place would be to address this “welfare cliff” issue. Under any type of welfare system there are going to be disincentives to work, but the goal should be to reduce these incentives as much as possible. One way to accomplish that would be to structure a welfare system that functions through our current tax code. Milton Friedman called this approach the “Negative Income Tax.” Under this system instead of losing a significant portion of benefits at once due to an increase in income, a person would lose benefits slowly overtime until reaching a certain amount of income.

The second and most important issue that needs to be dealt with is the rise of out of wedlock births. While this not only condemns the vast majority of single mothers to poverty, it also statistically condemns the vast majority of their children to a life of poverty. The only way to reduce this trend and break the cycle of poverty is to reduce the role of the state, promoting “subsidiarity” in its place. That is, let those closest to the issue, such as churches and private charities, determine the needs in their community before the state becomes involved. Currently, we have a federal government that has largely crowded out private charities as Russell Roberts states:

…with the dramatic increase in public aid during the Great Depression, which began in late 1929, private charities were “crowded out.” They could no longer successfully compete for donations with a federal government that could compel “donations” via the tax system.

If government were to reduce its role – or at least slow the growth of programs – in the charity sector it would allow churches and private charities to fully assume the role that they were created for, that is to help those in their community. While some may argue that this may result in an overall smaller amount of money dedicated to the poor, any reduction would likely be offset with a more targeted set of benefits. Then, the benefits could be specifically designed to address the specific needs of the poor in a particular community, compared to the current top down approach where one size fits all. In addition, since needs will be taken care of on a level closer to where the poor live, there is less chance for fraud and abuse and there would no longer be a need for as large of a bureaucracy at the state or federal level.

Are we satisfied with our current welfare system that allocates a large amount of resources to projects that are seemingly unable to pull anyone out of poverty and that all too often actually force the poor into staying poor? I believe the majority would say no as the poverty rate has not declined since Lyndon B. Johnson started the war on poverty in the sixties. This means we need to move away from a government that engages in paternalistic giving, and move to a system of “subsidiarity,” one that highlights private charities as the primary source of welfare.