How to improve the safety net by encouraging work

(Flickr / Wally Gobetz)

(Flickr / Wally Gobetz)

Politicians talk a lot about the “social safety net,” but how well does it help the poor? More importantly, how can we make it better? Those questions are the focus of a new report by Angela Rachidi, a research fellow in poverty studies at the American Enterprise Institute, a free market think tank.

The report, “The American Safety Net: A Primer on Welfare Programs for Low-Income Families,” offers a clear and thorough overview of the major U.S. welfare programs, as well as ways they might be improved. Over time, the social safety net has become increasingly complex, growing to at least 80 federal programs costing more than $700 billion a year.

According to the Congressional Budget Office, federal welfare spending has increased almost tenfold since the 1970s. And yet, Rachidi points out, eliminating poverty still seems to be far out of reach.

More than two-thirds of this antipoverty spending falls under five major programs: Medicaid, the Earned Income Tax Credit (EITC), the Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI) and the Temporary Assistance for Needy Families (TANF) program. Rachidi focuses her report specifically on TANF, SNAP, and the EITC because they each have problems that affect low-income, able-bodied families (SSI only gives assistance to those too disabled to work and much of Medicaid spending is on health insurance to both nonworking and working families, as well as seniors).

Measuring the effect these programs actually have is more difficult than you might imagine. Because of different standards in the way the poverty rate is calculated, some statistics fail to capture the true material hardship of many low-income individuals. Undoubtedly, the benefits from these programs have helped to reduce poverty for millions of people. But that’s not enough.

After all, the true goal of these programs is to help people help themselves, so that poverty is only a temporary stage of life rather than a lifelong condition. The results on this front are not encouraging.

“Labor force participation rates are at historic lows, and more than 60 percent of working-age people in poverty do not work at all,” Rachidi writes. “If helping people achieve self-sufficiency through work is to remain a key American value, reforms to our safety net programs aimed at work-able families are needed.”

Each program has its own benefits and shortcomings -— and with $160 billion spent on TANF, SNAP, and the EITC each year, it’s important to set high standards for effectiveness.

TANF, for example, has been an important program to support low-income families. Because of work requirements, it encourages self-sufficiency. But recently, some states have taken advantage of TANF’s block-grant structure (where the federal government gives a set amount of money to states and lets them determine how to spend it) and diverted money to causes that don’t align with the intent of the program.

Additionally, many of the metrics that the federal government requires to report on work participation does not adequately measure sustainable employment outcomes. That means it’s hard to tell when the program is successful.

“Helping more poor families work should be the ultimate goal for the new administration and Congress’ anti-poverty efforts,” Rachidi told Opportunity Lives.

SNAP, previously known as food stamps, plays a key role in improving nutrition for low-income families and eliminating child hunger. Even though the number of households receiving SNAP assistance grew 74 percent from 2007 to 2015 (largely because of state rules that allowed people to qualify for SNAP even if they had assets over the limit allowed by the program), the error rate, or percentage of benefits that go to ineligible households, is very low.

Lawmakers should still consider ways to improve work participation rates and nutrition for beneficiaries, Rachidi argues. Her paper recommends a pilot program that would let states experiment with ways to make the program even better.

The EITC especially helps single parents with children. Only people who work are eligible, and the benefit is distributed as a refundable tax credit. Fortunately, this means that the EITC has a powerful effect on increasing employment.

“It is better targeted to low-income families than the minimum wage (for example, the minimum wage applies to all workers even if they come from a family that is not poor, while the EITC goes only to low-income families), and it lifted more than six million people out of poverty in 2014,” Rachidi writes.

However, because the EITC is distributed through the tax system, it has several downsides. Because of the complexity of our tax laws, mistakes in tax filing cause a high rate of under-payments or over-payments. Additionally, the EITC is distributed as one lump-sum refund at tax time, rather than a periodic payment throughout the year. This creates some challenges for poor families who are trying to plan out their spending throughout the year.

Finally, politicians and experts on both sides of the aisle support expanding the EITC to make it more generous for childless workers and married couples — those who currently don’t benefit much from the EITC due to the rules of the program. With the right reforms, the EITC can be even more successful in its mission to support all low-income, working individuals and families.

“Work not only brings dignity and a sense of purpose to people, but it brings additional income,” Rachidi told Opportunity Lives. “When income from employment is combined with government supports, families are much better off than when not working at all.”

Published on Opportunity Lives