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Businessweek Archives

Reforming Welfare Can The System Be Salvaged?

Social Issues


Tom DeLay and Yasmeen Nixon don't exactly travel in the same Washington circles. DeLay, 47, is a fire-breathing conservative congressman from Houston. Yasmeen, 20, is a single mother in her junior year of high school, struggling to raise her two-year-old daughter, Rashima.

But on this, the middle-aged congressman and the young welfare mother can agree: The system that supplies Yasmeen with $330 a month in cash and $206 in food stamps is a mess. In DeLay's view, welfare is predicated on the "simple condition that recipients promise not to work and not to marry."

Exactly, says Yasmeen. When she took a government-subsidized, minimum-wage job last summer, she nearly went under. Her food-stamp allotment was cut to $143 a month, $700 of her wages was subtracted from subsequent cash stipends, and the payments were delayed by paperwork--all because she began working. She fell behind on the rent, and had her telephone and electricity cut off. The experience convinced Yasmeen that the odds are against her getting off welfare, even in a make-work job. "I'd like to go to work, but not for $330 a month," she says.

When people as different as Yasmeen Nixon and Tom DeLay agree that welfare is a self-defeating trap, can real reform be far behind? In Washington, the consensus that the 59-year-old system is broken runs from black conservatives to white liberals, from Democrats to Republicans. Beyond, states are jumping in. From Washington to Wisconsin, Maryland to Massachusetts, they're experimenting with alternatives. "Distrust and anger with the current system unite the entire country," says David T. Ellwood, one of the Administration's top reform architects at the Health & Human Services Dept.

To seize the opportunity, President Clinton is sending Congress a sweeping reform proposal that is intended to transform the government's welfare check-writing machine into a job-training and work-placement system. At the center of the reform is a two-year time limit on Aid to Families with Dependent Children (AFDC). Instead of languishing on the dole, nearly all welfare recipients would be moved from dependence to the workplace within two years. "We can't have fewer expectations of welfare mothers than women in the workforce," says Health & Human Services Secretary Donna E. Shalala. "Girls shouldn't think they don't need to get up and go to work in the morning."

But Clinton isn't the only one seeking to leverage the suddenly potent issue. House Republicans, led by DeLay, are pushing their own bill. Moderate Democrats have theirs. The Congressional Black Caucus is readying a set of "non-negotiable demands." And liberals are warning that by punishing welfare mothers, Clinton will just hurt children--who are two-thirds of the recipients.

The two competing bills already in Congress share specific solutions, such as providing job training and child care. The Republicans, though, favor a more punitive approach to moving mothers off the dole: imposing tougher sanctions on those who refuse education, job training, or job placement. But the big political clash will come over how to finance reform. "The dirty little secret of welfare reform is that politicians say they can save money, but that's baloney," says Larry Jackson, Virginia's Commissioner of Social Services.

But there are economic incentives for redesigning welfare. Too often, welfare wastes tax dollars on a system that does little more than maintain families at subsistence levels. The cost to business of such wasted potential is high, resulting in a dearth of qualified applicants for even low-skilled jobs such as running a cash register. Many employers find that they must train entry-level workers before acquiring even the rudimentary skills of the workplace. This is one area where the U.S. lags behind its major trading partners. "The bottom half of our workforce can't compete with the bottom half of theirs," laments Massachusetts Institute of Technology economist Lester C. Thurow.

Welfare dependency contributes to crime and illegitimacy as well. Welfare has become a sinkhole for young women, and, for men, a safety net that cares for the babies that they make but abandon with impunity. A shocking number of today's inner-city population is growing up without fathers, without their incomes, and without the stability of a two-parent family. Since 1960, the percentage of children living in single-parent homes has soared from 9% to 27%. Meanwhile, the number of children living in poverty has nearly doubled, to 22%. Most of this is attributable to an explosion of out-of-wedlock births.

"DESTRUCTIVE FORCE." The result is a downward economic spiral. Today, the chances of a child growing up to be dependent on welfare is four times greater if that child is born into welfare. "Welfare is a modern-day form of what I call slavery," says New Jersey lawmaker Wayne R. Bryant, a black Democrat from Camden who helped write that state's tough reform law. "It is a destructive force for low-income families."

Certainly, recipients aren't getting rich from the hodgepodge of programs that make up welfare--AFDC, Medicaid, food stamps, free school meals, housing subsidies, and utility assistance. Welfare benefits haven't even kept up with inflation (chart). And in no state does the maximum AFDC benefit raise a family of any size above the poverty line. AFDC spending has actually declined from 1.5% of the federal budget in 1975 to 1%.

Despite ambitious campaign promises, the current welfare system would not end abruptly under the Clinton plan. Rather, by 1996, adult recipients under age 25 would be required to enroll in training and take a job within two years. If jobs for the young mothers aren't available, public-sector jobs would be created. About a third of the 5 million adult recipients, those with disabilities or disabled children or children under age one, would be exempted. But this would not be workfare--recipients working off their benefit checks in menial or demeaning jobs. "The most important thing we can do is make real work pay better than welfare," says Bruce N. Reed, who heads the White House welfare task force.

To do that will require lots of help for mothers. The current proposals envision varying degrees of child-care and transportation aid. All would pressure mothers to name the fathers at birth, and all propose mechanisms to enforce child support. The proposals assume universal health-care reform will pass soon.

The bills differ in the penalties to be applied to mothers. Moderate House Democrats would limit former welfare parents to three years of subsidized, community-service jobs before they are dropped. The bill also would impose a lifetime, two-year limit for AFDC benefits. The Clinton plan would leave many of these controversial determinations to the states--for example, the decision of whether to pay for additional children born to welfare moms. The House Republican version also leaves this decision to the states. But it contains other penalties, ranging up to elimination of AFDC.

The largest difference--and it's a critical one--is in the financing. Both House versions offset the expense of child care and job training and placement through a $20 billion, five-year budget cut. They would eliminate a range of federal entitlement programs, including Medicaid, for legal immigrants. (Illegal aliens are already ineligible for most federal welfare benefits.) Exempted from the cut would be elderly immigrants and those granted political asylum. "The first and most important responsibility of any government is to its own citizens," explains sponsor Dave McCurdy (D-Okla).

The Clinton bill has $9.5 billion over five years to pay for reform, potentially a fatal deficiency. Initially, a White House task force gave the President a blueprint for a five-year, $15 billion reform program. Much of the increased spending for child care was to have come from a $4 billion tax on gambling. But howls of protest from Nevada, Atlantic City, and Native American groups anxious to protect casino profits killed the tax. Instead, Clinton's program would be paid for by the benefit cuts for legal immigrants, by tax hikes on wealthy Americans, and by some offsetting benefit cuts for the less-well-off. Among the potential tax hikes: eliminating subsidies to farmers with nonfarm income above $100,000 and ending the tax break for annuities that pay out more than $100,000 a year. White House Budget Director Leon Panetta lately has been covering the Capitol searching for new tax revenue. He's still empty-handed.

COST CRUNCH. Clinton's $9.5 billion estimate may be too low, since the actual cost of entitlement programs is difficult to estimate. One critic of the Clinton proposal, Mark Greenberg, an attorney with the Center for Law & Social Policy in Washington, estimates the cost could be nearly that much in just a single year. Some want to spend lots more. Liberal critics are demanding that welfare moms receive wages high enough to lift their families well beyond the poverty range. "We can't expect welfare recipients to flip hamburgers at $5 an hour," says Representative Harold E. Ford (D-Tenn.). Ford favors a $9-an-hour wage for public-sector jobs. Meanwhile, the welfare reform debate is also likely to renew calls to raise the minimum wage.

The Administration hopes to escape the cost crunch because of the so-far healthy expansion. If the economy could continue adding about 200,000 jobs a month, actually below its performance this year, the rate would accommodate many new workers and welfare mothers while still shrinking the jobless rate. The Clinton Administration figures that only an additional 200,000 jobs will be needed for welfare moms in 1999, rising to 500,000 a year by 2004.

But successful job placement assumes that reform provides welfare families with adequate health care and child care. Studies show that as many as 20% of welfare recipients stay on AFDC just to keep the accompanying Medicaid benefits for their children--particularly those with chronic illnesses. Infant care in a quality, licensed day-care center can easily cost $900 a month--far beyond the reach of entry-level workers.

Welfare mothers may well decide to stay home with their children rather than subject them to substandard day care, no matter what the sanctions in the law. "Why, just because I'm poor, should I have to take my kid down to some dark basement to play all day where all the dolls' heads are pulled off?" says Nixon.

WILLING TO PAY. Despite the potential pitfalls, White House advisers relish the symbolism of a Democratic President going after deadbeat dads and welfare cheats. That has the GOP Right worried and searching for ways to up the ante--such as requiring all able-bodied recipients to work for their benefits--a favorite of conservative William J. Bennett, the former Secretary of Education.

President Clinton says he holds out the hope that "welfare reform might catch fire [and] we might have a bipartisan consensus to move the bill in a hurry and get it this year." That would likely give a boost to Democrats in November. But election-year politics will actually make it tougher to get a bill this year because any welfare reform worthy of the name is going to cost a lot--more than the $9.5 billion envisioned in the Clinton plan and much closer to the $18 billion to $20 billion in the two House bills. Under the new budget rules in Congress, that has to be paid for. The cynical ploy of making states and nonvoters--the legal immigrants--foot the bill won't pass Congress.

But gimmicks may not be necessary. Polls have shown that voters are receptive to paying more for improving welfare. And few people naively believe it's going to be simple to "end welfare as we know it," as Clinton has promised. But there is a chance to make the system fairer, reward work, foster independence, and encourage families to stay together. Just doing that much would be a major victory.



WHAT IT WOULD DO Require welfare recipients to agree to education, job training, or placement. Welfare mothers under age 25 who refuse would face a reduction or cutoff in cash benefits, generally after two years, with exemptions for new mothers or those unable to work.

DRAWBACKS Requires universal health care so working poor are not penalized. At $9.5 billion over five years, may be underfunded.


WHAT IT WOULD DO Require welfare recipients to agree to education, job training, and placement within one to two years or face sanctions. Fathers must pay support or participate in a work

program. No added benefits for children conceived during welfare period. Cut off entitlement benefits to legal immigrants.

DRAWBACKS Shifts some of the costs for legal immigrants to the states. Denying additional benefits for children born to welfare mothers just hurts the families.


WHAT IT WOULD DO Provide job training and placement and child care and health care for welfare recipients and transitional workers. Set two-year lifetime welfare limit. Make grandparents liable for the offspring of their minor children. Cut off entitlement benefits to legal immigrants.

DRAWBACKS Shifts some of the costs for legal immigrants to the states. Lifetime welfare limit will be tough to enforce. Grandparents may not have the resources to support grandchildren.

DATA: BUSINESS WEEKPaul Magnusson and Howard Gleckman in Washington

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