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For True Change, Offer More Carrots : Benefits should be flexible and generous enough to let the full-time working poor support their families

August 07, 1995|HAROLD POLLACK and JAMES TOBIN | Harold Pollack is a health policy scholar at Yale University. James Tobin is professor of economics emeritus at Yale. He received the 1981 Nobel Prize in economics

Welfare penalizes work and does too little to discourage births out of wedlock and migration to "generous" states. This triad of perversities was not discovered yesterday by radical Republicans-- reformers in both political parties were proposing corrective measures a quarter-century ago.

The proper task of welfare reform is to introduce effective inducements for constructive behavior, while protecting vulnerable recipients from punitive measures. Such inducements come in two brands: sticks and carrots. Current practice relies too heavily on sticks. Today's "reforms" would only toughen the sticks: depriving welfare moms and their kids of benefits if they stay on AFDC too long, if they give birth too often and too young, if they don't work. Such proposals include no carrots for work or marriage. Instead, Republicans propose to cut the earned income tax credit, job training, child care and other programs that encourage transition from welfare to work.

Such proposed cuts are especially foolish because they would aggravate existing perverse penalties exacted on welfare recipients who choose to work. Implicit in Aid to Families With Dependent Children, our nation's most visible and controversial program of public aid, are marginal taxes on earnings of 100% or higher--many recipients lose a dollar of AFDC check for every dollar they earn, and may lose Medicaid coverage as well. These extremes are somewhat moderated by food stamps and the earned income tax subsidy to low-income workers.

Such confiscatory policies reflect a longstanding Catch-22: Americans seem willing to spend money only to save the poorest from complete destitution. The perverse consequence is to impose large work disincentives on the beneficiaries. To save money, Republicans in the early 1980s eliminated rules that allowed recipients to keep a third of their earnings. The result was virtually a 100% tax on working AFDC recipients. The poor face far higher marginal tax rates than are considered tolerable for the richest Americans.

AFDC also effectively excludes most two-parent families. The program is therefore open to the devastating charge that it discourages marriage and responsible fatherhood. In fact, however, the connection between AFDC and children of unwed parents is greatly exaggerated. Unwed childbirths are rising throughout society, and their frequency seems unrelated to differences in welfare benefits among states. True, there are women who think they have the right to have children without taking responsibility for financing their care. More important, many biological fathers neglect their responsibilities. Depriving children of public assistance is not a civilized solution to these problems. Reinforcing fathers' obligations to their children is especially important--not only for financial reasons, but also to nurture two-parent families.

The current system is also hobbled by excessive variation across the states. Welfare is precisely the kind of program that requires some national standards. Poor people are mobile, unpopular and costly. No state wants to attract them. Fearful of becoming "welfare magnets," many traditionally generous states have already reduced benefits. With federal aid reduced and block-granted, competition among states will lower benefits even more.

The new federalism purports to free welfare form the tyranny and inefficiency of overgrown federal bureaucracy. Yet a grand total of 327 federal bureaucrats oversee the entire AFDC program serving 15 million people. Subject to their oversight, welfare is now administered by the states, which enjoy broad discretion in setting benefit levels and eligibility requirements. On their own, state and local welfare agencies have sometimes been corrupt, inefficient and blatantly discriminatory. State public aid programs vary greatly in competence and integrity.

Welfare requires fundamental reform. The federal government should provide more uniform (and more generous) benefits across the country, rather than passing the buck through block grants. To eliminate dependency without cruelty and compulsion, a realistic package of public benefits would allow poor parents to support their families if they are willing to hold full-time, low-wage jobs.

An expanded earned income tax credit, along with food stamps and an improved AFDC, could be the foundation of such a system. Both one- and two-parent families would be eligible. To provide greater inducement for employment, recipients would be allowed to keep their first $5,000 in annual earnings or payments from absent fathers or other relatives.

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