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The Risks and Rewards of Welfare Reform

Michael D. Tanner

With tax reform finally behind us, President Trump has been
dropping hints that welfare reform might be the administration’s
next big undertaking.

Few areas of government are as ripe for reform as our bloated,
inefficient, and ineffective welfare system. The United States has
spent more than $23 trillion fighting poverty, roughly $1 trillion
last year alone. Yet all this spending has bought us surprisingly
little. Although far from conclusive, the evidence suggests that
our welfare system has marginally reduced the number of people
living in poverty, while helping to reduce its deprivations for
millions of others. This shouldn’t be a big surprise. No matter how
dim a view one takes of governmental competence in general, it
would be virtually impossible for the government to spend $23
trillion on welfare without helping at least some poor people.

But by the broader and more important benchmark — enabling
people to rise above poverty, to become self-sufficient and able to
care for their families, to achieve all that they can achieve
— welfare has clearly failed.

The War on Poverty was launched, in the words of President
Johnson, not only to “relieve the symptom of poverty, but to cure
it and, above all, to prevent it.” Yes, Johnson sought to meet the
“basic needs” of those in poverty, but also to “replace despair
with opportunity.” But walk through poor communities today, from
Baltimore’s “Sandtown” to Owsley, Ky., and it becomes increasingly
difficult to pretend that people are flourishing in any meaningful
sense.

Of course, many of the answers to poverty —
criminal-justice reform, school choice, occupational-licensing
reform, the elimination of other barriers that prevent the poor
from participating in a growing economy, and efforts to fight
systemic racism and sexism — lie outside the welfare system.
And, of course, simply increasing economic growth will do more to
relieve poverty than any government program ever could. But there
should be no doubt that we can also do better when it comes to
welfare.

If done right, it could
be a huge win for President Trump and the nation. If done wrong,
well …

For instance, our current welfare system is a bureaucratic
nightmare. There are at least 70 different programs that provide
benefits to individuals and more than 30 other anti-poverty
programs, all with different rules, eligibility requirements,
management, and oversight. At the same time, the system
increasingly provides payments not to the poor themselves, but to
an industry of landlords, doctors, grocers, and others who serve
the poor. Only about 21 cents of every dollar spent on welfare is
actually paid in cash to recipients. It is almost as if the system
was set up to benefit everyone except the poor.

At the same time, welfare as we know it today gets the
incentives all wrong. The combination of lost benefits and taxes
means that someone leaving welfare for work faces some of the
highest marginal tax rates in the world. Likewise, two welfare
recipients who marry can suffer a significant loss of benefits.
There should be bipartisan agreement that this is bad policy.

Therein lies the political opportunity for President Trump.

Unfortunately, the peril is that Trump appears to see welfare
reform as another chance to stoke resentment among his white
working-class base, rather than as a chance to help the poor. At a
speech in Missouri last month, he complained that people were
“taking advantage of the system”:

I know people, they work three jobs and they live next
to somebody who doesn’t work at all. And the person who’s not
working at all and has no intention of working at all is making
more money and doing better than the person that’s working his and
her a** off.

Such inflammatory rhetoric may well generate applause, but risks
undermining any potential consensus for reform. Worse, the Trump
administration’s first forays into welfare policy, such as
approving plans by Wisconsin and other states to drug test
food-stamp recipients, have seemed unduly punitive.

Welfare reform could be both a political winner and an
opportunity to do something tangible to benefit those who need it
the most. It is a chance to show that the answer to poverty does
not lie in creating new programs or spending more money. It is a
chance to rewrite for the better 50 years of failed American public
policy.

Whether or not President Trump is the man to take advantage of
this chance is still an open question.

Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis.