Achievements of the Welfare Reform Law of 1996

The War on Poverty

In 1964, President Johnson declared war on poverty. At the time, the Federal commitment to solving domestic social problems was modest, as measured by either the number of programs or the level of spending. But in that remarkable year, the Nation embarked on a path that led to an expansion of programs and spending designed to attack poverty and other domestic problems. Over the next decade, the Federal Government enacted Medicare, Medicaid, Head Start, food stamps, Supplemental Security Income, and an array of additional programs. By 1995, the Nation had over 300 social programs, and Federal and state spending on the poor had jumped from around $40 billion to about $360 billion.

These programs were the Federal Government’s first sustained attempt to address low income and poverty. Two important results of the new programs are that poverty among the elderly has been reduced by about two-thirds and affordable health care for the elderly has become universal. These are great achievements.

However, the effects of War on Poverty programs on children, young adults, and parents have been far less positive. Indeed, despite the dramatic increase in programs and spending, child poverty stayed at high levels and actually drifted upwards between the 1970s and the early 1990s. Even worse, more and more children were born outside marriage, a circumstance associated with high levels of poverty, youth violence and crime, and welfare dependency, all of which increased during this period.

The Welfare Reform Law of 1996

By 1995 there was broad agreement that the guaranteed benefits of the welfare state had failed to help young adults establish economic independence. A new direction was needed to break rising welfare dependency and return more young people, especially parents, to lives of self-reliance and dignity.

Following the Republican sweep of the Congressional elections of 1994, Republicans introduced legislation to reform the Nation’s leading welfare programs. The goals of the reforms were to stimulate work, promote healthy marriages, and reduce non-marital births. Work was promoted both by making continued receipt of cash welfare conditional on serious efforts to prepare for and find work, and by making it clear to recipients that welfare was temporary. Thus, families were limited to a total of five years of cash welfare over their lifetime. States were also directed to place a specific percentage of their welfare recipients in work programs or suffer penalties. The 1996 law also streamlined childcare programs and greatly increased childcare funding, improved child support enforcement so that more money could be collected for single mothers and children, changed Medicaid rules so that virtually all families leaving welfare would have at least one year of guaranteed Medicaid, and enacted a series of reforms designed to reduce non-marital births. States were also given unprecedented flexibility to design and conduct programs to increase employment and reduce non-marital births.

After a spirited debate, Congress overwhelmingly passed a bipartisan bill which was signed into law on August 22, 1996.

Welfare Reform Works

Welfare Receipt, Employment, Earnings, and Poverty

The results of these reforms, which were implemented during one of the hottest economies of recent decades, are nothing short of spectacular. Taken together, information from state surveys, large-scale surveys from the Census Bureau, and other sources portrays a very consistent picture.

As shown in Figure 1, the number of families on welfare (now called Temporary Assistance for Needy Families or TANF) has been declining rapidly for the first time ever. Although many commentators claim that welfare rolls rise during recessions and decline during economic booms, this claim is refuted by the information in Figure 1. After 1960, welfare declined in only a few years until the mid-1990s. The gray areas representing recessions in Figure 1 show that the rolls tended to rise during both recessions and economic expansions. Even the booming economies of the 1960s and the 1980s could not substantially reduce the welfare rolls. Yet for the first time ever, following the 1996 reforms, the rolls declined rapidly as the economy expanded.

Because so many people left the rolls after the mid-1990s, many observers predicted disaster during a recession. This prediction is now being put to the test by the recession that began in March of 2001. Although the welfare rolls have started to increase in several states for the first time since the mid-1990s, total enrollment in welfare across all the states continued to decline slightly through September of last year as compared with September of 2000. Thus, even during the recession, states have continued to have some success in helping mothers leave welfare, albeit less success than they were able to have when jobs were more plentiful.

Declining rolls suggest reduced welfare dependency, but a full evaluation of welfare reform requires careful study of more than caseload declines. What happens to mothers who leave welfare? More than 40 states have now conducted studies to answer this question. These studies show that on average around 60 percent of mothers leaving welfare are employed at any given moment and that over a period of time more than 80 percent are employed.

National survey data from the U.S. Census Bureau confirm this finding. Because Census Bureau studies are based on representative samples of the entire population, they provide the most reliable and valid estimates of how the economic fortunes of Americans change over time. Consistent with the state studies of mothers leaving welfare, Census Bureau employment data for all females who head families show dramatic increases in work beginning in the mid-1990s. After a decade in which the annual employment rate of single mothers hovered around 58 percent, the rate increased every year through 2000, the last year for which information is available. By 2000, well over 73 percent of mothers heading families were working, an increase of 25 percent in 6 years.

Even more to the point, most of the increased employment occurred among low-income mothers. Figure 2 shows employment levels for never-married mothers, the most disadvantaged subgroup of mothers heading families. These mothers are the least educated, the least job experienced, and the most likely to have long spells on welfare often lasting well over a decade. Yet between 1995 and 2000, their employment rates increased from under 46 percent to nearly 66 percent, an increase of more than 40 percent in just five years.

These employment increases by single mothers and former welfare mothers are unprecedented. By 2000, the percentage of single mothers with a job reached an all-time high. Thus, the decline in welfare rolls has led to substantial increases in employment.

Even those who raised doubts about welfare reform must concede that millions of mothers previously dependent on welfare have proven themselves capable of holding jobs. But skeptics might still question whether the rise in work has contributed to increased economic well-being among female-headed families. After all, during the welfare debate of 1996, a highly publicized study had predicted that at least a million children would be cast into poverty by welfare reform.

Again, the Census Bureau surveys provide reliable information on changes in economic well-being among all female-headed families. In most years since the mid-1990s, the Census Bureau data paint a consistent picture of economic progress by low-income mothers heading families. Figure 3 captures the essential features of the portrait for the bottom 40 percent of mother-headed families (total income under $21,000). Between 1993 and 2000, earnings increased dramatically while income from welfare fell. The figure shows that welfare income, primarily from cash and food stamps, has declined by about $2,500 per family. However, income from earnings and the Earned Income Tax Credit (EITC), a program that provides a cash subsidy to low-income working parents, has more than offset this loss of welfare income for many families. Earnings and the EITC climbed by an average of $5,300 per family over the period. Thus, when these and all other sources of income are combined, the total income of families headed by low-income single mothers increased by well over 25 percent between 1993 and 2000. This pattern of rapidly increasing employment and earnings accompanied by decreasing welfare income is the very definition of breaking welfare dependency.

Not surprisingly, the surge in employment and earnings was also successful in reducing child poverty rates. As Figure 4 shows, the predictions of increased child poverty have proven to be incorrect. In fact, child poverty has declined every year since the mid-1990s. The total decline of about 30 percent, from 22.7 percent in 1993 to 16.2 percent in 2000, has brought overall child poverty to its lowest level since 1978. Equally important, poverty among African-American children has fallen dramatically to its lowest level ever, and Hispanic children are not far behind.

Additional data from the Census Bureau not shown here provide the key to understanding these large reductions in child poverty. Historically, poverty rates among children in female-headed families have been five or six times higher than poverty rates for children in married-couple families. As the percentage of children living in female-headed families increased every year after the early 1970s, the child poverty rate drifted upwards, reaching almost 23 percent in 1993, its highest level in almost 30 years. The straightforward explanation for this unfortunate trend is that an increasing percentage of American children lived in female-headed families, and an increasing percentage of the mothers heading these families did not work steadily and became dependent on welfare. But beginning in the welfare reform era of the mid-1990s, more and more of these mothers went to work, their earnings increased greatly, and child poverty fell. The poverty rate among female-headed families is now at its lowest level ever.

Here’s the bottom line: welfare reform worked because single mothers left welfare and went to work in unprecedented numbers. Good for them. Good for their children.

Family Composition

The news on family composition is encouraging. The negative effects of single parent families were brought forcefully to the Nation’s attention in 1965 by Daniel Patrick Moynihan, then an Assistant Secretary in the Department of Labor. Moynihan noted the dramatic increase in non-marital births and reviewed evidence to argue that these births were the underlying cause of several of the Nation’s leading domestic problems, including violence and welfare dependency. But the public reaction to Moynihan’s report was so negative that the problem he diagnosed with such clarity was ignored for three decades.

It was not until the welfare reform law of 1996, some three decades later, that the Federal Government launched its first major attack on the problem of non-marital births. Among other policies, states were given great flexibility in their use of Federal resources to reduce non-marital births and increase the number of children growing up in two-parent families; rules on paternity establishment were strengthened; the child support enforcement program was overhauled; teen mothers were required to attend school and live at home or lose their welfare benefits; and a bold new abstinence education program was launched.

Although most observers agree that states have not been as aggressive in launching programs to increase the number of children in two-parent families as they have been in mounting programs to help mothers work, they have, nonetheless, taken the first steps toward what could become a robust and multi-front attack on the problem of family composition. As shown in Figure 5, after several generations of relentless increases, both the rate of births to unmarried mothers and the percentage of all births to unmarried mothers have leveled off. Similarly, teen birth rates have enjoyed a decline every year since 1991 and are now as low as they were in the 1960s (not shown in the figure). This is a promising beginning, but much more remains to be done to increase the number of children reared in two-parent families.

Working Toward Independence

There is little doubt that the Federal Government and the states have found a new strategy to reduce welfare dependency. The strategy has two parts. First, strong measures — especially work requirements backed by sanctions and time limits — have been taken to convince young mothers that they must leave welfare for work. States responded to these Federal requirements by implementing programs that helped welfare mothers search for and find work. Combined with a robust economy, this approach has pushed welfare rolls to their lowest point in three decades and work by single mothers to its all-time high.

The second part of the strategy has received far less attention. Over the past 15 years or so, Congress has expanded a series of programs that provide support to low-income working families. These programs include Medicaid, childcare, the child tax credit, the EITC, and food stamps. Taken together, these programs convert even a minimum wage job into the equivalent of a job paying $8 per hour with benefits. More specifically, if a mother with two children works almost full time at the minimum wage, she earns about $10,000 per year. But thanks to $4,000 in cash from the EITC and around $2,000 in food stamps, the mother and children have a total income of $16,000. In addition, the mother has Medicaid coverage for up to a year after she leaves welfare and the children have Medicaid coverage for as long as the mother has low income. Moreover, the mother may benefit from the $17 billion in annual Federal funding for childcare.

The fundamental goal of welfare reform since 1996 has always been to help each family achieve its highest degree of self-sufficiency. Various work support and training programs are not only intended to supplement low levels of earnings, but to help enable people to make the transition to better jobs as they climb the career ladder.

It is the combination of programs that encourage or require work and programs that subsidize work that accounts for the remarkable outcomes achieved by welfare reform. To be sure, there are problems with the new approach, including mothers holding low wage jobs, mothers who face severe barriers to employment, and families that have difficulty retaining enrollment in the food stamp and Medicaid programs. States are already beginning to design and implement programs to address these problems.

Given the great successes achieved by the 1996 reforms, the basic structure of the TANF and childcare programs should remain intact, including the generous funding for both programs. Beyond retaining the basic features of welfare reform, reasonable changes can help states augment the employment and earnings gains already achieved and lead to improved outcomes for many of the families left behind. The more modest success of the family composition goals of TANF suggests that more innovative solutions must be found to reduce non-marital births and increase marriage.

In the following pages, the Bush Administration sets forth the details of its plan for retaining the basic features of TANF while increasing the focus on work, providing incentives for states to encourage healthy marriages and reduce the incidence of nonmarital births, and increasing the flexibility states have to create innovative programs to help poor and low-income Americans work toward independence.

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