The federal government funds a large range of subsidy programs for low-income Americans, from food stamps to Medicaid. This essay examines Temporary Assistance for Needy Families (TANF), which is a joint federal-state cash assistance program for low-income families with children. When most people think of "welfare," they are thinking of this program.

Since a major welfare reform in 1996, federal spending on TANF has been held fairly constant at somewhat less than $20 billion per year.¹ The 2009 American Recovery and Reinvestment Act provided an additional $5 billion in federal funding over several years. About 1.8 million families receive TANF payments each month.²

Before 1996, federal welfare was an open-ended entitlement that encouraged long-term dependency, and there was widespread agreement that it was a terrible failure. It neither reduced poverty nor helped the poor become self-sufficient. It encouraged out-of-wedlock births and weakened the work ethic. The pathologies it engendered were passed from generation to generation.

The welfare reforms of 1996 were dramatic, but the federal government still runs an array of welfare programs that are expensive and damaging. The federal government should phase-out its role in TANF and related welfare programs and leave low-income assistance programs to state governments, or better yet, the private sector.

Government welfare cannot provide the same flexibility and diversity as private charities. Private aid organizations have a better understanding that true charity starts with individuals making better life choices. Federal involvement in welfare has generated an expensive mess of paperwork and bureaucracy while doing little to solve the problem of long-term poverty.

A Brief History of Federal Welfare

The first federal welfare program was Aid to Dependent Children (ADC), which was created as part of President Franklin Roosevelt's New Deal in 1935. The program was intended to supplement existing state relief programs for widows and to provide support to families in which the father was deceased, absent, or unable to work.³

Although it was originally supposed to be a small program, ADC expanded rapidly. By 1938, almost 250,000 families were participating in the program.⁴ Despite rapid economic growth and declining levels of poverty during the 1950s, ADC rolls continued to grow. By 1956, over 600,000 families were receiving benefits.⁵

In 1960, President John F. Kennedy took office amidst rising concern about poverty in America. But beyond renaming ADC to Aid to Families with Dependent Children (AFDC) and expanding it to include two-parent families in which the father was unemployed, Kennedy actually took little action on welfare. But Kennedy's general support for expanding aid to the poor set the stage for Lyndon Johnson's Great Society.

After Kennedy's assassination, Johnson had a free hand in Con­gress, and he was determined to use it to remake government and society. Johnson declared that the federal government would wage a War on Poverty and his administration proposed a huge array of new subsidy programs for individuals and state and local governments. America had not seen such an expansion of government or such a proliferation of anti-poverty programs since the New Deal. Among the major Johnson initiatives were Medicare, Medicaid, and Head Start.

The proliferation of new urban programs, job training, health care, and other welfare activities during the 1960s coincided with further expansions in AFDC. By 1965 the number of people receiving AFDC had risen to 4.3 million.⁶ By 1972 the number had more than doubled to nearly 10 million. The welfare rolls were rapidly expanding even though this was a period of general economic prosperity and low unemployment.⁷

After Johnson left office, there was a bipartisan consensus in Washington to preserve and even expand his legacy. Presidents Nixon, Ford, and Carter all added new anti-poverty programs. Between 1965 and 1975, measured in constant dollars, spending for AFDC tripled.⁸ A series of court deci­sions that established "rights" for welfare recipients helped fuel the spending growth.⁹ After 1975, the growth rate of welfare slowed but still continued upward.

In 1981, President Ronald Reagan came into office with strong views about shrinking the welfare state. Unfortunately, welfare-related spending actually grew during Reagan's two terms. Reagan did shift the funding emphasis among welfare-related programs. For example, fund­ing for AFDC declined by 1 percent during his tenure, but spending for the Earned Income Tax Credit doubled.

By the time President Bill Clinton took office in 1993, a broad national consensus had developed that traditional open-ended welfare had failed. This led to a period of state-government experimentation with welfare within the constraints that the federal government allowed them. Many state experiments—particularly work requirements and recipient time limits—would become part of federal welfare reform in 1996.

Welfare Reform in 1996

In August 1996, President Clinton signed into law the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which represented the most extensive revision of federal welfare in more than 30 years. By one important measure, welfare reform was very successful. The number of Americans on welfare plunged from 12.6 million in 1996 to 4.2 million individuals by 2009, a dramatic 67-percent decrease.¹⁰

The reform bill made a number of significant changes in the way welfare was provided. AFDC had provided cash payments to families with children where the parents were absent, incapacitated, deceased, or unemployed. The program was funded by a combination of federal and state funds (the federal portion varied from 50 to 80 percent), with states setting benefit levels and the federal government determining eligibility requirements. States had an incentive to expand benefit levels because that would draw more federal payments. And recipients could stay on the program for years on end.

PRWORA replaced AFDC with the Temporary Assistance for Needy Families block grant. The block grant was a fixed amount of federal funds for each state, largely based on the pre-reform federal contribution to that state's AFDC program. However, this caused states that had offered more generous welfare benefits to receive much more federal money per poor family than other states received.¹¹

Welfare reform in 1996 abolished most federal eligibility and payment rules, giving states much greater flexibility to design their own programs. The reforms eliminated welfare's "entitlement" status so that no one would have an automatic right to benefits. States could choose which families to help. States were, however, required to continue spending at least 80 percent of their previous levels under a "maintenance of effort" provision.

In recent years, federal spending on TANF has been held fairly constant at somewhat less than $20 billion per year.¹² Combined federal and state TANF spending was about $26 billion in 2006.¹³ About 41 percent was for direct cash assistance, with the remainder of the subsidies for childcare, transportation, work support, and education and training.¹⁴ Administrative costs accounted for almost 10 percent of expenditures.¹⁵

That represents a significant change in the distribution of expenditures from pre-reform welfare. Prior to reform, cash assistance accounted for 73 percent of welfare spending under AFDC and related programs.¹⁶

Under the old AFDC system, many welfare recipients seemed trapped in almost permanent dependency on government aid. To combat this, welfare reform established time limits to prevent welfare from becoming a way of life. PRWORA set a federal limit of five years, but allowed states to set shorter time limits if they wished.

While this sounds fairly strict, it was undercut somewhat because states were allowed to exempt up to 20 percent of their caseloads from time limits, and were also allowed to use their own funds to continue benefits for families that exceeded the federal five-year time limit. In addition, so-called "children only" cases, where the child is eligible for welfare benefits, but the adult parent is not, are not subject to federal time limits. Children-only cases account for almost half of the total TANF caseload.¹⁷

The 1996 welfare reform imposed widespread work requirements on recipients. States are required to have at least 50 percent of eligible welfare recipients from single parent families participating in work activities. For two-parent families, the participation requirement is 90 percent. As of 2006, every state except Indiana had technically met the mandate for all families.

However, states were given various credits and exemptions that significantly reduced the number of recipients required to work. For example, states receive a credit based on their caseload reductions. Because welfare rolls have plummeted, the average effective minimum work participation requirement in 2006 was only 5.0 percent for all families and 18.7 percent for two-parent families.¹⁸ In fact, for 17 states and two territories, the credit has reduced the effective work requirement to zero, and only 21 states have an effective minimum greater than 10 percent.¹⁹ Thus, nearly all the states have carved out large exemptions from their work requirements.

After all the credits, waivers, and exemptions are taken into account, only 32 percent of welfare recipients were working in 2009.²⁰ While this is low, it does represent a substantial improvement over pre-reform welfare. Under the old AFDC program, only about 10 percent of recipients were working.²¹

Note that just because a recipient is participating in "work activities" under today's welfare does not mean that the individual is actually working. For example, in almost all states, simply looking for work constitutes a "work activity," which allows people to continue receiving their welfare check.

The work component of welfare reform was a big step in the right direction, but the actual changes to work behavior have been modest. Because of exemptions built into the 1996 law, most states are not really required to make a large number of recipients work, and few states have chosen to do so on their own.

Breaking up Families

The tragedy of government welfare programs is not just wasted taxpayer money but wasted lives. The effects of welfare in encouraging the break-up of low-income families have been extensively documented. The primary way that those with low incomes can advance in the market economy is to get married, stay married, and work—but welfare programs have created incentives to do the opposite.

The number of single-parent families has risen dramatically since the 1960s. The most important reason for the rise in single-parent families is births to unmarried women. In 1965, less than 8 percent of all births were out of wedlock. Today the figure is 39 percent.²²

The policy concern about the increase in out-of-wedlock births is not a question of private morality. The concern is that out-of-wedlock childbearing remains overwhelmingly concentrated at the lowest rungs of the socio-economic ladder. Having a child out of wedlock at an early age for someone without career skills can mean a lifetime of poverty.

Of more than 20 major studies of the issue, more than three-quarters show a significant link between welfare benefit levels and out-of-wedlock childbearing.²³ Higher benefit levels mean higher out-of-wedlock births. Children living with single mothers are seven times more likely to be poor than those living with two parents.²⁴

Welfare removes some of the negative economic consequences of out-of-wedlock births, and thus encourages more such births. More than 20 percent of single-mothers start on welfare because they have an out-of-wedlock birth,²⁵ and 75 percent of government aid to children through means-tested programs like TANF goes to single-parent families.²⁶ Moreover, once on welfare, single mothers find it difficult to get off, and they tend to stay on welfare for longer periods than other recipients.²⁷

Focusing solely on the out-of-wedlock birthrate may actually understate the problem. In the past, women who gave birth out of wedlock frequently married the fathers of their children after the birth. As many as 85 percent of unwed mothers, in the 1950s, ultimately married the fathers of their children.²⁸ Therefore, while technically born out of wedlock, the children were still likely to grow up in intact two-parent families.

However, the increasing availability and value of welfare have made such marriages less attractive for unwed mothers. If the father is unskilled and has poor employment prospects, a welfare check may seem a preferable alternative. Studies indicate that young mothers and pregnant women are less likely to marry the fathers of their children in states with higher welfare benefits.²⁹ Nonetheless, 70 percent of poor single mothers would no longer be in poverty if they married their children's father.³⁰

Welfare is also likely to entrap the next generation as well. The attitudes and habits that lead to welfare dependency are transmitted the same way as other parent-to-child pathologies, such as alcoholism and child abuse. Although it is true that the majority of children raised on welfare will not receive welfare themselves, the rate of welfare dependence for children raised on it is far higher than for their non-welfare counterparts.

Children raised on welfare are likely to have lower incomes as adults than children not raised on welfare. The more welfare received by a child's family, the lower that child's earnings as an adult tend to be, even holding constant such other factors as race, family structure, and education.³¹ According to one study, nearly 20 percent of daughters from families that were "highly dependent" on welfare became "highly dependent" themselves, whereas only 3 percent of daughters from non-welfare households became "highly dependent" on welfare.³²

Disincentives to Work

The choice of welfare over work is often a rational decision based on economic incentives. Empirical studies confirm that welfare is a disincentive for work. For example, an analysis of interstate variation in labor force participation by economists Richard Vedder, Lowell Gallaway, and Robert Lawson found that such participation declined as welfare benefits increased.³³ Similarly, Robert Moffitt of Brown University found that the work effort of welfare recipients was reduced by as much as 30 percent.³⁴

Such studies may understate the work disincentive of welfare because they consider only a small portion of the total package of federal and state welfare benefits. Benefits available to people in the welfare system that are not available to the working poor create an incentive to go on welfare and remain in the program once enrolled.³⁵ For example, one study shows that education and training programs available under TANF may induce people to go on welfare.³⁶

Perhaps most troubling of all is the psychological attitude toward work that can develop among those on welfare. Studies have found that the poor on welfare do not have a strong sense that they need to take charge of their own lives or find work to become self-sufficient.³⁷ Indeed, they often have a feeling that the government has an obligation to provide for them.

Of course, these psychological effects are also true for other government subsidy recipients, including farmers, the elderly, and businesses that are hooked on federal hand-outs of one sort or another. Farmers that are major subsidy recipients, for example, are less likely to make tough decisions to cut costs or diversify their income sources because they know they will be bailed out if market conditions sour on them. It is not healthy for any group in society to depend on government welfare for their long-term survival, whether they are farmers or poor inner-city families.

Relationship to Crime Levels

Children from single-parent families are more likely to become involved in criminal activity. Research indicates a direct correlation between crime rates and the number of single-parent families in a neighborhood.³⁸ As welfare contributes to the rise in out-of-wedlock births, it thus also contributes to higher levels of criminal activity.

A Maryland National Association for the Advancement of Colored People (NAACP) report concluded that "the ready access to a lifetime of welfare and free social service programs is a major contributory factor to the crime problems we face today."³⁹ The NAACP's conclusion is confirmed by additional academic research. For example, research by M. Anne Hill and June O'Neill shows that a 50-percent increase in welfare and food stamp benefits led to a 117-percent increase in the crime rate among young black men.⁴⁰

Barbara Whitehead noted in an article in the Atlantic Monthly:

The relationship [between single-parent families and crime] is so strong that controlling for family configuration erases the relationship between race and crime and between low income and crime. This conclusion shows up time and again in the literature. The nation's mayors, as well as police officers, social workers, probation officers, and court officials, consistently point to family breakup as the most important source of rising rates of crime.⁴¹

Welfare leads to increased crime by contributing to the marginalization of young men in society. As author George Gilder noted, "The welfare culture tells the man he is not a necessary part of the family."⁴² Marriage and family have long been considered civilizing influences on young men. Whether or not causation can be proven, it is true that unwed fathers are more likely to use drugs and become involved in criminal behavior than are other men.⁴³

Replacing Welfare with Private Charity

The 1996 welfare reforms were a step in the right direction, but much more needs to be done. The next step should be to transfer full responsibility for funding and administering welfare programs to the states. The states would have freedom to innovate with their low-income programs and would have strong incentives to reduce taxpayer costs and maximize work incentives.

The ultimate reform goal, however, should be to eliminate the entire system of low-income welfare for individuals who are able to work. That means eliminating not just TANF but also food stamps, subsidized housing, and other programs. Individuals unwilling to support themselves through the job market would have to rely on the support of family, church, community, or private charity.

What would happen to the poor if welfare were eliminated? Without the negative incentives created by the welfare state, fewer people would be poor. There would also likely be fewer children born into poverty. Studies suggest that women do make rational decisions about whether to have children, and thus a reduction in welfare benefits would reduce the likelihood of their becoming pregnant or having children out of wedlock.⁴⁴

In addition, some poor women who had children out of wedlock would put the children up for adoption. The government should encourage that by eliminating the present regulatory and bureaucratic barriers to adoption. Other unmarried women who gave birth would not be able to afford to live independently and they would have to live with their families or boyfriends. Some would choose to marry the fathers of their children.

Despite the positive social effects of ending government welfare, there will still be many people who make mistakes and find themselves in tough situations. Americans are an enormously generous people, and there is a vast amount of private charitable support available, especially for people truly in need.

Private charity is superior to government welfare for many reasons. Private charities are able to individualize their approaches to the circumstances of poor people. By contrast, government programs are usually designed in a one-size-fits-all manner that treats all recipients alike. Most government programs rely on the simple provision of cash or services without any attempt to differentiate between the needs of recipients.

The eligibility requirements for government welfare programs are arbitrary and cannot be changed to fit individual circumstances. Consequently, some people in genuine need do not receive assistance, while benefits often go to people who do not really need them. Surveys of people with low incomes generally indicate a higher level of satisfaction with private charities than with government welfare agencies.⁴⁵

Private charities also have a better record of actually delivering aid to recipients because they do not have as much administrative overhead, inefficiency, and waste as government programs. A lot of the money spent on federal and state social welfare programs never reaches recipients because it is consumed by fraud and bureaucracy.

Audits of TANF spending by the Health and Human Services' Inspector General have found huge levels of "improper payments," meaning errors, abuse, and fraud. In 2005, the state of New York had an improper TANF payment rate of 28 percent and Michigan had an improper payment rate of 40 percent.⁴⁶ During 2006 and 2007, Ohio had an improper payment rate in TANF of 21 percent.⁴⁷ There are similar high levels of waste in other states.⁴⁸

Another advantage of private charity is that aid is much more likely to be targeted to short-term emergency assistance, not long-term dependency. Private charity provides a safety net, not a way of life. Moreover, private charities may demand that the poor change their behavior in exchange for assistance, such as stopping drug abuse, looking for a job, or avoiding pregnancy. Private charities are more likely than government programs to offer counseling and one-on-one follow-up, rather than simply providing a check.

In sum, private charities typically require a different attitude on the part of recipients. They are required to consider the aid they receive not as an entitlement, but as a gift carrying reciprocal obligations. At the same time, private charities require that donors become directly involved in monitoring program performance.

Those who oppose replacing government welfare with private charity often argue that there will not be enough charitable giving to make up for the loss of government benefits. However, that assumes that private charity would simply recreate existing government programs. But the advantage of private and decentralized charity is that less expensive and more innovative ways of helping smaller groups of truly needy people would be developed.

If large amounts of aid continue to be needed, there is every reason to believe that charitable giving in the nation would increase in the absence of government welfare. In every area of society and the economy, we have seen that government expansion tends to "crowd out" private voluntary activities. So, in reverse, when the government shrinks, private activities would fill in the gaps.

A number of studies have demonstrated such a government crowd-out effect in low-income assistance.⁴⁹ Charitable giving declined dramatically during the 1970s, as the Great Society programs of the 1960s were expanding. The decline in giving leveled out in the 1980s as welfare spending began to level out and the public was deluged with news stories about supposed cutbacks in federal programs. Then, after the passage of welfare reform in 1996, there was a large spike in private giving.⁵⁰ Studies have also shown that when particular charities start receiving government funds, there is a decrease in private donations to those charities.⁵¹

Americans are the most generous people on earth, contributing more than $300 billion a year to organized private charities. In addition, they volunteer more than 8 billion hours a year to charitable activities, with an estimated value of about $158 billion.⁵² Americans donate countless dollars and countless efforts toward providing informal help to families, neighbors, and others in need. There is every reason to believe that the elimination of government welfare would bring a very positive response both from recipients of government welfare and from Americans wanting to help those who are truly in need.