THE average taxpayer often regards welfare spending with skepticism, viewing those programs as wasteful and counterproductive. Those suspicions are not unfounded. A recent report by Republicans on the U.S. Senate Budget Committee noted that cumulative spending on means-tested federal welfare programs, if converted into cash, would equal nearly $168 per day per household in poverty. National median income per day is just $137. In Oklahoma, it's $121.
Of course, welfare recipients don't get that full amount. Transactional costs, such as salaries for those administering programs, eat up much of the money, but the budget report graphically illustrates the inefficiency of the system.
Most people support a safety net for the truly needy, but boosters of recent benefit expansions also argue that the programs are ultimately good for the economy. That last point is debatable. Economist Casey Mulligan of the University of Chicago has found expansion of government benefits enacted in recent years for the poor and unemployed has reduced incentives for work. Mulligan estimates about half — or more — of the labor-market depression can be linked to recent government benefit expansions.
The changes he notes include expansion of unemployment benefits from 26 weeks to 99 weeks, increasing the number of people who qualify for unemployment benefits, expansion of food stamp eligibility and benefits, relief for low-income individuals who are underwater on mortgages, and paying up to 65 percent of the health insurance of certain people who have become unemployed.
Because welfare benefits aren't taxed but paycheck earnings are, welfare recipients must often find jobs paying substantially more than they get in government benefits to make the transition financially worthwhile. Mulligan found the cost of returning to work for some recipients equated to an effective tax rate of more than 100 percent due to lost benefits that exceeded the income available through employment.
The problem isn't necessarily that people on government assistance are lazy; it's that they are rational. As Mulligan noted in an interview with EconTalk host Russ Roberts, “Why should people accept low-wage jobs when they are getting a better deal when they're not working?”
Since President Barack Obama took office, the number of people on food stamps has surged from 31.6 million to a record 47.7 million, or one out of every 6.5 Americans. In the past year, the number of Americans collecting disability payments has increased by 1.27 million, bringing the national total to 8.8 million.
The aforementioned federal policies likely explain why welfare dependency has also surged in Oklahoma even though the state's economy is among the nation's best. Census Bureau figures show Oklahoma experienced an increase in both food stamp and welfare participation even as the unemployment rate declined in 2010 and 2011.
This is worth noting, because Obama's recent proposals have included a call to increase taxes on the top 2 percent of earners, generating about $300 billion over five years, and extending enhanced unemployment benefits at a cost of $200 billion over five years. Obama didn't get everything he wanted in the recent fiscal cliff deal, but as the resulting tax increase costs jobs, the benefit extension still wipes out much of the revenue generated.
Most Americans would prefer that federal policy promote work over government dependence, but Obama wants to fund policies that discourage work by passing tax policies that discourage hiring.