NOTHING ends poverty like a good job. Government policymakers often ignore that reality, as a new report by the libertarian Cato Institute makes clear.
Cato analysts Michael Tanner and Charles Hughes note that only 2.6 percent of full-time workers are poor, as defined by the Federal Poverty Level standard, and only 15 percent of part-time workers are poor. Yet in “The Work Versus Welfare Trade-Off: 2013,” Tanner and Hughes find that welfare benefits often discourage recipients from obtaining jobs.
In 1995, Cato reviewed the financial value of welfare benefits in all 50 states and found that “the value of such benefits greatly exceed the poverty level” and, because welfare benefits are tax free, “their dollar value was greater than the amount of take-home income a worker would receive from an entry-level job.”
Tanner and Hughes repeated that analysis this year. Their conclusion: “Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the earned income tax credit, and in 13 states it pays more than $15 per hour.”
Typically lacking the skills necessary to obtain middle-income jobs, welfare recipients often must start out with entry-level work. Yet the benefits lost due to employment often exceed potential income. This discourages work and encourages long-term welfare dependence.
Although the federal earned income tax credit, the federal child tax credit and similar state tax breaks can allow a welfare recipient to take a job paying slightly less than welfare without a loss of income in 39 states, Tanner and Hughes found “that difference is small and not likely to offset the value of leisure.”
Oklahoma isn't the worst offender when it comes to welfare benefits. But many citizens may be surprised by the combined value of those benefits.