When Giving a Helping Hand Hurts – Part 2

When Giving a Helping Hand Hurts – Part 2

Computational model exposes severe problems with the welfare system

Previously, it was shown how a single mom with two kids in Gwinnett County could lose welfare program benefits by earning more money. This explained why $9 + $1 can equal negative $6,000.

The Gwinnett county example showed only two wage levels. However, the computer model provides results for a large range of wage levels and family structure. This enables policymakers, administrators and interested citizens to see a more complete picture of the challenges facing a family in poverty.

The computer model can generate scenarios in any of the other 158 counties in the state of Georgia.

No matter the county welfare cliffs (that unintended consequence of the current welfare system whereby an individual or family loses by earning more) can be found – essentially trapping families into a level of income.

These cliffs can be clearly seen on the chart below. Wherever there is a drop in a line, there is a loss in benefits that exceed the gain in earned income.

Also clearly seen, the benefit levels are very high and the severity of the cliffs significant. More surprisingly, there is not just one cliff but a series of cliffs that cascade down.

The chart shows that when government benefits are taken into account, it is financially better for a single mom to earn an hourly wage of $9 than an hourly wage three times as much, or $27 per hour.

Of course, it is important to point out that the severity of the cliffs and the income levels where they drop off change depending on the county, the characteristics of the family, and other factors.

These findings underscore the need to undertake fundamental welfare reform beyond the various reforms already being implemented. The system needs to become more rational so not to punish families who try to get ahead by earning more money.

A forthcoming study will highlight other examples.

Chart showing welfare cliff for typical family in Gwinnett County:

How to read the chart: The chart above illustrates the scenario highlighted in this and the prior posts , that is, a single mom with two children in Gwinnett county. The horizontal axis is gross earned income, and the vertical axis is the sum of net earned income plus the various welfare assistance benefits. The first line on the bottom is net earnings. The next line above is net earnings plus refundable tax credits. Each line stacked above adds another government benefit in the following order: TANF Cash, food benefits (Food stamps, free school meals and WIC food packages), housing (Section 8 Housing Choice Vouchers), subsidized child care (the CAPS subsidized childcare program), medical assistance (Medicaid and PeachCare), and Affordable Care Act subsidies.

When Giving a Helping Hand Hurts – Part 1

When Giving a Helping Hand Hurts – Part 1

Computational model exposes severe problems with the welfare system

Pop quiz: When does $9 + $1 equal –$6,000?

This may look like new math, but it is not.

This seemingly nonsensical equation illustrates the challenges faced by families who receive assistance from means-tested welfare programs.

In fact, these exact numbers come from a computer model I designed, which was sponsored by the Georgia Center for Opportunity. It evaluates financial incentives, or more precisely, disincentives embedded in our nation’s welfare system.

This computer modeling examined the potential case of a single mom with two children in Gwinnett County, Georgia. Using 2015 data, if she were offered the opportunity to earn $10 per hour instead of earning $9 per hour, she would lose nearly $6,000 in welfare benefits within a year’s time.

The reason for the loss is not due to her earned income. By increasing her earnings from $9 per hour to $10, she nets an additional $1,820 a year. The reason for the loss has to do with the way the welfare system is designed, or more accurately, the way it has been haphazardly put together over the past fifty years. At $9 per hour, the single mom would be eligible for the following means-tested programs:

  • the earned income tax credit ($5,419),
  • additional child tax credit ($2,000),
  • food stamps ($2,772),
  • free or reduced-cost school meals ($502),
  • WIC food packages ($480),
  • Section 8 housing choice voucher ($9,805),
  • subsidized childcare ($8,918), and
  • Medicaid ($4,570).
  • When added together, this single mom has a benefits package—courtesy of the taxpayers—estimated at $34,467. So instead of bringing home $17,266, her estimated income is actually $51,733 after government subsidies are included. To state it differently, for every $1 she earns in net income, she is eligible for nearly $2 in welfare benefits.

    Now consider the case if she would earn $10 per hour. She would still receive means-tested benefits, but the benefit amounts will change as follows:

  • earned income tax credit ($4,977),
  • additional child tax credit ($2,000),
  • food stamps ($2,352),
  • free or reduced-cost school meals ($502),
  • WIC food packages ($480),
  • subsidized childcare ($8,658),
  • Medicaid ($4,570), and
  • Affordable Care Act credits and subsidies ($3,152).
  • In summary, her benefits drop to an estimated value of $28,938. When combined with her take-home pay, she is worse off by nearly $6,000 from earning $10 per hour than earning $9 per hour.

    What this example demonstrates is the infamous welfare cliff, that unintended consequence of the current welfare system whereby an individual or family loses by earning more.

    Unfortunately, this example is not an isolated incident. It represents what’s happening everywhere.

    Education Savings Accounts and State and Federal Agendas

    Education Savings Accounts and State and Federal Agendas

    A certain desert city’s tourism department hopes you can finish the phrase, “What happens in Vegas…,” a slogan that turns lucky 13 this fall. Yet when it comes to the changing landscape of student learning, what happens in the desert isn’t going to stay there.

    At the end of July, the Nevada Supreme Court held hearings on the state’s nascent education savings account law. In 2015, Sen. Scott Hammond sponsored SB 302, and Gov. Brian Sandoval’s signature made all 450,000 Nevada public school students eligible to apply for an account. The ACLU filed a lawsuit to take children’s educational choices away shortly after the law’s passage. The group charges that the accounts violate the state constitution (a group of parents filed another suit taking away parents’ ability to choose how their children learn, saying that the accounts would be illegally funded from a state source dedicated to public schools).

    Nevada’s account law is the first such law to allow all public school students the opportunity to use an account to buy a variety of educational products and services. Parental choice in education is no longer rare in the U.S., but many of the laws that give parents options between public and private schools are limited to students that meet select criteria. For example, Tennessee and Mississippi’s education savings accounts, also enacted in 2015, are only available to children with special needs. As many Georgia parents may know, the Peach State has a private school scholarship program exclusively for children with special needs, while Louisiana and Ohio have private school voucher options for children from failing schools. The situation is similar across more than two dozen states.

    A ruling in favor of parents and children from Nevada’s Supreme Court would boost efforts in other states, such as Georgia, Texas, Delaware, and Missouri, to name a few, where lawmakers have considered the accounts in recent years. In 2011, Arizona lawmakers enacted the nation’s first education savings account law and have expanded student access to the accounts since its enactment. Arizona children with special needs can apply for an account, along with children from failing schools, adopted children, and children living on Native American reservations, among others. Nevada is the first state to give every public school child this opportunity from day one.

    Education savings accounts have also attracted national attention. Republicans included education savings accounts in their 2016 platform (as for Democrats, who the Wall Street Journal says has a built-in “get-out-the-vote operation known as teacher unions,” education savings accounts were noticeably missing from their party positions).

    In March, Sen. John McCain (R-AZ) introduced a bill to allow all children attending Bureau of Indian Education schools access to education savings accounts. Politico highlighted these students’ need for quality educational options in November 2015 with a feature headlined “How Washington created some of the worst schools in America.” Former presidential candidate and Sen. Ted Cruz (R-TX) introduced a bill in January that would make all Washington, D.C. children eligible for accounts.

    As a result, federal and state lawmakers across the country are watching what happens in Carson City, Nevada. Arizona’s Supreme Court ruled in favor of education savings accounts in 2011 after the state teachers union and other associations brought a lawsuit similar to the ACLU’s charges in Nevada (the Goldwater Institute defended the accounts alongside the Institute for Justice, the group defending Nevada’s accounts). A victory for students in Nevada would mark the second victory for the accounts over challenges that the accounts violate state constitutional provisions that block the use of public funds for private or religious schools.

    Five states have passed the accounts so far, but the accounts are turning into a movement offering families flexible opportunities in education. The successes of these programs, and the lifelong knowledge and skills gained—won’t just stay in Vegas.

    A Marriage Problem In Norcross and Peachtree Corners

    A Marriage Problem In Norcross and Peachtree Corners

    A new report released by The Institute for Family Studies finds that 69 percent of 18-45 year olds in Peachtree Corners and Norcross think single parents can raise children just as well as two parents. Furthermore, 63 percent approve of divorce when married people realize they no longer love each other.

    Permissive attitudes towards divorce and unrealistic expectations for single parents, however, do not make for human flourishing. The report cites sociologist Sara McLanahan and economist Isabel Sawhill, who write, “Most scholars now agree that children raised by two biological parents in a stable marriage do better than children in other family forms.” Additionally, economist Raj Chetty found that the foremost indicator of upward mobility among poor children is the percentage of children with single parents.

    Still, the study does present positive findings. 71 percent of surveyed residents agree that it is important to wait until marriage to have kids. Overall, marriage continues to enjoy high interest in the area: 47 percent of 18-45 year old residents in Norcross and Peachtree Corners are married, and another 46 percent would like to be married.

    Our Healthy Families Initiative (HFI) hopes for more clear thinking on family formation. We want to equip fathers and mothers in Peachtree Corners and Norcross, so they can give what children need: a permanent, stable, and loving home environment. To this end, HFI offers workshops to local residents regarding fatherhood, dating, and relationship building within marriage. Registration for workshops is open for local residents, married and unmarried.