Welfare reform faces tough going

March 17, 1994|By Robert Kuttner BTC

WASHINGTON — Washington--PRESIDENT Clinton's welfare reform has run into a snag that could become the signature of his administration: bold ideas, insufficient funds. The welfare plan, as it is evolving, will fail to convert welfare into decent work, and could leave the poor even poorer. The welfare reform story is particularly poignant, since Mr. Clinton's original design heralded a real breakthrough.

By 1992 there was broad consensus that welfare -- Aid to Families with Dependent Children -- had failed. Liberals had accepted the conservative critique that AFDC encouraged long-term dependency. Conservatives had accepted the liberal critique that "making work pay" required a solution to the welfare trap.

The welfare trap is the fact that the welfare package typically includes AFDC itself -- plus food stamps, Medicaid and sometimes housing subsidies. When a welfare recipient takes a job, Medicaid is soon withdrawn and other subsidies are often reduced.

A newly employed welfare mother needs around $9 an hour just to duplicate the effective income of the welfare life, especially if she must buy health insurance and child care. But the typical job for an ex-welfare recipient pays nothing like $9 an hour. That's why many who would prefer to work stay stuck on welfare.

In his campaign, Mr. Clinton blended the two critiques. He proposed "to end welfare as we know it" but to "make work pay." He offered a strict two-years-and-you're-out rule combined with the promise that "No one who works full time and has children at home should be poor any more."

Mr. Clinton also represented the left-right consensus on his policy team. He recruited two respected liberal champions of welfare reform, David Ellwood and Mary Jo Bane, to key posts at the Department of Health and Human Services. And he made a leading center-right Democrat, Bruce Reed, welfare reform adviser at the White House.

Mr. Clinton hoped to disarm the welfare trap with an earned-income tax credit, universal health coverage, job training and job creation. While Congress did expand the earned income tax credit last summer, universal health coverage remains unfulfilled, leaving the Medicaid trap intact.

Outside experts who study welfare conclude that Mr. Clinton's original approach, properly funded, would cost $10 billion to $15 billion a year -- in wage and training subsidies, child care, and job creation. But money of that magnitude is not on the table.

Mr. Ellwood, Ms. Bane and Mr. Reed are now heading an administration task force which hopes to offer legislation by early April. But the administration's budget assumptions make it impossible to keep Mr. Clinton's promise. What remains is a draconian residue, more punitive in its effects than anything the Reagan administration proposed.

The task force is now debating final details of several knotty issues:

How much new money is needed, and where will it come from? The task force is on the verge of funding welfare reform at roughly $3 billion a year, rising to $6 billion a year in 1999, mainly by taking other benefits away from the poor. It wants to bar Medicaid for legal immigrants, cut supple mental welfare benefits (SSI), and perhaps cut food stamps and aid for the homeless, too. Welfare reform will be paid for by the poor.

What exactly happens after two years, and will there be real jobs? The task force is leaning toward creating a limbo where AFDC recipients are put into temporary "job slots," but not necessarily jobs. The slots might be short-term community service at minimum wages. Even those who fully cooperated could find themselves with neither a welfare grant nor a real job after an interim period.

Will there be subsidized child care for every AFDC recipient pushed into a low-wage job? And for how long? If former welfare mothers do get new child care benefits, can we deny similar benefits to working-poor families who were never on welfare?

What happens to the 40 percent of AFDC mothers who work part time and receive partial income support from AFDC? This seems a defensible way for a low-income mother to juggle work and child-rearing. But will these people be booted off the AFDC system, too?

One likely compromise would apply the new rules only to AFDC recipients born after 1972. They would get the full job-training benefits and job opportunities. In return they would be strictly limited to two years on AFDC.

This would presumably send a strong signal to teen-agers contemplating the welfare life, while conserving scarce public funds. On the other hand the policy might just as logically target older mothers who, with children in school, are better positioned to enter the labor force.

Despite the consensus on what doesn't work, welfare reformers are still divided between those who would end welfare by building ladders to decent employment and those who want mainly to get tough and let the very poor fend for themselves. And the latter group is prevailing.

Mr. Ellwood and Ms. Bane, whose careers have been devoted to bringing the poor into the economic mainstream, are backing into a "reform" they must abhor. As in health care, the Clinton administration is at risk of winning the symbol and losing the substance.

Robert Kuttner writes regularly on economic affairs.

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