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Manhattan Institute

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Poverty After Welfare Reform

report

Poverty After Welfare Reform

August 22, 2016
EconomicsIncome Inequality
Urban PolicyWelfare
OtherPoverty

Abstract

This month marks the 20th anniversary of the landmark federal welfare reform that transformed antipoverty policy—changing an open-ended cash benefit, Aid to Families with Dependent Children, to a more limited entitlement, Temporary Assistance for Needy Families. Critics at the time predicted a catastrophe. That never happened; instead, the reform helped move many single mothers off the dole and into the workforce. Still, the severity of the Great Recession has revived concerns that while welfare reform did benefit many poor families, it left a threadbare safety net in place through which the poorest of the poor have fallen.

Key Findings

  • Children—in particular, those in single-mother families—are significantly less likely to be poor today than they were before welfare reform: child poverty overall fell between 1996 and 2014. This is the case because of household earnings, lower taxes, several refundable tax credits, food stamps and other noncash benefits.
  • “Deep poverty”—defined as having a family income below half the official poverty line—was probably as low in 2014 as it had been since at least 1979.
  • Practically no children of single mothers were living on $2 a day in either 1996 or 2012 (the latest year for which we have reliable statistics), once the receipt of all government benefits are factored in. In 2012, fewer than one in 1,500 children of single mothers were living in what is called “extreme poverty.” This finding is consistent with other research.
  • Official poverty statistics can create a misleading impression that hardship has increased, and that this increase has been due to welfare reform. Government statistics underestimate the income of poorer families, exclude entirely the receipt of valuable benefits, and overstate inflation. The most reliable indicators showing some increase in hardship after 1996 reflect the rise and fall of the business cycle but do not rise steadily—and generally grew worse among groups of Americans who never received cash welfare. The idea that rolling back the 1996 welfare reform would help the poor is wholly unjustified by the evidence.

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Scott Winship is the Walter B. Wriston fellow at the Manhattan Institute. Follow him on Twitter here.

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