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Monday, July 11, 2011

Welfare, Poverty and the EITC

“At this festive season of the year, Mr. Scrooge,” said the gentleman, taking up a pen, ”it is more than usually desirable that we should make some slight provision for the Poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.”
“Are there no prisons?”
“Plenty of prisons,” said the gentleman, laying down the pen again.

“And the Union workhouses.” demanded Scrooge. “Are they still in operation?”

“Both very busy, sir.” 
“Oh. I was afraid, from what you said at first, that something had occurred to stop them in their useful course,'” said Scrooge. “I'm very glad to hear it.”
“Under the impression that they scarcely furnish Christian cheer of mind or body to the multitude,” returned the gentleman, “a few of us are endeavoring to raise a fund to buy the Poor some meat and drink, and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?” 

”Nothing!” Scrooge replied. 
“You wish to be anonymous?” 
“I wish to be left alone,” said Scrooge. “Since you ask me what I wish, gentlemen, that is my answer…” (Hearn)

            This famous passage taken from Dickens’ A Christmas Carol is known for its common response to treatment of the poor and disadvantaged.  Much like the charity collectors in the time of Scrooge, the United States is continually looking for ways to improve the “system” by which the poor and needy can be helped.  This “system”, known more commonly as welfare, has a long and storied past within American politics and society, and continues to spark controversy even today.  The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 and its resulting Temporary Assistance for Needy Families (TANF) program provided much needed reform to U.S. welfare policy.  When combined with the Earned Income Tax Credit program (EITC), TANF implementation has shown to reduce the number of families receiving welfare assistance.  However, TANF and EITC have had no impact in decreasing the number of families with children living below the poverty line, and more needs to be done to evaluate the reduction of poverty in this country.
          The United States has a long history of providing welfare to its citizens.  Welfare is the term given to government assistance programs for the unemployed or underemployed. This assistance can be given through many programs, including Medicaid, the Woman, Infants and Children (WIC) Program, Aid for Families with Dependent Children, (AFDC) and most currently, Temporary Assistance for Needy Families (TANF).  Welfare assistance began in colonial times, with the British Poor Laws.  These laws gave financial assistance to those who were physically unable to work, and gave jobs in the workhouses to those who were unable to find jobs, but were physically able to work.  Throughout the 1800’s the United States shifted its welfare focus to that of social reform, sending social workers (known as case workers) to the homes of poor families to train them in the advocated “morals of the work ethic.” (U.S. Department of Health and Human Services) There were also programs for Civil War veterans and their families.  Called the NHDVS (National Home for the Disabled Veteran Soldiers), this program provided a national scattering of respite homes in various locations to support healing and rest for disabled veterans.  (Welfare Information)
          Welfare as we know it in modern times took it’s form during the Great Depression of the 1930’s. The country was deep in the throes of an economic crisis and for millions the single bowl of soup provided by the local soup kitchens was the only food they had each day.   At moments during the depression, the countries unemployment rate dipped to as much as 25%, or one out of every four American men.  Women and children suffered the most.  A poll taken in 1940 revealed that as many as 1.5 million married women with children were abandoned by their husbands during the depression.  An estimated 50% of American children went without adequate food, shelter, and medical care and suffered from rickets as a result. (Feinstein)
          Elected in 1932 and addressing the nation in his 1933 Inaugural address, Franklin Roosevelt, a Democrat from the state of New York stated:
                  “This is pre-eminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great nation will endure as it has endured, will revive and will prosper. So first of all let me assert my firm belief that the only thing we have to fear. . .is fear itself. . . nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves, which is essential to victory. I am convinced that you will again give that support to leadership in these critical days. In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunken to fantastic levels: taxes have risen, our ability to pay has fallen, government of all kinds is faced by serious curtailment of income, the means of exchange are frozen in the currents of trade, the withered leaves of industrial enterprise lie on every side, farmers find no markets for their produce, the savings of many years in thousands of families are gone. More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.  .  .  .   I shall presently urge upon a new Congress in special session detailed measures for their fulfillment, and I shall seek the immediate assistance of the several States. Through this program of action we address ourselves to putting our own national house in order and making income balance outgo.” (Roosevelt)
          President Roosevelt kept his inaugural promise, and within the first 100 days of office, presented to Congress his “New Deal” effectively focusing on relief, recovery and reform, which came to be known as the “three R’s,” and still exist today as the framework for all U.S. welfare policy.  These programs, often referred to as  “Alphabet Soup” due to the number of acronyms, are listed in Figure 1. (Feldmeth)
          In addition to these New Deal programs, the Aid to Dependent Children (ADC) was passed in 1935, falling under Title IV of the Social Security Act and regulated by the Department of Health and Human Services.  The goal of this program was to provide financial assistance to children whose families were unemployed or underemployed, replacing the mother’s aid laws that existed in many states, which was funded mostly by charitable organizations.  The new ADC program promised federal funding up to one third of the total cost, and offered social work services to mothers and children in addition to a cash stipend.  Sadly, most of the federal oversight that was initially included in the bill was omitted from the final draft.  This lack of oversight allowed states to determine which candidates were “suitable” recipients of the money and services, and many states denied candidates based on race, marital status, and to illegitimate children.  For over 30 years, state caseworkers were given total license to cut off benefits to those they deemed unsuitable. In addition to this, individual states passed their own provisions to limit the number of ADC recipients.  For example, the state of Alabama allowed for the termination of ADC benefits if the mother was found to be cohabitating with a man.  Cohabitation as defined by the state of Alabama included all casual relationships with a man, whether or not they were residing together.  Because of this, over 16,000 poor children of Alabama were dropped from ADC.  The Supreme Court Case of King v. Smith (1968) challenged this provision.  Thankfully, the court struck down the state of Alabama, stating that a woman’s sexual relations were unrelated to Congresses intent of providing aid to needy children. (Daniel, Shepherd, Towey)  By the 1970’s several other judicial acts finally removed many of the state revisions placed on the ADC program.  During this time period, the federal government changed the name of the ADC program to “Aid to Families with Dependant Children (ADFC)”, hoping that the inclusion of the word “family” in the title would encourage marriage. The ADFC continued to make state level changes on its distribution of services throughout the 1970’s and 1980’s.  The 1990’s brought much evaluation and criticism of the ADFC program by both scholars and politicians, and it became clear that the New Deal inspired ADFC program was in need of one its self-imposed three R’s; reform.
          Criticisms of the ADFC program included both conservatives and liberals.   The Democrats claimed ADFC was too stingy, had too many requirements, carried a social stigma, and was overly denied.  Republicans claimed that it encouraged dependency, increased the population of needy children, was a burden on tax -payers and was overly generous.  Both parties, as well as the media, spoke of corruption within the social work system that distributed the ADFC benefits.  After much political debate, President Bill Clinton signed in 1996, the “Personal Responsibility and Work Opportunity Reconciliation Act”  (PRWORA).  The passage of PRWORA effectively changed the welfare system in this country.  Before the passage of PRWORA the aim of welfare was to provide assistance to the unemployed and underemployed needy families of this country, stating that all members of our society under a nationally defined income level were entitled to the assistance.  After the passage of PRWORA, the aim of welfare was to provide temporary assistance to only unemployed needy families, with what constitutes “needy” to be determined by each state. President Clinton’s signing of this bill fulfilled his campaign promise to “end welfare as we know it.” The “Temporary Assistance to Needy Families” (TANF) program was instated via PRWORA, and replaced at both the state and federal level the 60 -year old ADFC program.
                        This newly developed TANF program takes federal funding and funnels it to the states, leaving each state to outline and regulate their own detailed welfare programs.  This funding is in the form of a block grant, requiring that the state mandate the assistance be “temporary, promote work, self-sufficiency and responsibility.” (State of Michigan) The federal government does not provide TANF assistance directly to individuals or families. The TANF program became the TANF Bureau under the Office of Family Assistance in May of 2006.  The goals of TANF are: 1) Assist needy families so that children can be cared for in their own home.  2) Reducing the dependency of needy parents by promoting job preparation, work and marriage.  3) Prevent out-of-wedlock pregnancies. 4) Encourage the formation and maintenance of two-parent families. The Federal guidelines for TANF require that there is a 60 -month (5 year) time limit allowed for each individual to receive the benefits, however each state can choose to lessen that amount if they desire.  Also required is that each recipient with a child over the age of 6 works a 30-hour week, and each recipient with a child under the age of 6 work a 20-hour week. (Welfare Information) Each state takes the TANF funding provided by the federal block grant and creates its state welfare name and agency. For example, in Michigan the program is called the “Family Independence Program” (FIP).  In Alabama, the TANF funded program is called “Family Assistance” (FA).  Arizona has a crafty acronym for their TANF program: “EMPOWER”, (Employing and Moving people Off Welfare and Encouraging Responsibility.)
                        Since its implementation in 1996, there has been a dramatic decrease in the number of citizens receiving welfare assistance in this country.  The U.S. Department of Health and Human Services reports that in 1997, 12.3 million Americans received TANF benefits and that in 2010 only 4.4 million Americans received benefits.  (U.S. Department of Health and Human Services) The number of Americans receiving welfare assistance through the old ADFC program peaked in March of 1994 at 14.4 million recipients.  (Welfare Information) Clearly, these numbers point to success when it comes to the reduction of persons receiving welfare assistance under the TANF program as opposed to the ADFC program. The PRWORA effectively put the recipients of welfare to work, encouraging a life of independently earned income, thereby greatly reducing the amount of federal dollars spent on the TANF program in comparison to the amount that was spent on the ADFC program.
            While cash assistance to the needy through the TANF program has greatly decreased in the last 15 years, cash assistance to the needy through the U.S. tax system has substantially increased. The Earned Income Tax Credit (EITC) is now the largest federal cash transfer program for lower income families, costing the United States $34 billion in 2005 compared to the $24 billion spent on TANF.  (Hoynes) The EITC is a refundable tax credit meant to supplement the earnings of low-income workers.  In essence, the EITC supports the concept of work and independence by rewarding those who are employed with a financial incentive.  Within a set range of eligibility, the more a persons income, the more of a tax credit they receive.  This provides incentive to stay working and stay off of the welfare roles. In 2009, many states (including Michigan) added a state level EITC.  These state EITC’s are usually about 10% of the federal EITC’s.  In 2010, a qualifying family with 3 or more children could expect to earn a credit of $5,666.   This money is refundable so that a tax -payer with no federal tax liability would receive a tax refund from the government for the full amount of the credit. (State of Michigan) This is putting money directly into the hands of the poor and disadvantaged while simultaneously rewarding them for work and improved efforts at their workplace. 
            While the implementation of TANF and the EITC has reduced the number of US citizens receiving welfare benefits, it has done little to reduce the number of U.S. families living below the poverty line.  The United States measures poverty thresholds (or the dollar amount needed to be counted poor by the U.S. Census Bureau) each year.  This amount is determined by multiplying the amount deemed necessary to feed a family for one year (as determined by the U.S.  Department of Agriculture), by three.  Any income less than that number (excluding all noncash benefits such as public housing, Medicaid, and food stamps), is seen as a below poverty level income. (U.S. Poverty) Those receiving incomes this low are considered the underworked.  In 2005, the poverty line for a family of five (two adults, three children) was $26,603.   The University of Michigan run Gerald R. Ford School of Public policy, which functions as the National Poverty Center, reports a fairly consistent number of Americans living in poverty from the 1980’s through present.  In 1983, the number of poor individuals was 35.3 million individuals, or 15.2 percent.  For the next ten years, the poverty rate remained above 12.8 percent, increasing to 15.1 percent, or 39.3 million individuals, by 1993. The rate declined for the remainder of the decade, to 11.3 percent by 2000. From 2000 to 2004 it rose each year to 12.7 percent in 2004.  The U.S. poverty rate rose to 14.3 percent in 2009, bringing the percentage of the population living in poverty to the highest level since 1994.  The U.S. Census Bureau said 43.6 million people, or one in seven Americans, lived in poverty in 2009, up from 39.2 million in 1996, the year the PRWORA was signed into effect. (U.S. Census) These numbers show that while poor families may be employed and receiving modest tax credits, they are still living in a state of poverty.  Many of the jobs held by the working poor do not provide a fair wage, health benefits, or time off for illness or childcare related emergencies.  Also, without the monthly check-ins that TANF social workers provide, many of the working poor remain uninformed as to their eligibility for Medicaid, food stamps or other government programs.
            During the upcoming 2012 Presidential election, the candidates may tout the success of the Personal Responsibility and Work Opportunity Reconciliation Act, and specifically the Temporary Assistance for Needy Families program and the Earned Income Tax Credit program.  I expect to hear statistics that show decline in numbers of welfare recipients used as examples of how the government got America working again and claims made that exemplify our social welfare system at it’s best.  There are 43.6 million people living below the poverty line in the United States and only 4.4 million are enrolled in the TANF welfare program.  What is to become of the other 39.2 million poor American citizens?  In 2008-2009 TANF served only 28 families for every 100 living in poverty. (Welfare Information) Clearly TANF and EITC have done nothing to combat poverty in the United States.  Scrooge’s suggestions of “prisons and workhouses” were not an acceptable answer in the 1800’s, nor are they today.  

Figure 1 (Feldmeth)
Act or Program
Year Enacted

Agricultural Adjustment Act
Protected farmers from price drops by providing crop subsidies.

Civil Works Administration
Provided public works jobs at $15/week to four million workers in 1934.

Civilian Conservation Corps
Sent 250,000 young men to work camps to perform reforestation and conservation

Federal Emergency Relief Act
Distributed millions of dollars of direct aid to unemployed workers.

Glass-Steagall Act
Created federally insured bank deposits ($2500 per investor at first) to prevent bank failures.

National Industrial Recovery Act
NRA to enforce codes of fair competition, minimum wages, and to permit collective bargaining.

National Youth Administration
Provided part-time employment to more than two million college and high school students.

Public Works Administration
Received $3.3 billion appropriation from Congress for public works projects.

Rural Electrification Administration
Encouraged farmers to join cooperatives to bring electricity to farms. .

Securities and Exchange Commission
Regulated stock market and restricted margin buying.

Social Security Act

Provided pensions, unemployment insurance, and aid to blind, deaf, disabled, dependent children.

Tennessee Valley Authority
Federal government built series of dams to prevent flooding and sell electricity.

Wagner Act
Allowed workers to join unions and outlawed union-busting tactics by management.

Works Progress Administration
Employed 8.5 million workers in construction and other jobs including arts, theater, literary projects.


Works Cited

Caputo, Richard, K. U.S. Social Welfare Reform. New York: Springer, 2011. 81-103. Print.

Daniel, N., E. Shepherd, and M Towey. "Case Study of King v. Smith." University of Chicago Law School. (2001): Print.

Feldmeth, Greg, D. "U.S. History Resources." N.p., 31 Mar 1998. Web. 1 Jul 2011. <>.

Feinstein, Stephen. The 1930's: From the Great Depression to the Wizard of Oz. 2nd Revised ed. Berkeley heights, NJ: Enslow Publishers, Inc, 2006. Print.

Hearn, Michael. The Annotated Christmas Carol. 1st ed. W.W. Notron and Co, 2004. Print.

Hoynes, Hillary. "The Earned Income Tax Credit, Welfare reform, and the Employment of Low-Skilled single mothers." Paper prepared for Chicago Federal Reserve Bank of Chicago Conference on "Strategies for Improving Economic Mobility of Workers". University of California: Davis, California, 2008. Print.

Roosevelt, Franklin. "Presidential Speech Archive." Miller Center of Public Affairs. N.p., n.d. Web. 1 Jul 2011. <>.

State of Michigan. Earned Income Tax Credit (EITC). Lansing, Michigan: State of Michigan, 2011. Web. 16 Jun 2011. <,1607,7-238-43513-205859--,00.html>.

United States.  Department of Health and Human Services Administration for Children and Charities. , 2011. Web. 1 Jul 2011.

United States. U.S. Poverty. , 2011. Web. 1 Jul 2011. <>.

United States. Welfare Information. , 2011. Web. 1 Jul 2011. <>.

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