A new study of President Reagan's proposed fiscal 1983 welfare cuts concludes that instead of encouraging people to work--the president's professed aim--the cuts instead will encourage welfare clients to quit jobs they have and fall back on welfare.
How can that be? The computer analysis by the Center for the Study of Social Policy of the University of Chicago found that in 24 states, the average family that now lives partly off work and partly off welfare would have a higher income if its members stopped working. Even in states where income would be higher for those who work, the advantage of working would generally be less than under previous law.
In the District of Columbia, Maryland and Virginia, however, the computer analysis shows that the average working welfare family would end up slightly better off than the one that relied solely on welfare.
But in California, for example, a working welfare mother with two children, who has average wages and expenses for such a family, would have combined income from earnings, Aid to Families with Dependent Children, food stamps, fuel aid and the earned-income tax credit (EITC) of $479 a month under the Reagan proposals, but $561 if she left her job and went entirely on welfare. (See chart for other states.)
The center analysis used projected 1981 average earnings figures in each state for a typical three-member welfare family (mother and two children) and average work-expense figures for such families, then computed welfare benefits on the basis of current state welfare laws and Reagan's proposals.
The reason families can end up better off not working in some states is the interaction of several Reagan proposals for cuts. The most important would give working families fewer deductions for work expenses and larger cuts in benefits under the food stamp program than under current law. As work increases, benefits will drop so sharply that total income will either go down or barely increase.
A similar conclusion was reached by the Congressional Budget Office recently with respect to the initial round of Reagan welfare cuts that was enacted in 1981. The CBO said that it was estimating smaller savings over the next few years than the administration expected from the 1981 welfare cuts because it assumed they would "reduce the work effort of recipients," requiring the government to pay more welfare.
Here are a few examples from then University of Chicago study of how the numbers, work out (figures may not add exactly to totals because of rounding):
* New York: The non-worker would get $409 from AFDC, $15 in energy aid and $84 in food stamps for a $508 monthly total. The worker would earn $486 in gross pay but end up with $320 after paying for work expenses and child care; she'd then get $21 from AFDC, $15 in energy aid, $70 in food stamps and $42 from the EITC, for a $468 total, less than the non-worker.
* D.C.: The non-working mother would get $286 AFDC, $15 in fuel aid and $127 in food stamps for a total of $427. The worker, with $485 earnings but only $319 left after expenses, would lose all AFDC but get $15 in fuel aid, $78 in food stamps and $42 from the EITC for a $453 total, so in the District, it would pay to work.
* Maryland: The non-worker would get $253 AFDC, $18 fuel aid and $138 food stamps for a $408 monthly total. The worker, with $445 earnings but only $293 after paying expenses, would lose all AFDC and get $18 in fuel aid, $91 in food stamps and $42 EITC, for a total disposable income of $443, so it would pay to work.
* Virginia: In Northern Virginia (benefits differ in the rest of the state), the non-worker would get $242 AFDC, $13 in fuel aid and $143 in food stamps for a $398 total. The worker, with $351 gross earnings but only $239 after expenses, would lose AFDC but still get $13 in energy assistance, $120 in food stamps and $35 in EITC, for a $407 total, or a slight benefit for working.
* Wisconsin: The nonworker would get $450 in AFDC, $23 in fuel aid, $66 in food stamps for a total of $539. The worker, with $568 average earnings, would have $365 left after paying expenses. With that income, all AFDC benefits would be lost but she'd get $23 in energy aid, $46 in food stamps and $33 in EITC for a total of $467--a loss of $72.