Statement of Vee Burke, Specialist in Income Maintenance,
Congressional Research Service, Library of Congress

Testimony Before the Subcommittee on Human Resources
of the House Committee on Ways and Means

Hearing on Welfare Reform and Work

April 3, 2001

My task today is to briefly review federal policies and programs that support needy families with children, with a focus on work provisions. Federal cash welfare has a long history, stretching back to the Great Depression. But work rules are much more recent. Over the years many policy changes have occurred. To whom should aid be given? Why? The most significant change has come in perceptions about work. Who can and should work? How can work effort be increased? Do jobs bring self-sufficiency?

History. Chart 1 summarizes the history of work provisions in the program of Aid to Families with Dependent Children (AFDC) and its 1996 successor, Temporary Assistance for Needy Families (TANF). It shows the progression from no work requirement in 1935 to no work exemption in 1996.

As the chart shows, it was not until 1971 that Congress explicitly required AFDC mothers to register for work and training. This action signaled that welfare mothers were no longer seen as outside the labor market, and it recognized the dramatic move of non-welfare mothers into jobs. It also reflected frustration with the size and character of AFDC rolls. By this time most children in the program had two living parents, but the father did not live at home.

The 1971 work registration requirement exempted mothers with a child under age 6. Congress lowered the child's threshold to age 3 (and permitted states to reduce it to age 1) in 1988, when it set up a more rigorous work and training program called Job Opportunities and Basic Skills training (JOBS). Finally, in creating TANF in 1996, Congress exempted no adult from work, but permitted states to exempt the parent of a child under one.

The Welfare "System" for Families. Along with TANF, many programs offer help to low-income parents who work or are able to work. Major programs can be classified in two groups with regard to work rules and work supports.

In the first group, which includes TANF, food stamps, and public housing, are programs that generally require work, training, or study in order to receive benefits. Table 1 shows their work requirements, rewards and penalties.

In the second group, which includes the Earned Income Tax Credit and the Child Care and Development Block Grant (CCDBG), are programs that do not usually require work, but that generally help only those who do work, train, or study. Table 2 shows what supports they provide.

Table 3 shows, state-by-state, potential income (wages, TANF, EITC, and food stamps) of a single parent with two children who works 40 hours weekly at the minimum wage for 1 year. As the table shows, the combination of earnings (net of social security payroll taxes) and food stamps slightly exceeds the 1999 poverty threshold for a three-person family in all states. Addition of EITC raises their income significantly. However, these families generally would remain "near-poor," and might be eligible for support services, including services funded by state TANF programs.

A word of caution. It should not be assumed that a given family receives all the potential benefits shown in Tables 1, 2, and 3. For example, only a minority of eligible families actually receive housing subsidies.

To sum up welfare/work policy, it can be said that the current trend is to treat most parents as potential workers and to support their work efforts. They are required to work and, increasingly, rewarded if they do. At the same time, many evaluations have found that even mandatory welfare-to-work programs that succeed in moving recipients to jobs often do not raise their overall income. Instead, they change the composition of income, increasing the share from earnings.

Chart 1. WORK AND AFDC/TANF: 1935-1996

• 1935 - Original AFDC purpose - encourage at-home care of needy children with only one able-bodied parent. No work requirement. No payment for mother. Program called Aid to Dependent Children (ADC)

• 1950 - Payments allowed for mother.

• 196l - State AFDC programs allowed to aid children with unemployed father.

• 1962 - State AFDC programs allowed to require recipients to work (community work and training programs) in exchange for grant.

• 1967 - Work Incentive Program (WIN). Work rewards added. States required to refer "appropriate" recipients for employment and training.

• 1971 - WIN amended. Mothers with no child under 6 required to participate.

• 1988 - Family Support Act. Mothers with no child under 3 required to participate in new education, work, and training program, the Job Opportunities and Basic Skills Training (JOBS) program. States permitted to require work of mothers when youngest child reached first birthday.

• 1996 - Repeal of AFDC and JOBS. Establishment of TANF. States required to achieve specific and rising work participation rates in programs of their own design. Fiscal penalties for failure. No work exemptions (but states allowed to exempt mothers with child under age one).

Table 1. Work Provisions of Major Income-Tested Programs for Families with Children

Table 2. Work Supports in Some Other Major Programs for Families with Children

Program	Required activity	Work support	Income test?	Interaction with other benefits
Earned Income Tax Credita	To qualify must have earnings.	Credit equals 34% of earnings up to $7,140 in earnings for one child (maximum credit, $2,428); and 40% of earnings up to $10,020 in earnings for more than one child (maximum credit, $4,008). Credits begin to phase out at income above $13,090. They end at $28,281 (one child) and $32,121 (more than 1 child). Credit is refundable-amount that exceeds income tax liability is paid as a check from the U.S. Treasury.	Yes	By law, EITC payments must be disregarded as income and (for 2 months) as an asset by Supplemental Security Income (SSI), food stamps, Medicaid, and low-income housing programs. States decide treatment of EITC under TANF. Forty-seven states have adopted the above rules for TANF. One state disregards EITC altogether. Food stamp disregards EITC as income and, for 1 year, as an asset. EITC is not granted for participation by TANF recipients in work experience or community service projects.
Child Care and Development Block Grant	To qualify, parent must work or engage in school or training (or child must be in need of protective services)	Subsidized child care. Federal law requires parental cost-sharing, with amount of copayment based on income and family size. However, state may waive copayment for families below a state-defined "poverty" level.	Yes	--
Nutrition programs for children in day care or after-school programs	Most children in these programs have working parents.	Federally subsidized meals and snacks, including free or reduced-price meals and snacks for needy children.	Yes - Most often benefits take the form of free meals and snacks for children in low-income school areas.	Where eligibility is individually determined, receipt of TANF or food stamps may automatically qualify the child for free meals/snacks.
Adult training, Workforce Investment Act (WIA)	To qualify for training services, parent must be unemployed or employed, but need training services that lead to "self sufficiency" defined as at least the Lower Living Standard Income Level (which ranges from $24,510 to $29,390 yearly for a family of four in the 48 contiguous states).	Training services include occupational skills training, on-the-job training, entrepreneurial training, skill upgrading, job readiness training, and adult education and literacy activities in conjunction with other training. "Followup" services must be offered for at least 12 months to persons placed in unsubsidized jobs. Localities may offer supportive services (such as transportation, dependent care, housing) to persons unable to obtain them through other programs.	Yes, families with income above "self sufficiency" levels established by states are ineligible. Locality must give priority to recipients of TANF, SSI, General Assistance, refugee cash assistance and other low-income persons for intensive services when funds are limited.	--
Social Services Block Grant	None	States decide what groups to serve, and how. In FY1998, 9.5% of funds were used for child day care.	State option. However, any TANF funds transferred to SSBG may be used only for children and families whose income is below 200% of federal poverty guideline.	--
State-Childrens' Health Insurance Program (S-CHIP)	None	Subsidized health insurance for children	Yes, eligibility limits are established by states within federal guidelines	S-CHIP is not available to families eligible for Medicaid

^aFifteen jurisdictions supplement the federal EITC with state earned income tax credits (generally calculated as a percentage of the federal EITC). Ten states have refundable credits (Colorado, the District of Columbia, Kansas, Maryland, Massachusetts, Minnesota, New Jersey, New York, Vermont, and Wisconsin); five have non-refundable credits (Illinois, Iowa, Maine, Oregon, and Rhode Island). Guam and the Virgin Islands have territorial tax systems that mirror the Internal Revenue Code, including EITC (however, revenues foregone and refunds paid because of their EITC affect their own territorial treasuries, not the U.S. Treasury).

Table 3. Earnings and Selected Major Benefits for a Single Parent with Two Children, Working 40 Hours Weekly at Minimum Wage for One Year(as of July 2000)

Source: Table first appeared in CRS Report RL30579, Welfare Reform: Financial Eligibility Rules and Cash Assistance Amounts under TANF and was prepared by the Congressional Research Service (CRS) based on a survey of the states.

Note: Puerto Rico is omitted from this table. It is not covered by the federal income tax and has no EITC. A full-time minimum wage worker in Puerto Rico would be ineligible for TANF.

^aEarnings net of social security payroll taxes.

^bEITC amounts are based on tax year 2000 credit levels. Colorado, the District of Columbia, Kansas, Maryland, Massachusetts, Minnesota, New Jersey, New York, Vermont and Wisconsin have their own refundable earned income tax credits (generally calculated as a percentage of the federal EITC) but they are not shown in this table. Five states have nonrefundable credits (Illinois, Iowa, Maine, Oregon and Rhode Island).

^cFood stamp benefits are calculated using the standard deduction and the 20% earnings deduction, but not the excess shelter deduction.

^dConnecticut disregards all earnings below the poverty threshold in calculating both TANF and food stamp benefits.

^ePersons with jobs are not eligible for the Wisconsin program of transitional aid.