When they hear the term “welfare state,” most people think of Europe — especially Denmark or France. No doubt those countries offer a wide range of benefits targeted to the middle class, retirees and so forth. But according to a study released by the Cato Institute this week, someone who is poor might just be better off here in New York.
The federal government currently funds more than 100 anti-poverty programs. While no one participates in all of them, many can and do collect assistance from multiple programs.
In New York, a mother with two children under the age of five who participates in six major welfare programs (Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program, housing assistance, the Low Income Home Energy Assistance Program, the Special Supplemental Nutrition Program for Women, Infants, and Children and free commodities would receive a total benefits package with a value of more than $27,500 per year.
Using a similar measure, Cato found that benefits in Europe ranged from $38,588 per year in Denmark to just $1,112 in Romania. In fact, New York’s welfare system can be more generous than every country in Europe except Denmark and the United Kingdom. New York is much more generous than such well-known welfare states as France ($17,324), Germany ($23,257) and even Sweden ($22,111).
If welfare pays better than work, people on welfare will be less likely to work.
Moreover, this benefit comparison doesn’t include Medicaid, which would be worth roughly $10,460 for this household, because Europe’s health-care systems are not targeted to the poor, unlike Medicaid.
One of the problems with these welfare systems is that they can reduce the incentive to increase work effort because beneficiaries would stand to lose most of their earnings through lower benefits or higher taxes, while also having to bear the costs associated with going to work, like transportation.
These people would see little tangible improvement in their standard of living by working more hours or moving up the job ladder.
They’re not lazy, but they’re also not stupid. Like everyone else, they respond to incentives. If welfare pays better than work, people on welfare will be less likely to work.
Indeed, economists often discuss the danger that high marginal tax rates can discourage economic activity. But some of the highest effective marginal tax rates in the world are for someone leaving welfare for work.
By creating such a big disincentive for work, our tangled, ineffective welfare system can end up punishing the very low-income people it is supposed to help, in addition to the taxpayers who must fund nearly $1 trillion per year in anti-poverty spending.
After all, the evidence strongly suggests that work, even in a low-paying entry-level job, is an important route out of poverty: fewer than 3 percent of Americans who work full-time are poor.
Many countries in the European Union have recognized some of these problems and begun to reform. For example, several countries have consolidated multiple programs in their patchwork welfare systems.
Others have strengthened work requirements or established time limits for benefits. Still others have established or expanded work-based tax credits or transitional assistance to increase the value of work.
In many cases, these reforms are tentative, but they’re steps in the right direction.
In that sense, despite the conventional wisdom that welfare in Europe is more expansive and entrenched than in the United States, at least some of these countries are farther along than the United States in terms of recognizing these problems and taking steps to address them.
Unfortunately, New York doesn’t seem to be heeding the call, even as more signs emerge that the current system is riddled with flaws. A recent government report found that New York had almost 11,000 families with income over the statutory limit still living in public housing, by far the most in the nation; one family earning almost $500,000 continued to receive assistance.
And the changes that are being pursued seem to be going in the wrong direction: The state employs a waiver for food stamps exempting able-bodied adults without dependents from work requirements, and Mayor de Blasio’s welfare plan for New York City would place much less emphasis on quickly connecting participants to jobs.
In other words, New York has yet to learn from Europe’s mistakes.