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How Not to Cut Welfare Spending

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The U.S. federal budget is now in the neighborhood of $4 trillion. Just ten years ago it wasn’t even $3 trillion. It was “only” $2 trillion in 2002, and didn’t reach the trillion dollar mark until 1987. The greatest component of the federal budget is spending on the welfare state.

Welfare programs

There are in the United States about 80 means-tested welfare programs. These are programs that limit benefits or payments on the basis of the beneficiary’s income or assets. The best-known of these programs are Medicaid; the State Children’s Health Insurance Program (SCHIP); the Supplemental Nutrition Assistance Program (SNAP [formerly known as food stamps]); Women, Infants, and Children (WIC); Section 8 housing vouchers, Temporary Assistance to Needy Families (TANF); Pell grants; farm subsidies; subsidized student loans; Head Start; Healthy Start; Supplemental Security Income (SSI); school breakfast and lunch programs; and the Low Income Home Energy Assistance Program (LIHEAP).

The most egregious of these programs is the TANF program — formerly known as Aid to Families with Dependent Children (AFCD) — because it doles out cash directly to the welfare recipient to spend as he chooses. States receive block grants from the federal government to design and operate programs that accomplish one of the four purposes of the TANF program:

  • Provide assistance to needy families so that children can be cared for in their own home
  • Reduce the dependency of needy parents by promoting job preparation, work, and marriage
  • Prevent and reduce the incidence of out-of-wedlock pregnancies
  • Encourage the formation and maintenance of two-parent families

The “basic assistance” provided by the TANF program costs taxpayers more than $4 billion a year.

And then there are the welfare programs that most Americans have never heard of: the Special Milk Program (SMP), refugee assistance programs, job training programs, community health centers, the Elderly Nutrition Program, the Commodity Supplemental Food Program (CSFP), Community Development Block Grants (CDBG), housing-assistance programs, subsidized low-income phone service, homeless-assistance grants, family-planning programs, adult basic-education grants, legal-services block grants, and the Healthy Marriage and Responsible Fatherhood (HMRF) initiative.

To them should be added refundable tax credits such as the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), and the American Opportunity Tax Credit (AOTC). Regular tax credits reduce the amount of tax owed, but if there is no taxable income to begin with — because of tax deductions, exemptions, or otherwise — then no credit can be taken. However, refundable tax credits are treated as payments from the taxpayer, such as federal income-tax withheld or quarterly estimated taxes paid. If the “payment” is more than the tax owed, the taxpayer receives a “refund” from the government of money never withheld or never paid in. This cash payment is just welfare by another name, since the “refund” one receives was actually paid in by someone else. Refundable tax credits are means-tested in the sense that they are phased out once one’s income reaches a certain level.

According to the Heritage Foundation (a conservative think tank),

  • Today, the U.S. spends 16 times as much on welfare as it spent in the 1960s — about 4 times the amount needed to pull every poor family out of poverty — yet the federal poverty rate remains nearly unchanged.
  • Total spending at all levels of government on the roughly 80 federal means-tested welfare programs, which provide cash, food, housing, medical care, and social services to poor and lower-income Americans, is more than $1 trillion annually.
  • Welfare is the fastest-growing part of government spending. Between 1989 and fiscal year 2008, means-tested welfare spending increased by 292 percent.

And that is just spending on means-tested welfare programs.

There are also several programs that most Americans don’t consider to be welfare programs: Medicare, Social Security, and Unemployment Compensation.

Medicare is government-funded health care for Americans who are 65 or older, are permanently disabled, or have renal disease or ALS. Medicare consists of four parts: Part A (hospital insurance), Part B (supplemental medical insurance), Part C (Medicare Advantage Program), and Part D (prescription-drug benefit). Social Security is properly the federal Old-Age, Survivors, and Disability Insurance (OASDI) program. It provides benefits for retirement, disability, survivorship, and death. Social Security consists of two parts. Under the Old-Age and Survivors Insurance (OASI) part of the program, monthly benefits are paid to retired workers, their families, and survivors of deceased workers. Under the Disability Insurance (DI) part of the program, monthly benefits are paid to disabled workers and their families. Unemployment Compensation is overseen by the U.S. Department of Labor and administered by the states. It provides “unemployment benefits to eligible workers who become unemployed through no fault of their own, and meet certain other eligibility requirements.”

Most Americans don’t consider Medicare, Social Security, or Unemployment Compensation to be welfare because they are partially funded by employers (all three programs) and employees (Medicare and Social Security). Medicare Part A is partially funded by a payroll tax of 2.9 percent (split between employer and employee) on all of an employee’s earnings. Participation in Parts B, C, and D is voluntary. They are funded by a combination of income-based beneficiary premiums and taxpayer subsidies. Like Medicare, Social Security is “funded” by payroll-tax deductions from both employers and employees. The rate is 12.4 percent (split between employer and employee) on wages up to $127,200. Federal unemployment taxes are paid by employers at a rate of 6 percent on the first $7,000 of each employee’s income. The 50 states also assess employers an unemployment tax with a wage base, but are allowed a credit against their federal unemployment-tax liability up to 5.4 percent. Some states also levy some amount of unemployment tax on employees. But those programs are forms of welfare because in no case does the amount of taxes collected fully pay for the program and because there is absolutely no relation between the amount of taxes paid and benefits received.

With the U.S. national debt now around $20 trillion, it is clear that the current level of federal spending on the welfare state is unsustainable. Spending is going to have to be cut, and Republicans in Congress think they have found a way to do it. Or have they?

Unemployment-benefit cuts

The latest scheme by Republicans to cut welfare spending without actually cutting welfare spending is to expand drug testing for recipients of unemployment-compensation benefits and deny benefits to those who fail. This scheme is possible only because the federal government’s drug war has so demonized drugs that the state can do practically anything in the name of combating drug use. But in this case, fighting the drug war is just a means to an end. That end is the political grandstanding by Republicans to make their conservative base think that they are cutting welfare by making it tougher for applicants to qualify for benefits.

Donald Trump earlier this year signed a bill into law making it easier for states to require drug testing for recipients of unemployment benefits. H.J.Res.42, a joint resolution “disapproving the rule submitted by the Department of Labor relating to drug testing of unemployment compensation applicants,” passed both Houses of Congress on party-line votes. The one-sentence text of the bill reads,

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Department of Labor relating to “Federal-State Unemployment Compensation Program; Middle Class Tax Relief and Job Creation Act of 2012 Provision on Establishing Appropriate Occupations for Drug Testing of Unemployment Compensation Applicants” (published at 81 Fed. Reg. 50298 (August 1, 2016)), and such rule shall have no force or effect.

Rep. Adrian Smith (R-Neb.) argued on the House floor that “the Obama administration effectively blocked states from making sure hard-working taxpayer dollars only go to deserving citizens.” However, Rep. Richard Neal (D-Mass.) saw the bill another way: “It’s about allowing states to put one more time-consuming, humiliating obstacle in the way of Americans while they look for new jobs.” In a “statement of administration policy” on H.J.Res.42, the Trump administration maintained that the rule in question “imposes an arbitrarily narrow definition of occupations and constrains a State’s ability to conduct a drug testing program in its unemployment insurance system.”

The rule addressed by the bill “determines the occupations that regularly conduct drug testing for use by States when determining which unemployment insurance applicants may be tested.” The Department of Labor published a Notice of Proposed Rulemaking (NPRM) “concerning occupations that regularly conduct drug testing” in 2014 in accordance with a provision in Title II, “Unemployment Benefit Continuation and Program Improvement,” subtitle A, “Reforms of Unemployment Compensation to Promote Work and Job Creation,” section 2105, “Drug Testing of Applicants,” of the Middle Class Tax Relief and Job Creation Act of 2012 (PL 112–96, H.R.3630, 126 Stat. 156), which states,

Consistent with current law that eligibility for benefits be based on the “fact or cause” of unemployment, this provision sets forth that states may enact legislation to require an applicant to submit to and pass a drug test for the unlawful use of controlled substances only under the following conditions: 1) the individual has been terminated from their most recent employment because of the unlawful use of controlled substances, or 2) the individual’s only suitable work involves employment in an occupation, as determined by regulations issued by the Secretary of Labor, that regularly conducts drug testing.  This provision is consistent with the Federal law requirement that eligibility be based on the “fact or cause” of unemployment, since the only circumstances under which drug testing would be permitted are related to the “fact or cause” or unemployment.

The NPRM proposed that “occupations that regularly drug test be defined as those required to be drug tested in Federal or State laws at the time the NPRM was published.” When the final rule was adopted in 2016, that was expanded “to encompass any Federal or State law requiring drug testing regardless of when enacted.”

There are six problems with the idea of drug-testing applicants for unemployment compensation as a means to cut spending on unemployment benefits because of the denial of benefits to those who fail a drug test. First, if a person is a drug user and is terminated by his employer because of his unlawful drug use, he doesn’t quality for unemployment compensation because he was terminated for just cause.

Second, Section 620.4 of the rule states that “drug testing is permitted only of an applicant, and not of an individual filing a continued claim for unemployment compensation after initially being determined eligible.” There is no requirement that someone who receives unemployment benefits be tested again for drug use after his initial test. A drug user who was laid off from his job could simply wait until he was clean, then apply for unemployment compensation, and then begin using drugs again. A non–drug user could begin using drugs any time after he applied for unemployment compensation with no fear of losing his benefits.

Third, not only could someone use drugs while he receives unemployment benefits, there is nothing to prevent anyone from spending every penny of his unemployment benefits (which are always paid in cash) on drugs throughout the duration of his benefit period. Fourth, there is nothing to prevent anyone from spending every penny of his unemployment benefits on substances and behaviors that are just as “bad” as drug use such as alcohol, pornography, prostitution, and gambling. Why focus just on drug use? Fifth, no state is required to conduct drug testing of those applying for unemployment compensation. And sixth, in more than half of the states, medical marijuana is legal; in eight of them, recreational marijuana is legal. How can someone in one of those states justly be denied welfare benefits for using marijuana when it is legal to do so?

Drug testing of unemployment compensation applicants is neither an efficient nor an effective way to cut welfare spending.

How to cut welfare spending

If drug testing of unemployment-compensation applicants is an example of how not to cut welfare spending, then what is the proper way to truly cut welfare spending? It’s actually quite simple: just cut it. If the federal government currently spends x amount of dollars on welfare spending, then reducing that spending by a certain percentage or amount is a sure way to cut welfare spending. If the federal government currently spends x amount of dollars on a particular welfare program, then reducing spending on that program by a certain percentage or amount is a sure way to cut welfare spending. If the federal government currently operates x number of welfare programs, then reducing that number by a certain amount is a sure way to cut welfare spending. And of course, completely eliminating a particular program is the surest way to cut welfare spending and ensure that it doesn’t creep back up — at least for that particular program.

But if it is so easy to cut welfare spending in whole or in part by a certain percentage or amount or by the wholesale elimination of particular programs, then why is it never done? We know that Democrats, liberals, and progressives in Congress are wary of any spending cuts to any welfare program — as are their constituents and those of any political party who receive welfare benefits. That is understandable. But what about the Republicans, conservatives, and constitutionalists in Congress?

Unfortunately, although they sometimes rail against parts of the welfare state using libertarian rhetoric, it is clear that when they have the power to actually cut or eliminate welfare programs, they usually maintain them as they are, sometimes expand them, and occasionally even create new ones. They simply have no philosophical objections to government welfare programs. Those who do have objections, but continue to vote for welfare spending because it is unpopular not to, because they are nervous about losing campaign contributions, or because they are afraid of not getting reelected are hypocrites and scoundrels. Even the conservatives who elect them and support them generally don’t have any philosophical objections to government welfare programs — as long as they are run efficiently, with minimal fraud, have stringent requirements, have limited benefits, and don’t cost too much.

The reason that welfare spending is never actually cut is that there are a number of things that must first be recognized about welfare programs before members of Congress have the will power to make the cuts and the general public is willing to accept the cuts.

It must be recognized that welfare programs don’t need to be reformed, fixed, saved, revamped, simplified, trimmed, or made more efficient. They need to be eliminated and abolished, and all the government bureaucrats that administer them must be laid off, not reassigned — all of the programs and all of the bureaucrats. Although the elimination of one program or one bureaucrat is certainly to be preferred to the elimination of none, the ultimate goal of abolishing the welfare state must always be kept to the forefront.

It must be recognized that welfare programs are an illegitimate function of government. It is not the job of government to establish a safety net, maintain a retirement program, feed the hungry, house the homeless, eradicate poverty, guarantee a minimum income, subsidize anything, help children, or provide charity.

It must be recognized that welfare programs are clearly unconstitutional. The Constitution nowhere authorizes the federal government to institute welfare programs, fund them, or create departments or agencies to administer them. If there are to be any welfare programs, then they must be instituted, funded, and administered by state governments.

It must be recognized that welfare programs are destructive. They are socialistic, they foster dependency on the government, they shift responsibility from the individual and families to society and the state, they contribute to class warfare, they are collectivist, they encourage indolence and fraud, they crowd out real charity, they are social-engineering schemes, and in many cases they actually harm welfare recipients.

It must be recognized that welfare programs are simply income-transfer programs. They redistribute income from the rich to the poor, from the young to the old, from the well to the sick, from workers to nonworkers, from producers to consumers, and from taxpayers to tax eaters.

It must be recognized that all charity can and should be provided voluntarily. Otherwise, it is not charity at all, but theft. And theft “for a good purpose” does not a philanthropist make. No American should be forced to “contribute” to the welfare of any other American. The decision to aid those in need, like the decision to aid one’s family, friends, or neighbors, is a decision that should be left up to each individual American. A free society includes the freedom to be unsympathetic toward the disadvantaged, unconcerned about the struggles of the disabled, insensitive to the homeless, untouched by the needs of children, apathetic toward the hungry, uninterested in the plight of the poor, and indifferent to the diseased. It all comes down to the question of whether we are to have a society based on freedom or a society based on coercion.

Until those things are recognized by members of Congress, they will continue to fund welfare programs; they might just tinker with them every so often in an attempt to appease those who point out their destructiveness, cost, inefficiency, and fraud rates. Until those things are recognized by the general public, they will not accept cuts to welfare programs. The statist mind-set that plagues both groups holds that members of a free society will not sufficiently help those who are truly in need without coercion or prodding by the government.

Rather than excluding a few people from receiving the wealth of others because they failed a drug test, efforts should be focused on eliminating the income-transfer programs that make welfare possible.

This article was originally published in the July 2017 edition of Future of Freedom.

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