Mixed Messages Inhibit Escape From Welfare

The recent 10-year anniversary of welfare reform provided an opportunity for both Democrats and Republicans to claim victory. President Clinton recently described how political compromise by both parties led to one of the crowning achievements of his Administration.

There’s one problem with this assessment -- the work’s not done. Despite the lauded overhaul of 1996, Temporary Assistance for Needy Families (TANF) policies are failing to promote the primary goals of welfare reform in two important ways: economic independence and personal responsibility. This is because TANF rules across the country send a series of mixed messages that make it harder for many families to chart a path out of poverty.

The main culprit is a rule that links program eligibility to a family’s savings. If a family has assets that exceed the defined limit, they can’t qualify for benefits. In theory this makes sense -- you don’t want well-off families taking a share of limited resources when there are others with real need. Yet the work requirements and time limits that characterize TANF are enough to deter anyone with other options: in fact, state administrators report they don’t even need the rule. The continued presence of asset limit rules on the books has become not only an unnecessary administrative burden to the state agencies that enact the rules; there is reason to believe it also actively discourages saving -- one of the truest paths to economic independence.

In interviews with welfare recipients in the D.C. area, these men and women made clear their aspirations to take part in an ownership society, sharing dreams of homeownership and saving for retirement. As these individuals make the difficult first steps from assistance to independence -- from welfare to work -- low-income families are presented with a confusing ultimatum: they can either 1) save money and forfeit future public assistance or 2) spend their money and remain eligible for benefits. In the face of a weak economy, there is little incentive for families to begin saving at all.

Without savings, there is no chance families transitioning off welfare can successfully weather income shocks due to illness or unemployment. The slightest setback will plunge these hard working families back into poverty and back on the rolls. If TANF were to instead encourage saving and investment -- while giving the assurance of a government safety net -- families could start to create their own nest egg, and move one step closer to their dreams of financial security.

Since 1996, a few states have taken action to correct this policy contradiction by increasing the asset limit governing TANF and other income support programs. Some, including Virginia and Ohio, have gone a step further in completely eliminating asset tests for the TANF program. Not only have these states reported no "horror stories" of wealthy individuals receiving assistance; public officials note that repealing asset limits has actually reduced administrative costs, saving states money in a time of escalating deficits.

To complete welfare reforms, the District and states like Maryland should eliminate asset tests for TANF, food stamps, and related income support programs. This can be done through legislation or, as seen in some states, directly by state administrators. What’s more, states should work to actively encourage saving by providing financial education and assistance in opening a bank account.

Eliminating asset limits for income support programs is a simple, cost-effective way to make welfare policy align with the goal of promoting self-sufficiency. Taking these unnecessary, punitive regulations off the books is an important step in validating welfare’s message ten years later -- ensuring that individuals who get a job, work hard, and save for the future will enjoy the American dream of economic independence.