Cato Study Distorts the Truth on Welfare and Work

The Cato Institute recently released a wildly misleading report by Michael Tanner and Charles Hughes, which essentially claims that what low-wage workers and their families can expect to receive from “welfare” dwarfs the wages they can expect from working. Using state-level figures, their paper implies that single mothers with two children are living pretty well relying just on government assistance, with Cato’s “total welfare benefit package” ranging from $16,984 in Mississippi to $49,175 in Hawaii. They then calculate the pretax wage equivalents in annual and hourly terms and compare them to the median salaries in each state and to the official federal poverty level. Tanner and Hughes find that welfare benefits exceed what a minimum wage job would provide in 35 states, and suggest that welfare pays more than the salary for a first year teacher or the starting wage for a secretary in many states.

So what makes this so misleading?

For one, Tanner and Hughes make the assumption that these families receive simultaneous assistance from all of the following programs: Temporary Assistance for Needy Families (TANF), Supplement Nutrition Assistance Program (SNAP), Medicaid, Housing Assistance Payments, Low Income Home Energy Assistance Program (LIHEAP), Women, Infants, and Children Program (WIC), and The Emergency Food Assistance Program (TEFAP). It is this simultaneous assistance from multiple sources that lets the entire “welfare benefits package” identified by Cato add up to serious money. But it’s absurd to assume that someone would receive every one of these benefits, simultaneously.

What’s more, their report carries the clear implication that welfare is (or should be expected to be) pulling low-wage workers out of the labor market by making life on welfare so attractive. In actuality, many low-income working families receive assistance through these programs.

Sharon Parrott and LaDonna Pavetti at the Center on Budget and Policy Priorities provide some solid evidence against some of the claims made by Tanner and Hughes. They provide detailed statistics on how little overlap there is in the assistance families receive for multiple programs, and how few eligible families actually receive any benefits at all.

What’s striking to me is that even Cato’s overblown and exaggerated welfare benefits would leave families in eight states with incomes below the federal poverty line. I’d add that it’s a bit odd to look at hypothetical data, when real data on what low income families actually receive from welfare and work is available. The Congressional Budget Office provides comprehensive data on sources of income for households by income fifths. We looked at this in some detail in the poverty chapter of State of Working America (see here). These reputable data tell a very different story about how low-wage workers live their lives. They are getting far less from government assistance than the Cato report implies and are relying much more on income gained from working.

In 2009, average transfer income for the lowest fifth of workers was $4,633 and average labor income was $12,871. (To be comparable with the Cato report, I’m not including Medicare and Social Security income.) Two things are clear here: government transfers are far less than what Tanner and Hughes claim, and labor income far exceeds government transfers for the lowest income group, meaning that real-world low-income families don’t feel so coddled by lavish welfare benefits that they don’t need to work.

Tanner and Hughes are not telling a realistic story about the lives of low income Americans and the income provided to them by transfer programs. Where they have a point is how poorly work pays for too many American families, particularly low-wage workers. If they want to insure that work pays well for single mothers with two kids, it would seem more worthwhile to push for increases in the minimum wage and affordable child care. Cato’s view instead seems to be that since work alone is failing to provide secure living standards for many Americans, we should take away other sources of income from them, too.

  • Bud Meyers

    One only has to consider the source of the “report” first (Fox News,
    who reported on this report, and the Cato Institute) and then not bother wasting any more time actually reading it. They have lost all credibility with me.

    • jim ramsay

      Yeah, too bad it wasn’t MSNBC and the Media Research Center so we would not need to worry about their credibility!

    • Eric

      The Census Bureau released the report indicating 110 million Americans are receiving government assistance. Fox simply reported it….probably because the liberal media completely ignored it..

    • Big Al

      Ya shoot the messenger, when you don’t like the message

  • Lance Zed

    And the Oklahoman– perhaps the worst newspaper in America– just ran an editorial citing the study as a reason for “serious” reform.

  • Mark LeClaire

    and your research for this article , I suppose went much futher and in depth than the CATO Study?

  • Kevin

    In the references listed are USDA and HHS, as well as commentary from offthecharts blog and cbpp (another website of opinions). Given the track records of both USDA and HHS, can we give complete confidence in the numbers being reported? As for, such testimonials are given by Joe Biden, Paul Krugman (columnist), Steven Pearlstein (columnist), Stan Collender (columnist), Ezra Klein (columnist), Independent Sector (who knows their leanings?). So, based on this information neither is “rock solid” in their reportings! It’s a toss up folks!

  • Kay Es

    Every time I read an article like this, I wonder, “Do these people even know any poor people–for real?” I am not talking about the self-reporting interactions with poor people–I mean intimately.

    “….But it’s absurd to assume that someone would receive every one of these benefits, simultaneously.”

    Are you serious? Absurd? Can you really disbelieve that? For many people getting all of their entitlements is just part of the “hustle.” I have known quite a number of these people from all over the country.

    I am sorry the author of this article lost me when she expressed that level of incredulity. I have been told that it was easier to quit a job working at Wal-Mart and get on assistance, than work.

    I get it. We don’t want to malign the poor for fear that we will not be able give aid to those who have a genuine need. But let’s be real about who we are talking about.

    Does what I wrote mean that everyone who receives assistance “hustles”? No, but a lot of people do.

    –A Real Poor Person

    Read the article on Vets triple dipping for greater benefits.

    • GWash64

      You are 100% correct. I run a food pantry and every time I read something like this I wonder how many actual poor people these writers know. I have people who demand that our church deliver the groceries to them (we refuse) because “it’s cold outside.” As though the cold wouldn’t affect the delivery driver. Most (not all) have been brainwashed into thinking that they are owed everything they get.

  • Kay Es

    Single motherhood just happens? A woman wakes up and becomes a single mother? A woman wakes up with no marketable skills to make her able to demand a salary above the minimum wage?
    (Oh, that if none of my business. )
    What you are suggesting is that we regard the plight of the single mother with charity (helping her independent of the choices that she has made). I think that there are more effective ways to give charity than using the clumsy apparatus of the state. If we want to help her, then she will need more than a $10/hour pay bump. Helping her is more than paying someone to just keep her kids.
    But I question if we really want to help her. I think that we just like to trot out the phantom single mother to score points. Bringing her out is supposed to disarm the other side( if they actually have a heart).

    • Aaron

      These programs are about helping the children of single mothers.

    • Micah Pangburn

      I’m going to go out on a limb here and guess you are also pro-life.

      • Big Al

        Pro-life, what is wrong with that?
        It beats pro-death and pro-war. Single motherhood cannot be avoided due to death and divorce. However it is totally avoidable when just hooking up. Take protection so abortion is not even up for discussion. I don’t expect anyone but me to pay to raise my kids, I expect the same from everyone else. We have a SAFETY NET for people on hard times, but it is no longer a safety net, it is a common area.

  • terry1971

    So wait a minute hold everything.

    You are including SSI in this study because SSI is paid out by the state & not Social Security, its a welfare based program.

    So no this isn’t true.

    My husband is disabled & I can’t work unless we want to loose his benefits, which in turn takes away his medical benefits.

    Food stamps, we don’t get much to speak of.

    $15 a month for 2 people.

    He makes $721 a month.

    We can’t afford the bills, so once a month we are without lights.

    But that’s fair to us, my husband never asked to be disabled.

    I want to work, but he needs his medical because otherwise, I’d be working.

  • KF

    You can work when you receive disability benefits. You should have found a counselor who could have properly explained the rules of SSdI

  • georgehollister

    The problem with the US central government supported welfare system is a lack any metric for success. What is considered a failure and what is a success?

  • Big Al

    The bottom line is we need serious welfare reform. Increasing minimum wage will not get it done. That tends to reduce the number of jobs for the working poor. The working poor are the group that need support. Those that CHOOSE to accept assistance instead of working, should not be helped. Everyone needs skin in the game. If an employer cannot fill a position, he will have to raise the wage, that’s what drives up salaries. As long as we are flooding our workforce with illegal immigrants, there will be a gluttony of workers driving down wages. These lowered wages are what discourage our work force and drive them on to public assistance

  • frank96740

    The FACT is that “Welfare” as it is, needs to be abolished! No work, No perks, that simple!!! There are plenty of jobs people can do, they may not like the job but if it needs to be done, they need to do it and get ‘paid’…