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!

      • Mr. X.

        HEY! Don’t make fun of MSNBC! Al Sharpton is a beacon of journalistic integrity and a value to our country. Wait it’s not opposite day?

    • 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?

    • leehester

      Anybody in academia will tell you it is far easier to write a paper critiquing another position than it is to argue a position to begin with. In this case, the Cato study is so flawed that it makes the critique a no-brainer.

      If the logic of the methodology is wrong, all one needs to do is examine the methodology. In this case, not only are there some gaping flaws logically, but it can be shown with some fairly obvious statistics that the Cato study’s conclusions can’t possibly follow.

      Besides, what makes you think Cato did much in the way of work…. it appears the main work of their analysts was trying to find a hypothesis that was as inflammatory as possible and then force the data to fit their views.

  • 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!

    • leehester

      With the amount of congressional oversight of every branch, I think you can trust USDA and HHS statistics. Extremists of both the left and right will automatically start an investigation if any of it is questionable from their perspective…. and sometimes even if it isn’t. This is part of the reason why the various branches find it so hard to make any policy statements. Those can always be argued. But a straightforward statistics, like how much is paid out to each family, or how many families receive payments is something that is what it is. The only way to cook the books would be to actually cook the books…. actually lie. Congress would be all over them.

      Whether a person is on the left or right of an issue shouldn’t be the issue…. their argumentation should be. If a conservative has the best argument, we need to listen to them. Likewise if a liberal does. If you automatically throw out one side’s arguments just because they are the ones making them, then you should expect the other side not to listen to your argument.

      One interesting example from your list is Krugman…. regardless of his politics, he did win a Nobel Prize in economics….

      Both sides need to listen to each other and both need to make arguments. In this case, it looks like Cato really blew it.

  • 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.

    • Mr. X.

      Exactly, the state can’t protect people from themselves. A lot of people make bad choices on a regular basis.

      • Tara Paisley

        My mother was a single parent due to divorce, not due to poor choices. She made 50 cents a year too much to qualify for help. We managed, but barely.

  • 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.

    • Abc

      So why aren’t you working? That is the problem with the system. You expect someone else to work to support you. Obviously the system is good enough for you to justify your lazy life.

      • Tara Paisley

        Apparently the problem is he needs to have medical insurance, which if she worked somewhere, they would not be able to afford.
        Depending on the time of his disability, he may have worked and put money into the system, but is too young to retire. That happened to my step-dad when he was in his late 40’s. Thankfully, he happened to invest in some long term disability insurance. That helped until he was able to win his case to declared unable to work by Social Security.

  • 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’…

    • Stormie

      Oh, really? My husband is on dialysis, in constant pain, falls an average of twice a day, and is on about 12 meds, including three injectables. In the past 10 years, he’s had three moderate strokes and 21 (not a typo) minor strokes. Right at this moment, he has about 10 ulcers infected on his feet (an improvement). What job do you think he should do? Run a forklift, maybe? Maybe if he worked in a mattress store, at least when he fell he’d have a good chance to hit something soft.

      Nimrod. Not everyone is on “welfare” (which my husband and I paid into for over 15 years) because they don’t want to work.

      • Tara Paisley

        It sounds like your husband needs to be transferred to disability instead of welfare. Although I realize that it doesn’t pay near enough.

  • kjdjr

    ok dummies, cut the TOP 15 in half, what is minimum wage other than a 40 year old taking a 16 year olds job ?

  • Consultant

    No its not absurd and they do receive all these benefits especially the “professional” welfare collectors. They have this down to t science.

  • Daniel Sloughter

    The Cato Institute is a “PAY for Results” study Institute. So nothing “Factual” is in any of their “Study results”. And can never be taken seriously…….

  • Caniac Steve Henderson

    the authors of this rebuttal is wrong as notice they never included the actual number pr state that actually do get ALL of the benefits they posted in the article…IF they had done that as some have done in my state of NC, they would have found the cato’s article on target for 97% of those 35 states…and then there is the cost of welfare that illegal aliens & their families get…as here from A-Z illegal aliens & their families will get for yet another year 2Billion dollars .. I believe it was 1.8 billion on 2013 and it was 2 Billion in 2014

  • Abc

    Amazingly, this article’s comments are in direct conflict with the reality that people are actively trying to get on welfare to avoid having to work. Proof of that is very few ever come off of welfare. So regardless of the specific amounts received, they are overly attractive.

    CATO’s one shortcoming is ignoring the inherent value of leisure vs. the trouble of work. Even a significant discount in the
    rate that welfare pays would be enough to encourage many to remain on welfare.

    A demonstration of this is the extension of unemployment benefits back in 2008 and on. It clearly leads to many not even trying to get a job, as was widely reported. Locally we had a high unemployment rate, but it was impossible to hire someone for minimum wage work, even when offering a couple of bucks bump. Unless, of course, you agreed to do it off the books.