July 26, 1996

Urban Institute Study Confirms That Welfare Bills Would Increase Child Poverty

Summary

On Friday, July 26 the Urban Institute released a study showing that the House welfare bill would push 1.1 million children — and 2.6 million people overall — into poverty, increasing the number of children in poverty by about 12 percent. The study included the following additional findings:

The bill would make large numbers of families that are already poor still poorer. They would fall deeper into poverty. Specifically, the bill would increase the overall depth and severity of child poverty by 20 percent. (Technically, the bill would increase the "poverty gap" of families with children by more than $4 billion, or 20 percent. The poverty gap is the measure of the total amount of income needed to lift all poor families exactly to the poverty line.)

One in five families with children — or 8.2 million families — would see their incomes fall as a result of the bill by an average of $1,300.

Most of the children pushed below the poverty line live in families with a working parent, and more than half of the 11 million families who would see their incomes fall as a result of the legislation are low-income working families.

The assumptions relied on by the Urban Institute are more conservative than the assumptions relied on by the Administration in last year's analysis of the vetoed welfare bill. The report shows that if the same assumptions used last November in the Administration's analysis are applied to the current House bill, the current bill would be projected to push 1.3 million children below the poverty line.

As Senator Moynihan noted yesterday, these poverty estimates are more likely to underestimate than overestimate the extent to which the welfare bill pushes children into poverty and makes already-poor children even poorer.

The Urban Institute assumes that all states will adopt a five-year time limit on cash aid and work slots — the maximum allowed under the bill. Many states are expected to adopt shorter time limits.

The researchers assume that no states withdraw state resources from welfare programs in response to provisions specifically allowing them to do so, although the House bill allows states to reduce state resources for these programs by between 20 and 33 percent (below their 1994 level).

The estimates assume that no states reduce their cash assistance benefit levels except to the extent that capped federal block grant funds prove insufficient to maintain current benefit levels.

The Urban Institute analysis is based on current economic conditions. If the country — or a region — were to suffer a recession, the impact of the bill on poverty would be larger.

The welfare bill that passed the Senate would have an almost identical impact on child poverty.

While the Senate bill does include some provisions that differ, the Congressional Budget Office estimates that the total level of cuts in low-income benefit programs would be nearly the same under the Senate bill as under the House bill. The differences between the bills would have virtually no effect on the number of children projected to fall into poverty, although a harsher House food stamp provision affecting adults without children would likely lead to a larger total number of individuals being pushed into poverty.

Welfare Bill Would Significantly Increase Extent and Depth of Poverty

The Urban Institute report shows that the House-passed welfare bill would push 1.1 million children — and 2.6 million people overall — into poverty, increasing the number of children in poverty by about 12 percent. [1] The report takes into account most of the cuts in low-income programs in the bill, the changes in the structure of the AFDC program, and the effect the bill could have on moving families from welfare to work.

In addition to increasing the number of children who are poor, the report found the bill would also make many children who are already poor still poorer. This is shown by the report's finding that the bill would cause an increase in the "poverty gap," which is the measure of the total amount of income needed to lift all poor families exactly to the poverty line. The "poverty gap" measure includes both the impact of pushing children who otherwise would not be poor below the poverty line and the impact of driving already-poor children deeper into poverty. As a result, it is an important measure of the effects of the legislation on child poverty.

The researchers found that the "poverty gap" for poor families with children would increase by more than $4 billion, or 20 percent. In total, the report found that the bill would leave some 11 million families, three-quarters of whom have children, with lower incomes. One in five families with children — or 8.2 million families — would see their incomes fall as a result of the bill by an average of $1,300.

The Urban Institute calculated the bill's impact on poverty under somewhat different assumptions about the bill's likely effect on moving parents into jobs than the Administration used in its analysis of last year's welfare bill. Most notably, the Urban Institute assumed that a larger proportion of families that would be affected by the time limit would find unsubsidized employment than the Administration assumed. The Urban Institute's analysis, therefore, is based on more conservative assumptions than were used in the Administration's estimates. (It should be noted that the assumptions relied on in last year's Administration analysis regarding the number of parents who would find jobs were more conservative than those used by CBO.) The report released today shows that if the same assumptions used last November in the Administration's analysis were used now, the current House bill would be projected to push 1.3 million children below the poverty line. This is the appropriate figure to use for the purpose of comparing the current welfare bills with last year's vetoed welfare conference bill and last year's Senate welfare bill.

The Urban Institute analysis shows that while somewhat less severe than last year's vetoed welfare bill, the current bill would push more children into poverty than last year's Senate welfare bill, which was estimated by drive somewhat fewer than 1.3 million children into poverty. The main difference between this year's House welfare bill and last year's vetoed bill that would affect the number of children pushed into poverty is the reduction in the severity of the cuts in the SSI program for low-income disabled children.

The Urban Institute Includes Conservative Assumptions

In a press statement on July 25, Sen. Moynihan indicated that the Urban Institute estimates of the effects of the bill on child poverty are likely to be conservative. The Urban Institute used several conservative assumptions in developing their estimates of the effect of the bill on the extent and depth of child poverty.

The researchers assume that all states will adopt the longest possible time limit allowed under the bills — a five-year time limit on cash aid and work slots — rather than adopt shorter time limits. Under the welfare bill, however, states could impose a time-limit of any length and would not be required to provide even in-kind assistance to families that hit a short time limit to help meet the basic needs of the children. At least 13 states have already sought federal approval to implement time limits of shorter than five years, and ten states have time limits of two years or less.

The study also assumes that no states would reduce their cash assistance benefit levels except to the extent that the capped federal block grant proved insufficient to maintain current benefit levels. In their budget proposals this year, the governors of both New York and California — two states with 30 percent of the current AFDC caseload — called for large benefit cuts in anticipation of the AFDC program being converted to a block grant.
Moreover, the bill significantly increases the number of parents required to participate in work programs but fails to provide the resources needed to meet those requirements. CBO estimates indicate that the bill falls $12 billion short of what would be needed to fund the work program. If states reduce benefit levels to free up resources to fund the work program, the impact on poverty could be still larger.

The study also assumes that no states would withdraw resources from income support and work programs in response to specific provisions allowing them to do so. Under the welfare bill, states would be permitted to reduce state spending by between 20 and 33 percent below their 1994 level. In addition, under the House bill, states would be permitted to transfer up to 10 percent of the federal welfare block grant allotment to the Social Services Block Grant, which funds an array of social service programs. Currently states spend significant state resources on social service programs. States could thereby supplant state funds now being spent to fund these services by transferring federal welfare block grant funds into the Social Services Block Grant and reducing state spending on social service programs. Finally, the bill permits states to use block grant resources to fund various services for families with children instead of basic income support.
The bill's impact on the extent and depth of child poverty would be more severe if states significantly reduce their state spending, transfer resources out of the block grant, or use a substantial portion of the federal block grant resources and required state spending for purposes other than basic income support.

The Urban Institute analysis is based on current economic conditions. If the country — or a region — were to suffer a recession, the impact of the bill on poverty would be larger.

The Senate Welfare Bill's Effect on Poverty Would Not Differ Substantially

The welfare bill that passed the Senate would have an almost identical impact on child poverty. While the Senate bill does include some provisions that differ, the Congressional Budget Office estimates that the total level of cuts in low-income programs would be nearly the same as in the House bill. There are two main areas where the cuts in the Senate bill are not as deep as in the House bill. The House bill would deny Medicaid to a far larger number of legal immigrants. This does not affect the Urban Institute's estimates because the Institute's study did not consider loss of health care coverage when considering the effect of the bill on poverty. The House bill also would deny food stamps to a significantly larger number of unemployed adults not raising children. These two differences would have virtually no effect on the number of children pushed into poverty, although the harsher food stamp provision in the House would likely lead to a larger total number of individuals being pushed into poverty.

The Senate bill does include a somewhat higher state maintenance-of-effort requirement. As noted, however, the Urban Institute assumed that under the House bill states would not withdraw state resources in response to provisions allowing them to do so. These differences between the House and Senate bills, therefore, would not affect the researchers' estimates of the number of children pushed into poverty.

Most Of The Families Affected Would Be Working Families

The Urban Institute report indicates that more than half of the 11 million families who would see their incomes fall as a result of the legislation are low-income working families. Moreover, most of the children pushed below the poverty line live in families with a working parent. Families without earnings that receive AFDC and food stamps typically have incomes well below the federal poverty line. On average, a family of three that receives all of its income from AFDC and food stamps current has income $3,000 below the federal poverty line. These families would be made still poorer by the legislation but would not add to the number of children pushed below the poverty line.

FOOTNOTES

1. The report counts a family as poor if the family's income is beneath the federal poverty line. Family income is defined as cash income such as earnings, cash assistance, social security payments, and child support income; plus in-kind assistance that is similar to cash such as food stamps and housing assistance; plus the Earned Income Tax Credit minus federal income and payroll taxes. This approach is consistent with the approach proposed by a prominent National Academy of Sciences panel on the measurement of poverty. Using this definition, the Urban Institute estimates that there are currently 9.7 million poor children.