Cato’s Fundamentally Flawed Analysis

The Cato Institute released a report this week that argues that people on “welfare” are better off than low-income working families.  In reality, that couldn’t be further from the truth, as we explain in our recent commentary.

Cato’s analysis makes two fundamental errors:

• It substantially overstates the help that poor jobless families receive. Cato assumes that when a parent is out of work, the family can readily access cash welfare benefits, housing assistance, nutrition assistance through SNAP (formerly food stamps) and WIC (for pregnant and new mothers, infants and young children), and Medicaid.  But, very few families get that much help.  Just one-third of families that are eligible for cash assistance in the state they live in actually receive it.  Among those who do get help from TANF, Cato’s own figures show that just 15 percent also receive housing assistance.

• It substantially understates the help that low-income working families get. Cato ignores the fact that low-income working families are eligible for, and receive, assistance through programs such as SNAP, Medicaid, housing assistance, and WIC.  These are important supports that help working families make ends meet.  For example, 86 percent of children who get health insurance through Medicaid or the Children’s Health Insurance Program (CHIP) are in working families.  And, more than half of able-bodied adults in households with children receiving SNAP work while receiving assistance.  When families leave welfare for work, the other forms of assistance they receive — such as SNAP and housing assistance — continue and only begin to fall if the family’s earnings exceed the amount it received from cash welfare benefits.

Moreover, due to changes to the safety net over the last few decades, these programs now do much more to promote work and support low-income working families.  They help keep millions of working parents and their children out of poverty.  To be sure, many working families still struggle to make ends meet, particularly if they face high child care costs, but Cato offers no policy proposals to improve these families’ financial security.

The changes to the safety net haven’t all been positive:  contrary to the picture that Cato’s report paints, these programs now do much less to help poor families in which parents are out of work.  This has led to an increase in the number of children living in deep poverty, which Cato’s policy recommendations would worsen.

Ultimately, the fact that so many families work to provide for their children is the real evidence that Cato’s analysis is misguided.  Looking at children in families below 150 percent of the poverty line in 2010, 15.7 million of them lived in working families that did not receive any TANF cash assistance that entire year.  By contrast, there were only 2 million children in TANF families without significant earnings that year.  These hard-working families seem to understand a lot more about the value of work than Cato does.

Click here to read our commentary.