Beware The Mythical $10.96 An Hour Welfare Claim

Another welfare myth is making the talk show circuit: Cato Institute says MO welfare mom gets $10.96 per hour in benefits. Malarkey! Find the truth here!

A report published by the Washington-based Cato Institute claims that a Missouri mom with two very young kids “earns” $10.96 an hour by being on ‘welfare.’

This claim is becoming gospel among some of those who want to slash benefits to struggling families.

That $10.96 ‘wage’ puts Missouri in 30th place on the report’s list, way behind Hawaii and Massachusetts but above Alabama and Mississippi.

The report – The Work Versus Welfare Trade-Off: 2013, An Analysis of the Total level of Welfare Benefits by State – came out earlier this month. It made a small splash in the media ocean. The St. Louis Business Journal, for example, posted a very uncritical item and link to the report on their website on August 21st. Across the nation, other media outlets gave the report a bit of coverage.

A couple of weeks later, alas, the Cato Institute’s creative math is popping-up in a second level of stories. The report is now being cited as proof that America is too generous with struggling families and, therefore, able-bodied adults are staying at home rather than take honest jobs. This is the 2013 version of Johnny Cash’s 1970 “Welfare Cadillac” myth.

Let’s start with a quick reminder. The Cato Institute was founded in the mid-1970’s by Charles Koch and friends to promote smaller government, liberty and other values in a conservative way. The current board includes David Koch of Koch Industries and Ethelmae Humphreys of Tamko Products. The institute is considered a charitable group by IRS because its stated purpose is to educate the public and policy makers. In the Fiscal Year covered in their 2011 IRS form 990 they took in close to $40 million: their top dog had total annual compensation of $500,000+. Many of their employees have compensation above $100,000 a year. Cato hosts seminars, publish papers, provides talking heads for cable TV and behaves like most other Washington think tanks. This August’s report is a follow-up to a publication series begun in September 1995.

From this year’s Executive Summary:

The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15.00 per hour…states should consider ways to shrink the gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.

From the Introduction:

There is no evidence that people on welfare are lazy or do not wish to work. At the same time, however, the evidence suggests that many are reluctant to accept available employment opportunities.

The report calculates the maximum benefits available to a mom with two very young children who qualifies for and receives help from seven basic programs. While it acknowledges that many people do not receive all these benefits, they claim it fair to assume that some do because every program on their list is utilized by at least 10% of the eligible population.

The report’s annual amounts for our mom and kids in Missouri…

$3,504 TANF 12 months at the $292 maximum

$6,312 SNAP The absolute maximum Food Stamp benefit of $526 a month for a family of three

$8,295 Housing A monthly rent stipend of $691.25

$7,092 Medicaid An average coverage cost of $591 per month

$ 935 WIC Vouchers covering mom and both kids

$ 400 LiHEAP Energy Assistance

$ 300 TEFAP Commodity Food, valued at $25 per month

$26,837

Now, the report does note that in Missouri just 13.3% of TANF households receive housing assistance. It doesn’t say that in St. Louis County, the state’s most populous, the list to apply for housing assistance is closed because they have so many more applicants than available housing units. Still, Cato ‘credits’ our hypothetical mom with being that lucky one in seven and a half who gets a housing stipend.

In a head scratcher, in their summary they give mom $400 in LiHEAP while back in Table 12 they note that the average annual utility benefit in Missouri is $167 per year.

Most people lucky enough to have employer-supplied health insurance have part (or most) of their premium paid by their company. If forced to admit what you make, do you include the premiums your boss paid in your behalf? Here the total value of the cost of Medicaid is attributed as direct income to mom.

Many years ago severe cuts in The Emergency Food Assistance Program caused the St. Louis Area Foodbank and their colleagues to reduce the number of pantries carrying government commodities. As a result, a family visiting Circle Of Concern’s pantry in Valley Park is offered a form to take to Feed My People in High Ridge for that month’s available commodities. Similar arrangements abound about the state. Of course, many families do not ask for the forms and not everyone who gets a form journeys to the second pantry.

Don’t forget that only TANF puts cash in a recipient’s pocket. All other assistance gets paid to third parties – grocery stores, doctors, landlords, utilities and such. And, TANF has a 60 month limit. After five years the benefit becomes $0 per month for most recipients. (By the way, just over 36,000 Missouri families currently get TANF.)

As I mentioned, the report’s authors (Michael Tanner and Charles Hughes at Cato) purposely credit the maximum amount potentially available to a mom with two very young kids. They also torture reality in their assumptions. Within their Note 10 back on page 43, for example,

One factor that increases the amount of SNAP benefits received by our profile family in many states relative to some other calculations is the assumption that our family receives LIHEAP benefit. As explained by the Congressional Research Service, “a SNAP household can use the Low Income Home Energy Assistance Program (LIHEAP) payment (regardless of the amount of that payment) to document that the household has incurred heating and cooling costs. This documentation triggers a standard utility allowance (SUA), a figure that enters into the SNAP benefit calculation equation.” These Standard Utility Allowances are generally higher than the actual utility expense occurred and have the effect of increasing SNAP payments.

Now, in my experience crossing four decades of reviewing information on a few thousand St. Louis area families receiving pantry help and Food Stamps, I seldom found a family with utility bills lower than the standard allowance. In Missouri it gets hot and it gets cold. That SUA is based on, well, a national standard calculation and not Missouri reality.

So, if you are confronted by a believer in the $10.96 an hour myth, point out that the number comes from a Washington think tank and not what’s real here in Missouri.

A Missouri mom only gets $292 to spend where she feels it’s needed. That’s equal to about 40 hours per month at Missouri’s minimum wage of $7.35 an hour. (Feel free to point out that the maximum TANF grant hasn’t been increased since John Ashcroft was governor.) If you add the maximum Food Stamp and TANF benefit amounts ($818 a month for a family of three), mom “earns” about $4.72 an hour equivalent in fulltime wages. The other benefits are more miss than hit.

Or, you could ask the obvious question: if anyone really could get $26,837 in benefits by staying at home and collecting welfare, how do the fast food restaurants stay open when the teenagers are in school?

The kicker: tell that doubter that Missouri’s most utilized benefit program, Food Stamps, today helps a tremendous number of “working poor” families where the adults do have jobs – they just don’t earn enough to escape poverty. Maybe they should apply for jobs at the Cato Institute.

Posted in Economic Justice.