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Report on

Replacing Welfare Programs with a Universal Basic


Income
Prepared by the
Office of Representative Dave Brat (R-Va.)
September 6, 2016

Turn Welfare into Cash: A Guaranteed Basic Income

We should replace the ragbag of specific welfare programs with a single comprehensive
program of income supplements in casha negative income tax. It would provide an assured
minimum to all persons in need, regardless of the reasons for their needA negative income tax
provides comprehensive reform which would do more efficiently and humanely what our present
welfare system does so inefficiently and inhumanely.
What most people really object to when they object to a free market is that it is so hard for
them to shape it to their own will. The market gives people what the people want instead of
what other people think they ought to want.
-

Milton Friedman

U.S. welfare programs are a complicated, expensive mess.


They dont work well, trap people in poverty, and encourage social breakdown.
Converting them into simple cash payments is better for the poor and for taxpayers.

Welfare is a Mess
The U.S. welfare state includes about 81 federal programs for low-income people costing
taxpayers $1.08 trillion per year. Thats about $3,300 per person in the United States and
$23,000 per person in households with earnings below the poverty level. The Cato Institute
reports that 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 per hour.
Education costs even more. Per-student spending in public K-12 schools is about $13,000and
that excludes some costs. Head Start spent $8.6 billion on 943,534 children in 2015, which is
$9,113 per pre-school student. Finally, low-income adults can get up to $5,815 per year of
college from Pell Grants.
But thats not all. Welfare programs have other problems. Some have eligibility cliffs: instead
of benefits phasing out gradually as income rises, they drop off suddenly. People can be made
worse off by earning more. That discourages people from climbing the economic ladder and can

trap them in poverty. They also penalize marriage, exacerbating social breakdown and
undermining stable homes that children need to succeed.
Pennsylvanias Secretary of Public Welfare showed how benefits can change with earnings for a
single mom with two kids. If she earns nothing, shed get benefits of about $46,000. Education
could add another $16,000, bringing the total to $62,000.But their quality of life can decline
when earnings cross arbitrary levels that make benefits drop off.
Her family is better off with her earning no more than $29,000 UNTIL SHE EARNS MORE THAN
$69,000! These welfare cliffs can trap people in poverty. They may be poor, but they arent
stupid. Not many people are willing to make themselves that much worse off now for the hope
of maybe doing better someday.

Total spending on welfare has grown rapidly in recent decades to more than $1 trillion per year
now. In addition, spending per low-income household is rising rapidly. Over the next decade its
projected to grow by 64% to more than $47,000 per household.

A Simple Alternative
In 1962 economist Milton Friedman proposed a negative income tax in Capitalism and
Freedom. People earning below a certain amount would get supplemental pay from the
government, the opposite of paying taxes to the government. This has been combined with
wage subsidies through the Earned Income Tax. Both ideas increase the cash going to lowincome households, letting them choose their priorities.
Another approach is a universal basic income. Like wage subsidies and a negative income tax, it
respects the choices of low-income Americans. It would replace the complicated mess of
existing welfare programs that undermine families, discourage work, and keep people from
doing better than just getting by.
American taxpayers spend $23,000 per low-income person each year on welfare programs that
directly assist households below the federal poverty level (FPL). The 2016 FPL for individuals
under 65 years old is $11,880 and increases for each additional person in a household.
The FPL for a family of three is $19,073. Such a family headed by a mother who does not work
at all receives benefits with a value of $22,587. If she works full-time at a minimum wage job,
work compensation and welfare come to $37,247, or nearly 47,000 if section 8 housing
vouchers are available.

Welfare for Working and Non-Working Single Mothers


$50,000

$46,967

$45,000
$40,000

$19,073

$35,000

$20,000
$15,000

$2,911
$11,432

$22,587

$4,623
$1,506

$1,506

$10,005

$7,260

$7,260

$13,853

$13,853

Earnings and Welfare Benefits

With Section 8 Housing

$10,000

$5,964

$5,000

$5,112
$1,506

$0

$37,247
$10,005

$30,000
$25,000

$10,005

Mother does not work at all


during year
Earnings
School Meals
TANF

Mother works full time at Minimum Wage


Refundable Tax Credits
Section 8 Housing
Food Stamps

A well-designed basic minimum income for below-poverty-level households could


-

Respect low-income Americans preferences and choices.


Reduce the burden on taxpayers.
Eliminate the complicated rules for welfare programs.
Stop discouraging family formation and work.

Putting this into practice requires getting a lot of details right. Should everyone get these
payments? Under what circumstances should work or education be required? Should payments
be adjusted based on health conditions or cost of living?
The States provide successful models for providing a safety net for our most vulnerable while
also supporting transitions from welfare to work for those who are able. Since reforms took
effect in October 2014, Maine has experienced more employment, higher wages, and less
dependency. Work requirements in Kansas have resulted in able-bodied adults moving into
the workforce, earning more, and leaving poverty behind.
A recent paper from the Mercatus Center reviews the history of those efforts and concludes by
recommending that the federal government provide States with block grants and let them
design assistance programs. Rather than designing a single program with a single set of rules,
state-led implementation enables experimentation, more opportunities for learning what
works best, and more flexibility for changing programs as more information becomes available.
State-designed welfare policies could ensure that those who can work are either working or
training to work. They can ensure that those who cant work can get by, at least until they can.
States can make sure that public assistance doesnt keep people from climbing the ladder of
skills, experience, and opportunity. And reducing the burden of these programs can create even
more room for prosperity and a life of flourishing.

This report was prepared by Kurt Couchman in the office of Rep. Dave Brat.