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How the left guaranteed social spending

By Robert B. Carleson
web posted March 17, 2003

The left was very clever in 1935 when it created the Aid to Families With Dependent Children program, what we commonly call welfare. They simply made it an open-ended, State administered entitlement program with the States setting the eligibility requirements and benefit levels. The federal government automatically matched whatever a State government spent. All states received a dollar for dollar match and those States with a greater number of poor families were allocated a greater percentage match. Since that time other programs have been created using the same principle. Medicaid and the old social services programs are examples. The result was that since the end of World War II the nation's family welfare rolls have increased every year in good economic times as well as bad. They became virtually out of control in the 1970s. The exceptions were 1974, as a result of some other States following Governor Reagan's lead, and 1982, as a result of his 1981 reforms as President of the United States. The tide was turned when the 1996 welfare reform plan ended the old system, and its momentum can have even more far-reaching effects.

I became aware of the effects of open-ended federally matched entitlement programs shortly after Governor Reagan appointed me California welfare director in January 1971. My team and I hit the ground running since we had laid out real welfare reform through our service on the Governor's welfare reform task force. The welfare rolls started going down in March and they continued for the two years that I was welfare director. When the rolls first went down, we started getting heat from the liberal Democrats in the legislature. They claimed that since the rolls were going down "we were losing federal money." Of course, we were "saving" federal money as well as State money. Ronald Reagan took the heat which few other governors were willing to do. On the contrary, most States were expanding their welfare rolls simply in order to get more federal money. That is why the nation's family welfare rolls went up even in good times. A well-designed system should fluctuate with the economy. When unemployment is high the rolls can be expected to go up and when it is low the rolls should drop.

Part of the Reagan welfare reforms of 1981 was the removal of the provision that States could not require work in exchange for the benefits, but no States used the new power until Governor Tommy Thompson did so successfully.

Finally, with the surprise 1994 Republican takeover of the House of Representatives and the Senate, we went to the leadership and asked them to end the open-ended federally matched entitlement program and to replace it with finite "block grants." Most federal requirements were removed, a work requirement was added and the States now could keep what they saved when they placed people in jobs. The result was an immediate drop in the nation's welfare rolls and sooner rather than later, a drop in every State. This has been continuing even through the recent recession. Those who say that the success of the 1996 welfare reform was because of the booming economy should look back to other good economic times. In those times, when the States had more money to spend, they would expand their welfare rolls simply to obtain the federal matching money. The 1996 welfare reforms simply reversed the incentives since before then it paid the States to keep families on welfare. Now, the States not only save their own money when they reduce their welfare rolls, they also are able to keep the federal money. And best of all, well over half the families are free of dependency. Prudent states are setting some of these savings aside for bad economic times when the rolls may increase temporarily.

When the "Reagan-style" welfare reforms were proposed in 1995, Senator Daniel Patrick Moynihan (D-NY) and the Urban Institute cried that if they were enacted there "..would be a million children in the streets within a year." Furthermore, the States would "...rush to the bottom with the new power." My challenge to that charge was please tell me which Governor and which legislature would turn their poor children on to the streets. It's now over six years and no Governor or legislature has done so. Federalism works.

Now it is time to do the same with several other open-ended entitlement programs. The States can be trusted to do it right in food stamps and Medicaid and the welfare program for the disabled. All of them are full of waste, fraud and abuse because in food stamps and Medicaid there is no incentive for the states to make them work effectively. And the welfare program for the disabled should be moved back to state from federal control. Many governors and legislatures will not want the responsibility, but there are some who will take it and make it work. In the other States the voters can elect new officials. Ronald Reagan was a Jeffersonian conservative. He trusted the people and the States. It is time to continue the reforms of 1996 in these other "people" programs.

Robert B. Carleson is Senior Fellow at the Free Congress Foundation. He served as Special Assistant to President Ronald Reagan for Policy Development.

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