Welfare Fallacies

It is interesting to note here that the authors chose proportionately sized samples for their analysis: comparing a wide pool of welfare states from both U.S. and European categories, which is very important when passing collective judgment on the way we organize and structure our society.

In their new analysis, The Work versus Welfare Trade-Off: Europe, Cato Institute Senior Fellow Michael Tanner and Research Associate Charles Hughes find that, contrary to stereotypes, U.S. welfare benefits are more generous than those in many European countries normally associated with bloated welfare states.

Hawaii, the District of Columbia, Massachusetts, California, New Jersey, Connecticut, Maryland, Vermont, New York, and Rhode Island have the most generous welfare packages in the United States.

“When most people think of welfare states they think of Europe, and our study does show that benefits for the poor are quite high in many European countries,” Tanner said. “But, surprisingly, we also found that benefits in the United States are not appreciably lower than the European average; U.S. benefits fit comfortably between those of Sweden and France.“

Social welfare benefits may be so high in many places, compared to what a low-skilled worker could expect to earn at an entry-level job, that they are actually discouraging work. High effective marginal tax rates also deter work, as they often mean a loss of additional earnings for people returning to work from unemployment.

Tanner and Hughes use data from the European Commission and the Organization for Economic Co-operation and Development (OECD) for 2013 (the most recent year for which sufficient data is available) to determine what a single parent with two children could receive in benefits in 23 EU countries. They focused their research on four broad benefit categories: social assistance, housing assistance, family and child benefits, and tax credits. Using a similar measure to analyze welfare benefits available in U.S. states, Tanner and Hughes found:

  • Connecticut, New Jersey, California, Massachusetts, and the District of Columbia each offer a potential benefits package worth at least $29,586 per year, which is more generous than every European country included except Denmark.
  • Rhode Island, New York, Vermont, and Maryland each offer a potential benefits package worth at least $27,330 per year, which is more generous than every European country included except Denmark and the United Kingdom.

“Significantly, many European countries have realized that high welfare benefits can be a significant disincentive for work and begun to reform their welfare systems. In some cases, this puts them ahead of the U.S.” Tanner concluded.

Tanner and Hughes encourage U.S. states to join the EU countries creating incentives for people to work instead of relying on welfare. The authors argue U.S. states must examine the level of benefits available and the effective marginal tax rates created in their welfare system, as well as consider strengthening work requirements, establishing time limits for program participation, and tightening eligibility.

Read the full report here.

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