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California More of a Welfare State than Most Countries in Europe

August 29, 2015 in Economics

By Michael D. Tanner, Charles Hughes

Michael D. Tanner and Charles Hughes

When you hear the term “welfare state,” most people think of Europe and countries like Denmark or France. No doubt those countries offer a wide range of benefits targeted to the middle class, retirees and so forth.

But according to a study recently released by the Cato Institute, someone who is poor might just be better off in California.

The federal government currently funds more than 100 anti-poverty programs. While no one participates in all of them, many can and do collect assistance from multiple programs.

In California a mother with two children under the age of 5 who participates in these major welfare programs — Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program (food stamps), housing assistance, home energy assistance, Special Supplemental Nutrition Program for Women, Infants and Children — would receive a benefits package worth $30,828 per year.

By creating such a big disincentive for work, our tangled, ineffective welfare system can harm the same low-income people it is supposed to help.”

Using a similar measure, Cato found that benefits in Europe ranged from $38,588 per year in Denmark to just $1,112 in Romania. The California benefits package is higher than in well-known welfare states as France ($17,324), Germany ($23,257) and even Sweden ($22,111).

In fact, California’s welfare system can be more generous than every country included, except Denmark. Moreover, this benefit package doesn’t include Medicaid, which would be worth roughly $4,459 for this household.

One of the problems with these welfare systems is that they can create situations where participants have little incentive to increase work effort because they would lose most of their earnings through lower benefits or higher taxes, while also having to bear the costs, like transportation, associated with going to work. These people would see little tangible improvement in their standard of living by taking up a job, working more hours or moving up the job ladder.

People in these programs are not lazy, but they also are not stupid. Like everyone else, they respond to incentives. If welfare pays better than work, people on welfare will be less likely to work.

Indeed, economists often discuss the danger that high marginal tax rates can discourage economic activity. But some of the highest effective marginal tax rates in the world are for someone leaving welfare for work.

By creating such a big disincentive for work, our tangled, ineffective welfare system can harm the …read more

Source: OP-EDS

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