According to a new report  released by the conservative Cato Institute, the “welfare system provides such a high level of benefits that it acts as a disincentive for work.” This so-called hidden prosperity of the poor theory just doesn’t stand up to reality.
The report’s findings should not be seriously considered by any policymaker, or anyone else, because there are several major flaws in the analysis. The authors incorrectly assume that a “typical” family qualifies for and receives assistance from all seven of the most common safety-net programs while non-working families get none. There are two crucial blunders with this methodology.
First, the authors greatly exaggerate the public benefits that most people living in poverty actually receive. To bolster their case, the authors assume that the “typical welfare family”—which they define as a single mother with two children—receives each of the following services: Temporary Assistance for Needy Families (TANF), SNAP (formerly food stamps), WIC (a nutrition program for pregnant and postpartum women and young children), Medicaid, housing assistance, utilities assistance, and emergency food assistance. But this is simply not the case in North Carolina or anywhere else in the United States. The vast majority of poor people do not receive all the services they are eligible for, in part because there are not enough funds to allow that.
For example, the share of poor families in North Carolina that receive TANF benefits is very small: for every one hundred families in poverty, there are just 9 families receiving TANF benefits . Nationally, that figure jumps to only 27. Moreover, the majority who receive assistance do so for short periods of time in part-due to federal time limits that have been in place for more than 15 years. Nearly 73 percent of adults receiving TANF benefits in North Carolina have accumulated 24 months or less on their 60-month lifetime limit, according to the Department of Human Services .
Second, the authors grossly underestimate the assistance that families who work but earn low-incomes receive. They incorrectly assume that safety net benefits are available only to nonworking families. But again, this is not true. All of the benefits included in the analysis are available to working families, and these benefits go a long way in helping working families make ends meet. On this point, the Center on Budget and Policy Priorities writes the following four data points in their commentary  in response to the Cato study:
More than half of able-bodied adults in households with children receiving SNAP work while receiving assistance, and some 87 percent worked in the prior year or will work in the subsequent year.
Cato assumes that jobless families that receive TANF also receive SNAP, but that working families do not. In fact, just 16 percent of SNAP households with children received TANF in 2011.
Similarly, CATO assumes that jobless families that received TANF also receive WIC, but that working families do not. In fact, in 2010, just 8 percent of WIC participants received TANF.
While only a small share of TANF recipients receives housing assistance — less than 16 percent, according to Cato’s own data — those who do receive it remain eligible if they get a job unless the job pays substantially more than most former welfare recipients earn. Cato counts housing assistance for families that are not working but assumes that they lose this entire benefit if they find a job.
The Center on Budget and Policy Priorities also explains that the authors ignore large changes to the nation’s safety net in their analysis:
Policymakers have changed the safety net substantially over the past three decades, as we explained recently. Contrary to Cato’s assertions, these programs now do much more to promote work and support low-income working families — and much less to help poor families in which parents are out of work (leading to rising numbers of very poor children).
In light of the acceleration of low-wage work  over the last decade, these supports play a vital role in the daily lives of many low-income working families and can mean the difference between getting by and going homeless or hungry. When so much is at stake for so many adults and children, it is important that policymakers are informed with high-quality analysis and well-researched policy recommendations. The Cato study just doesn’t live up to these standards and should be ignored.