Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 52
Temporary Assistance to Needy Families. 50 More than 85 percent of all FSP households
fell below the national poverty line. 51 Only 26.8 percent of FSP households had any
earned income, and nearly 10 percent of all households had no gross income
whatsoever. 52
Clearly, means-testing is a necessary element of the FSP, given that the prograrh, by
its very nature, is targeted to households suffering from food inadequacy. 53 By
implementing both an asset test and an income test for eligibility, the government has
restricted the program to those truly in need. Without the asset test, a household could
technically qualify for food stamps without having to liquidate substantial assets that may
have been acquired. Correspondingly, if the income test were not applied, the household
could simply transfer or hide its assets in order to qualify The joint tests make the FSP a
last-resort measure for the poor.
Means-testing within the FSP, however, has several drawbacks. In targeting the poor,
the FSP creates a work disincentive. Like other means-tested benefits, the FSP recipient
may not have an incentive to seek employment if unemployed while receiving the
benefits. Of course, time restraints limiting the number of months unemployed
individuals can receive food stamps can reduce this disincentive. 54 There is, however,
credible evidence that the actual effect of benefits with or without time constraints on the
reduction of labour participation is very low, particularly in the case of female heads of
household, who constitute one of the primary recipient groups. The intuitive argument
that cutting benefits will increase labour participation oversimplifies the dynamic at work
in labour markets. 55 Moffitt argues convincingly that increasing labour participation rates
among certain recipient groups, such as young women with children, is poorly
accomplished by constraining benefits. 56
Another issue that arises is the marginal tax rate on additional income subsequently
earned by recipients. Severe work disincentives may arise if assistance is simply taxed
away dollar-for-dollar as recipients earn additional income. Further, there is always a
question of whether the threshold levels for eligibility are appropriately set and whether
the benefit levels are sufficient for eligible households to obtain an adequate diet.
Notwithstanding the large absolute number of participants in the FSP, an on-going
concern has been participation rates. Until 1977, households were required to purchase
food stamps and were presented with “free stamps” as supplements. 57 The result was low
participation rates as many qualified households were unable to meet monthly purchase
requirements because of a lack of funds. The elimination of this requirement led to an
immediate jump of 3.6 million participants in the ensuing year. Today, it is claimed that
among all those eligible for benefits 50 percent fail to receive food stamps. 58 A more
conservative estimate is provided by the Survey of Income and Program Participation
(SIPP), which found that in 1992 the participation rate was 73.8 percent. 59 Possible
factors for non-participation are lack of information, a desire to avoid admissibility
disputes, access problems, and stigma.
A General Accounting Office (GAO) survey conducted in the mid-1980s revealed that
14 percent of a sample of eligible but non-participating households cited embarrassment
as the main reason for non-participation in the program. 60 Thus, stigma continues to play
a factor in non-participation although it can be reasonably assumed that the stigma has
been reduced by the displacement of the commodity distribution program by the FSP.