Chapter I. Introduction

The Welfare Indicators Act of 1994 (Pub. L. 103-432) directed the
Secretary of Health and Human Services (HHS) to publish an annual report
on welfare dependency. The purpose of this report is to address
questions concerning the extent to which American families depend on
income from welfare programs. HHS has been specifically directed to
address the rate of welfare dependency, the degree and duration of
welfare recipiency and dependence, and predictors of welfare dependence.
The Act further specified that analyses of means-tested assistance
should include benefits under the Aid to Families with Dependent
Children (AFDC) program, now Temporary Assistance to Needy Families
(TANF); the Food Stamp Program; and the Supplemental Security Income
(SSI) program.

An Advisory Board on Welfare Indicators was established under the 1994
Act to assist the Secretary in defining welfare dependence, developing
indicators of welfare dependence, and choosing appropriate data for
inclusion in the first annual report. The Board consisted of a
bipartisan group of experts appointed by the Senate, the House of
Representatives and the President. Before its termination in October
1997, the Board developed a statistical definition of welfare dependence
and oversaw the production of the first of these annual reports.

This March 2000 report, the third annual report, gives updated data on
the measures of welfare recipiency, dependency, and predictors of
welfare dependence developed for previous reports. It differs in two
respects from earlier volumes. First, this report focuses on a smaller
set of indicators and predictors of dependency, in keeping with
Congressional intent. The reduction in length of the report also
reflects the decision to move some of the more detailed data on poverty
and deprivation to other Departmental publications.[^1] A second change
is that the date of publication has been moved from October to March, in
conformance with the report's authorizing legislation, which requires
the report to be released within sixty days of the start of the
legislative session. A March release also allows the Department to
present more timely data, as many important administrative and national
survey figures are released at the end of the year.

## Organization of Report

This introductory chapter provides an overview of the specific summary
measures of welfare dependence proposed by the Advisory Board. It also
discusses summary measures of poverty, following the Board's
recommendation that dependence measures not be assessed in isolation
from measures of deprivation. Analysis of both measures is important
because changes in dependence measures could result either from
increases in work activity and other factors that would raise family
incomes, or from sanctions or other changes in welfare programs that
would

reduce welfare program participation but might not improve the material
circumstances of these families. The introduction concludes with a brief
discussion of data sources used for the report.

Chapter II of the report, Indicators of Dependence, presents a broader
group of indicators of welfare recipiency and dependence. These
indicators include measures of the extent of recipiency for each of the
three programs considered separately, as well as information on income
from all three programs in combination. Interactions of AFDC/TANF, SSI
and food stamp benefits with periods of employment and with benefits
from other programs are also shown. The second chapter also includes
data on movements on and off welfare programs.

Chapter III, Predictors and Risk Factors Associated with Welfare
Receipt, focuses on predictors of welfare dependence \-- risk factors
believed to be associated with welfare receipt in some way. These
predictors are shown in three different groups:

> \(1\) **Economic security** -- including measures of poverty, receipt
> of child support, health insurance coverage, and food insecurity -- is
> important in predicting dependence in the sense that families with
> fewer economic resources are more likely to rely on welfare programs
> for their support.
>
> \(2\) Measures of the **work status** and barriers to employment of
> adult family members also are critical, because families must
> generally receive an adequate income from employment in order to avoid
> dependence without severe deprivation.
>
> \(3\) Finally, data on **non-marital births** are important since
> history has shown that a high proportion of long-term welfare
> recipients became parents outside of marriage, frequently as teen
> parents.

Additional data are presented in two appendices. Appendix A provides
basic program data on each of the main welfare programs and their
recipients, while Appendix B includes additional data on non-marital
childbearing. The main welfare programs included in Appendix A are:

-   The **Aid to Families with Dependent Children (AFDC)** program, the
    largest cash assistance program, provided monthly cash benefits to
    families with children, until its replacement by the **Temporary
    Assistance for Needy Families (TANF)** program, which is run
    directly by the states. Data on the AFDC and TANF programs are
    provided in Appendix A, with AFDC data provided from 1977 through
    June 1997, and TANF data from July 1997 through 1998, or when
    available, 1999.

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-   The **Food Stamp** Program provides monthly food stamp coupons to
    all individuals, whether they are living in families or alone,
    provided their income and assets are below thresholds set in Federal
    law. It reaches more poor people over the course of a year than any
    other means-tested public assistance program. Appendix A provides
    historical data from 1970 to 1998, or when available, 1999.

-   The **Supplemental Security Income (SSI)** program provides monthly
    cash payments to elderly, blind, or disabled individuals or couples
    whose income and assets are below levels set in Federal law. Though
    the majority of recipients are adults, disabled children also are
    eligible. Historical data from 1974 through 1998 are provided in
    Appendix A.

## Measuring Welfare Dependence

Welfare dependence, like poverty, is a continuum, with variations in
degree and in duration. Families may be more or less dependent if larger
or smaller shares of their total resources are derived from welfare
programs. The amount of time over which a family depends on welfare
might also be considered in assessing its degree of dependency.
Nevertheless, a summary measure of dependence to be used as an indicator
for policy purposes must have some fixed parameters that allow one to
determine which families should be counted as dependent, just as the
poverty line defines who is poor under the official standard. The
definition of dependence proposed by the Advisory Board for this purpose
is as follows:

A family is dependent on welfare if more than 50 percent of its total
income in a one-year period comes from AFDC, food stamps and/or SSI, and
this welfare income is not associated with work activities. Welfare
dependence is the proportion of all families who are dependent on
welfare.

This measure is not without its limitations. The Advisory Board
recognized that no single measure could fully capture all aspects of
dependence and that the proposed measure should be examined in concert
with other key indicators of dependence and deprivation. In addition,
while the proposed definition would count unsubsidized and subsidized
employment and work required to obtain benefits as work activities,
existing data sources do not permit distinguishing between welfare
income associated with work activities and non-work-related welfare
benefits. As a result, the data shown in this report overstate the
incidence of dependence (as defined above) because welfare income
associated with work required to obtain benefits is classified as
welfare and not as income from work. This issue may be growing in
importance under the increased work requirements of the TANF program. In
1998, the percentage of welfare recipients who were working (including
employment, work experience, and community service) reached an all-time
high of 27 percent, compared to the 7 percent recorded in 1992.[^2]

This proposed definition also represents an essentially arbitrary choice
of a percentage (50 percent) of income from welfare beyond which
families will be considered dependent. However, it is relatively easy to
measure and to track over time, and is likely to be associated with any
very large changes in total dependence, however defined. For example, as
the recent changes in

welfare law move more recipients into employment or work-related
activities, dependence under this definition is expected to decline.

In 1995, the most recent year for which complete population data are
available on monthly income and benefit recipiency, 17 percent of the
population received means-tested assistance, as shown in Figure SUM 1.
Less than one-third of this group, or about 5 percent of the total
population, would be considered "dependent" on welfare under the above
definition. Recipiency

and dependency rates in 1995 were lower than in 1993 and 1994, but were
still higher than they had been in 1987 and 1990. These numbers are
consistent with administrative data showing a peak in AFDC caseloads in
1993 and in food stamp caseloads in 1994 and a decrease in both programs
since that time. What is not apparent from administrative records, but
is shown in these national survey data, is that the dependency rate
peaked in 1993, declining over the next two years until it reached 5.1
percent in 1995, close to the same level as in 1992.

![](media/image1.wmf)**Figure SUM 1. Recipiency and Dependency Rates:
1987-95**

Note: Recipiency is defined as receipt of any amount of AFDC, SSI, or
food stamps during year. Dependency is defined as having more than 50
percent of annual income from AFDC, SSI and/or food stamps. While only
affecting a small number of cases, general assistance income is included
within AFDC income. Dependency rates would be lower if adjusted to
exclude welfare assistance associated with working. Because full
calendar year data for 1995 were not available for all SIPP respondents,
1995 estimates are based on a weighting adjustment to account for those
who were not interviewed for the entire year.

Source: Unpublished data from the SIPP, 1987, 1990, 1992, and 1993
panels.

  ---------------------------- -------- -------- -------- -------- -------- --------
  Table SUM 1. Recipiency and                                               
  Dependency Rates: 1987-95                                                 

                                                                            

                               1987     1990     1992     1993     1994     1995

                                                                            

  **[Recipiency Rates (Receipt                                              
  of Any Amount of AFDC, Food                                               
  Stamps, or                                                                
  SSI)]{.underline}**                                                       

                                                                            

  **All Persons**              14.9     14.1     16.9     17.0     18.0     17.0

                                                                            

  **Racial Categories**                                                     

  Non-Hispanic White           9.3      8.9      11.0     10.9     11.1     10.4

  Non-Hispanic Black           40.9     36.6     41.0     41.8     43.2     40.9

  Hispanic                     28.3     29.5     33.3     33.9     37.1     34.6

                                                                            

  **Age Categories**                                                        

  Children Ages 0 - 5          24.5     24.0     28.9     29.0     32.4     27.6

  Children Ages 6 - 10         23.2     20.2     23.8     24.0     28.6     28.7

  Children Ages 11 - 15        19.8     18.8     23.2     22.6     24.9     23.6

                                                                            

  Women Ages 16 - 64           14.4     14.1     17.0     17.3     17.5     16.8

  Men Ages 16 - 64             10.1     9.5      11.8     12.0     12.3     11.5

  Adults Age 65 and over       13.6     12.1     12.6     12.2     12.3     12.2

                                                                            

  **[Dependency Rates (More                                                 
  than 50 Percent of Income                                                 
  from Means-Tested                                                         
  Assistance)]{.underline}**                                                

                                                                            

  **All Persons**              4.7      4.2      4.9      5.9      5.6      5.1

                                                                            

  **Racial Categories**                                                     

  Non-Hispanic White           2.2      2.1      2.4      2.8      2.6      2.3

  Non-Hispanic Black           15.7     14.6     15.9     16.7     16.8     15.2

  Hispanic                     10.9     8.3      10.5     14.2     12.9     12.2

                                                                            

  **Age Categories**                                                        

  Children Ages 0 - 5          10.0     10.3     12.2     13.3     12.5     10.6

  Children Ages 6 - 10         10.1     8.5      9.5      12.3     12.0     11.6

  Children Ages 11 - 15        8.0      6.4      7.5      10.5     9.3      9.1

                                                                            

  Women Ages 16 - 64           4.6      4.6      5.0      5.8      5.5      5.2

  Men Ages 16 - 64             2.0      1.5      1.9      2.7      2.5      2.3

  Adults Age 65 and over       2.6      1.9      2.0      2.0      2.2      1.8

                                                                            

  Note: Means-tested                                                        
  assistance includes AFDC,                                                 
  SSI and food stamps. While                                                
  only affecting a small                                                    
  number of cases, general                                                  
  assistance income is                                                      
  included within AFDC income.                                              
  Dependency rates would be                                                 
  lower if adjusted to exclude                                              
  welfare assistance                                                        
  associated with working.                                                  
  Because full calendar year                                                
  data for 1995 were not                                                    
  available for all SIPP                                                    
  respondents, 1995 estimates                                               
  are based on a weighting                                                  
  adjustment to account for                                                 
  those who were not                                                        
  interviewed for the entire                                                
  year.                                                                     

                                                                            

  Source: Unpublished data                                                  
  from the SIPP, 1987, 1990,                                                
  1992, and 1993 panels.                                                    
  ---------------------------- -------- -------- -------- -------- -------- --------

Recipiency and dependency rates are higher for non-Hispanic blacks and
Hispanics than for non-Hispanic whites, as shown in Table SUM 1, which
shows these rates for various racial and age categories. Recipiency and
dependency also are higher for young children than for adults.

Dependency on assistance also varies depending upon which programs are
counted as "welfare programs," as shown in Table SUM 2. Dependency is
highest -- 5.1 percent -- when income from all three programs (AFDC,
food stamps, and SSI) is counted, as in the first column of Table SUM 1
(and most of the report). Dependency is lower -- 3.7 percent -- when
counting AFDC/TANF and food stamp benefits only, as in the second column
of Table SUM 2. In general, 70 to 75 percent of individuals who are
dependent under the standard definition also are dependent under the
alternative definition that considers AFDC and food stamps alone (as is
done in some measures in this report). Note, however, that the elderly
depend more on SSI than on AFDC and food stamps; whereas 1.8 percent of
elderly persons are dependent when counting the three major types of
means-tested assistance, very few, 0.3 percent, are dependent when the
definition is limited to AFDC and food stamps.

In general, non-whites and the very young were more likely to be
dependent than other racial and age categories, and they are primarily
dependent on AFDC and food stamps. Even in these populations, however,
the vast majority of families do not meet the criteria for dependence.

Table SUM 2. Percentage of the Total Population with More than 50
Percent of Income from Various Means-Tested Assistance Programs, by Race
and Age: 1995

+-------------------+-----------+-----+-------------+---+-----------+
|                   | AFDC,     |     | AFDC &\     |   | SSI only  |
|                   | SSI, &\   |     | Food Stamps |   |           |
|                   | Food      |     |             |   |           |
|                   | Stamps    |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
|                   |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| **All Persons**   | **5.1**   |     | **3.7**     |   | **0.9**   |
+-------------------+-----------+-----+-------------+---+-----------+
|                   |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| ###               |           |     |             |   |           |
| Racial Categories |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Non-Hispanic      | 2.3       |     | 1.6         |   | 0.5       |
| White             |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Non-Hispanic      | 15.2      |     | 10.5        |   | 2.4       |
| Black             |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Hispanic          | 12.2      |     | 9.8         |   | 1.6       |
+-------------------+-----------+-----+-------------+---+-----------+
|                   |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| **Age             |           |     |             |   |           |
| Categories**      |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Children Ages 0   | 10.6      |     | 10.4        |   | 0.5       |
| -- 5              |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Children Ages 6   | 11.6      |     | 8.9         |   | 0.5       |
| -- 10             |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Children Ages 11  | 9.1       |     | 6.9         |   | 0.8       |
| -- 15             |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
|                   |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Women Ages 16 --  | 5.2       |     | 3.5         |   | 1.1       |
| 64                |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
| Men Ages 16 -- 64 | 2.3       |     | 1.1         |   | 0.7       |
+-------------------+-----------+-----+-------------+---+-----------+
| Adults Age 65 and | 1.8       |     | 0.3         |   | 1.3       |
| over              |           |     |             |   |           |
|                   |           |     |             |   |           |
| R                 |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+
|                   |           |     |             |   |           |
+-------------------+-----------+-----+-------------+---+-----------+

+-----------------------------------------------------------------------+
| Note: While only affecting a small number of cases, general           |
| assistance income is included within AFDC income. Because full        |
| calendar year data for 1995 were not available for all SIPP           |
| respondents, 1995 estimates are based on a weighting adjustment to    |
| account for those who were not interviewed for the entire year.       |
|                                                                       |
| Source: Unpublished data from the SIPP, 1993 panel.                   |
+-----------------------------------------------------------------------+

The summary measure of dependence shown in Table SUM 1 focuses on the
percentage of income received from means-tested assistance over a
one-year time period. It also is important to look at dependency over a
longer term perspective, as is done in Table SUM 3, which examines
long-term recipiency and long-term dependency among AFDC recipients.

Half (50 percent) of all those who received welfare in 1982 did not
receive more than 50 percent of their income from AFDC and food stamp
benefits in any of the ten years between 1982 and 1991. About
one-quarter (23 percent) were dependent for one to two years, 15 percent
for three to five years, and 13 percent for six or more years.

Long-term dependence is rarer than long-term recipiency. Only 4 percent
of those who were recipients in 1982, for example, received more than 50
percent of their income from AFDC and food stamps for nine to ten years.
This is a smaller percentage than the proportion of recipients that
received welfare of any amount for nine to ten years (11 percent). Child
recipients have

longer spells of welfare receipt and welfare dependence than do
recipients in general, as shown in the table.

**Table SUM 3. Percentage of AFDC Recipients with Multiple Years of
Receipt and Dependency, by Years and Age: 1982-91**

+-------------------------+---------------------+---------------------+
| #####                   | #                   | ##### A             |
|                         | #### All Recipients | ll Child Recipients |
+-------------------------+---------------------+---------------------+
|                         | (in 1982)           | (0-5 in 1982)       |
+-------------------------+---------------------+---------------------+
| #### Years              |                     |                     |
| of Recipiency, 1982-199 |                     |                     |
| 1 {#years-of-recipiency |                     |                     |
| -1982-1991 .unnumbered} |                     |                     |
|                         |                     |                     |
| (Any AFDC Receipt)      |                     |                     |
+-------------------------+---------------------+---------------------+
|                         |                     |                     |
+-------------------------+---------------------+---------------------+
| 1 - 2 Years             | 47                  | 34                  |
+-------------------------+---------------------+---------------------+
| 3 - 5 Years             | 28                  | 29                  |
+-------------------------+---------------------+---------------------+
| 6 - 8 Years             | 15                  | 17                  |
+-------------------------+---------------------+---------------------+
| 9 - 10 Years            | 11                  | 20                  |
+-------------------------+---------------------+---------------------+
|                         |                     |                     |
+-------------------------+---------------------+---------------------+
| #### Years              |                     |                     |
| of Dependency, 1982-199 |                     |                     |
| 1 {#years-of-dependency |                     |                     |
| -1982-1991 .unnumbered} |                     |                     |
|                         |                     |                     |
| (AFDC & Food Stamps,    |                     |                     |
| \>50% of Income)        |                     |                     |
+-------------------------+---------------------+---------------------+
| 0 Years                 | 50                  | 34                  |
+-------------------------+---------------------+---------------------+
| 1 - 2 Years             | 23                  | 28                  |
+-------------------------+---------------------+---------------------+
| 3 - 5 Years             | 15                  | 16                  |
+-------------------------+---------------------+---------------------+
| 6 - 8 Years             | 9                   | 13                  |
+-------------------------+---------------------+---------------------+
| 9 - 10 Years            | 4                   | 8                   |
+-------------------------+---------------------+---------------------+
|                         |                     |                     |
+-------------------------+---------------------+---------------------+
| Note: "Any AFDC         |                     |                     |
| Receipt" is defined as  |                     |                     |
| whether an individual   |                     |                     |
| has received any amount |                     |                     |
| of AFDC at any time     |                     |                     |
| during the year. "AFDC  |                     |                     |
| & Food Stamps, \>50% of |                     |                     |
| Income" is defined as   |                     |                     |
| whether the sum of an   |                     |                     |
| individual's AFDC and   |                     |                     |
| food stamp benefits was |                     |                     |
| more than 50% of their  |                     |                     |
| yearly income. "0       |                     |                     |
| Years" means that while |                     |                     |
| an individual received  |                     |                     |
| means-tested            |                     |                     |
| assistance, his or her  |                     |                     |
| benefits were not       |                     |                     |
| greater than 50 percent |                     |                     |
| of his or her income    |                     |                     |
| for any years during    |                     |                     |
| the time period. Note   |                     |                     |
| that this table shows   |                     |                     |
| years of receipt and    |                     |                     |
| dependency between 1982 |                     |                     |
| and 1991 and does not   |                     |                     |
| take into account years |                     |                     |
| of receipt or           |                     |                     |
| dependency that may     |                     |                     |
| have occurred before    |                     |                     |
| 1982.                   |                     |                     |
+-------------------------+---------------------+---------------------+
|                         |                     |                     |
+-------------------------+---------------------+---------------------+
| Source: Unpublished     |                     |                     |
| data from the PSID,     |                     |                     |
| 1983 -- 1992.           |                     |                     |
+-------------------------+---------------------+---------------------+

**Measuring Deprivation**

Changes in dependence may or may not be associated with changes in the
level of deprivation, depending on the alternative sources of support
found by families who might otherwise be dependent on welfare. To assess
the social impacts of any change in dependence, changes in the level of
poverty or deprivation also must be considered. One way of measuring
deprivation is to look at changes in the level of need over time.
Elsewhere in this report, for example, measures of food insecurity and
lack of health insurance are presented.

The deprivation measure presented in this chapter, however, focuses
directly on changes in the poverty rate, both under the official poverty
rate and under expanded measures that take into account taxes and
non-cash benefits. These measures also show the degree to which welfare
and related programs are effective in moving people out of poverty. The
data, shown in Table SUM 4 and its related figure, illustrate two
primary points. First, cash welfare and non-cash welfare benefits such
as food and housing reduce the number of poor families. Second, under
any of the four alternate income measures presented in Table SUM 4,
poverty rates have been decreasing since 1993, as economic conditions
have improved and policies have promoted and rewarded work. Each of
these points is discussed below.

Four different concepts of income are used in Table SUM 4, which shows
alternative measures of poverty rates for all persons between 1979 and
1998. (A graph of these data is presented in Figure SUM 4, and a similar
analysis is presented for the subset of the population that lives in
families with related children under age 18 in Table SUM 5.) The four
measures are as follows:

"Cash Income plus All Social Insurance" is earnings and other private
cash income, plus social security, workers' compensation, and other
social insurance programs. This income measure, which excludes welfare,
would result in a poverty rate of 13.5 percent in 1998.

> "Plus Means-Tested Assistance" shows the official poverty rate, which
> takes into account means-tested assistance, primarily AFDC and SSI.
> Poverty rates under this official measure are almost one percentage
> point lower, 12.7 percent in 1998. This indicates that many more
> families would be poor if they did not receive welfare benefits.

"Plus Food and Housing Benefits" shows how poverty would be lower if the
cash value of food and housing benefits were counted as income. Under
this definition, poverty rates would fall by more than one additional
percentage point, to 11.3 percent in 1998.

"Plus EITC and Federal Taxes" is the most comprehensive poverty rate
shown in Table SUM 4. It takes into account the effect of taxes, and is
thus a more complete measure of deprivation than is the official poverty
rate or other measures that exclude some types of support. Since 1993,
taxes, including the refunds through the Earned Income Tax Credit
(EITC), have caused additional reductions in poverty. By 1998, this
measure of poverty was 10.5 percent.

## Figure SUM 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-98

![](media/image2.wmf)

Source: Congressional Budget Office tabulations. Additional calculations
by DHHS.

## Table SUM 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: Selected Years

  ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
                           1979   1983   1986   1989   1993   1995   1996   1997   1998

  Cash Income plus All     12.8   16.0   14.5   13.7   16.3   14.9   14.8   14.2   13.5
  Social Insurance                                                                 

  Plus Means-Tested Cash   11.6   15.2   13.6   12.8   15.1   13.8   13.7   13.3   12.7
  Assistance                                                                       

  Plus Food and Housing    9.7    13.7   12.2   11.2   13.4   12.0   12.1   11.9   11.3
  Benefits                                                                         

  Plus EITC and Federal    10.0   14.7   13.1   11.7   13.3   11.5   11.5   11.1   10.5
  Taxes                                                                            

  Reduction in Poverty     2.8    1.3    1.4    2.0    3.0    3.4    3.3    3.1    3.0
  Rate                                                                             

                                                                                   
  ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Note: The first measure of poverty, labeled cash income plus all social
insurance, includes social security but not means‑tested cash transfers.
Adding means-tested cash transfers yields the official census definition
of poverty, the second line in the table. Food and housing benefits may
be received either as cash or (more generally) as in-kind benefits, in
which case the market value of food and housing benefits is added. EITC
refers to the refundable Earned Income Tax Credit, which is always a
positive adjustment to income whereas Federal payroll and income taxes
are a negative adjustment. The fungible value of Medicare and Medicaid
is not included.

Source: Congressional Budget Office tabulations. Additional calculations
by DHHS.

The combined effect of means-tested assistance, food and housing
benefits, and EITC and taxes was to reduce the poverty rate in 1998 by
three percentage points, from 13.5 percent to 10.5 percent. The total
reduction in the poverty rate is shown in the final row of Table SUM 4.

As economic conditions improved during the mid-1990s, poverty rates
decreased under all four concepts of income. Of particular interest are
the poverty rates in 1995, the same year as the dependence rates shown
in Table SUM 1, and the poverty rates in 1998, the most recent year for
which data are available. In 1995, the final poverty rate was 11.5
percent after adding in non-cash benefits and taxes, a decline from 13.3
percent in 1993. Over the same time period, the dependence measure also
declined, from 5.9 percent to 5.1 percent.

More current data indicate that the poverty rate continued to fall
between 1995 and 1998, falling to 12.7 percent under the official
measure and 10.5 percent under the most comprehensive measure. Data are
not yet available on dependence measures for 1998, although
administrative data on caseloads indicate a continuing decline in
overall receipt of AFDC/TANF and food stamps.

During most of the past two decades, means-tested benefits (including
cash assistance, food and housing benefits, and the EITC and other
taxes), have caused a net reduction in poverty rates for individuals of
about three percentage points. The net effectiveness of these programs
in reducing the poverty rate was somewhat lower during the recession of
the early 1980s, and was somewhat higher in the mid 1990's, largely due
to expansions in the EITC (see Figure SUM 4 and Table SUM 4).

The net effect of all sources of means-tested support (including cash
assistance, food and housing benefits, and the EITC and taxes) on the
reduction in poverty is higher for persons in families with related
children under 18. The gap between poverty rates before and after public
assistance has ranged from 3.5 to over 5 percentage points for these
individuals in recent years, as shown in Table SUM 5. Again, the net
effectiveness of means-tested programs was lower in the mid 1980s and
highest in the mid 1990s.

Since the enactment of PRWORA in 1996 and the subsequent implementation
of TANF, caseloads for AFDC/TANF and food stamps have fallen
dramatically. Although dependency measures as defined in this report are
not yet available for the period after PRWORA, available measures on
recipiency rates suggest that the legislation has been successful in
causing a noticeable fall in dependence on welfare programs. The
deprivation measures presented in Tables SUM 4 and 5 suggest that these
large caseload declines have been accomplished without observed
increases in deprivation. In fact, under the strong economy of the late
1990s, poverty rates are at their lowest levels since 1989. It will be
important to continue to track changes in these dependency and
deprivation rates over the next several years, to see how they are
affected by future changes in economic conditions.

**Table SUM 5. Percentage of All Persons in Families with Related
Children Under 18 Years of Age in Poverty with Various Mean-Tested
Benefits Added to Total Cash Income: Selected Years**

  ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
                           1979   1981   1983   1986   1989   1991   1993   1995   1996   1997   1998

  Cash Income plus All     14.3   17.4   19.1   17.4   16.8   18.8   20.0   18.1   17.8   17.0   16.1
  Social Insurance                                                                               

  Plus Means-Tested Cash   12.9   16.3   18.4   16.5   15.8   17.7   18.7   16.8   16.6   15.9   15.2
  Assistance                                                                                     

  Plus Food and Housing    10.2   13.9   16.5   14.6   13.6   15.3   16.4   14.3   14.4   14.1   13.2
  Benefits                                                                                       

  Plus EITC and Federal    10.5   15.2   17.7   15.8   14.1   15.3   15.9   13.0   12.9   12.4   11.6
  Taxes                                                                                          

  Reduction in Poverty     3.8    2.2    1.4    1.6    3.5    3.5    4.1    5.1    4.9    4.6    4.5
  Rate                                                                                           

                                                                                                 
  ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Note: The first measure of poverty, labeled cash income plus all social
insurance, includes social security but not means‑tested cash transfers.
Adding means-tested cash transfers yields the official census definition
of poverty, the second line in the table. Food and housing benefits may
be received either as cash or (more generally) as in-kind benefits, in
which case the market value of food and housing benefits is added. EITC
refers to the refundable Earned Income Tax Credit, which is always a
positive adjustment to income whereas Federal payroll and income taxes
are a negative adjustment. The fungible value of Medicare and Medicaid
is not included.

Source: Congressional Budget Office tabulations. Additional calculations
by DHHS.

**Data Sources**

For purposes of this report, the Survey of Income and Program
Participation (SIPP) has been used the most extensively and is
considered the most useful national survey. Its strengths are its
longitudinal design, system of monthly accounting, and detail concerning
employment, income and participation in federal income-support and
related programs. These features make the SIPP particularly effective
for capturing the complexities of program dynamics and many of the
indicators and predictors, or risk factors, associated with welfare
receipt.

The SIPP does not, however, follow families for more than three years.
Therefore, the Panel Study of Income Dynamics (PSID) also is used in
this report. The PSID collects annual income data, including transfer
income, over a long time-period, providing vital data for indicators of
long-term welfare receipt, dependence, and deprivation.

Some indicators in this report are based upon the annual March Current
Population Survey (CPS), which is available on a more timely basis than
the SIPP. The March CPS measures income and poverty over a single annual
accounting period, and provides important information regarding child
poverty. Finally, the report also draws upon administrative data for the
AFDC/TANF, Food Stamp and SSI programs.

One of the difficulties in preparing this year's annual report has been
the challenge of obtaining recent data from the SIPP and the PSID, the
two data sources used for most of the report. The most recent SIPP data
available at the time of preparation of this year's annual report were
1995 data, collected from the third year of the 1993 SIPP three-year
panel. Data from 1995, however, do not reflect many of the dramatic
changes in welfare programs that have occurred since enactment of the
welfare reform legislation in August 1996. Two more years of SIPP data
are

expected to be available next year, allowing an update of many
indicators through early implementation of the TANF program.

PSID data for the mid- to late- 1990s also were not available at the
time of updating this report. Instead, the indicators that are based on
PSID data cover the same ten-year period (1982-1991) as in last year's
volume. Updated PSID analyses will be published in next year's report.

The most recent data are from the CPS and administrative sources. The
CPS data are available for calendar year 1998 (and in some cases, March
1999), while administrative data are generally available through fiscal
year 1998 (or, for some aggregate caseload statistics, fiscal year
1999). To the extent possible, TANF administrative data are reported in
a consistent manner with data from the earlier AFDC program, as noted in
the footnotes to the tables in Appendix A. The fact remains that
assistance under locally designed TANF programs encompasses a diverse
set of cash and non-cash services designed to support families in making
a transition to work, and so direct comparisons between AFDC receipt and
TANF receipt must be made with caution. This issue also will affect
reported data on TANF receipt in national data sets such as the SIPP,
once these are available.

Most of the data sources allow analysis of the indicators and predictors
of welfare dependence across several age and race/ethnic categories.
Where the data are available, statistics are shown for three
racial/ethnic groups -- non-Hispanic whites, non-Hispanic blacks, and
Hispanics. In some instances, however, there are not sufficient data on
individuals of Hispanic origin, and so the measures are shown for only
two racial/ethnic categories.

A final technical note concerns the unit of analysis and the measurement
of benefit receipt. The individual, rather than the family or household,
is the unit of analysis for most of the statistics in this report. An
individual is considered a recipient of AFDC/TANF or food stamps if he
or she lives in a family receiving such benefits. In contrast, the SSI
program provides benefits to individuals and couples, and so an
individual is only considered an SSI recipient if he or she directly
receives such an SSI benefit. All means-tested benefits -- AFDC/TANF,
food stamps, and SSI -- are summed together with earnings and other
sources of income for all individuals in a family unit to determine
total family income, which is used to determine the poverty status,
dependency status, and income levels for all individuals in the family.

[^1]: Further data on poverty and income, as well as current and past
    annual reports on *Indicators of Welfare Dependence*, will be
    available online at \<\< aspe.hhs.gov/hsp/hsp-home.htm\>\>. This
    same web page provides access to the annual *Trends in the
    Well-being of America's Children and Youth*, another important data
    source for indicators of economic, health, and social well-being.

[^2]: The earnings of those in unsubsidized employment would be
    correctly captured as income from work in national surveys. Any
    welfare benefits associated with work experience, community service
    programs or other work activities, however, would be counted as
    income from welfare in most national surveys, an incorrect
    classification according to the proposed definition.