Welfare Reform Message to the Congress.

To the Congress of the United States:

As I pledged during my campaign for the Presidency I am asking the Congress to abolish our existing welfare system, and replace it with a job-oriented program for those able to work and a simplified, uniform, equitable cash assistance program for those in need who are unable to work by virtue of disability, age or family circumstance. The Program for Better Jobs and Income I am proposing will transform the manner in which the Federal government deals with the income needs of the poor, and begin to break the welfare cycle.

The program I propose will provide:

--Job opportunities for those who need work.

--A Work Benefit for those who work but whose incomes are inadequate to support their families.

--Income Support for those able to work part-time or who are unable to work due to age, physical disability or the need to care for children six years of age or younger.

This new program will accomplish the following:

--Dramatically reduce reliance on welfare payments by doubling the number of single-parent family heads who support their families primarily through earnings from work.

--Ensure that work will always be more profitable than welfare, and that a private or non-subsidized public job will always be more profitable than a special federally-funded public service job.

--Combine effective work requirements and strong work incentives with improved private sector placement services, and create up to 1.4 million public service jobs. Forty-two percent of those jobs may be taken by current AFDC recipients. Those who can work will work, and every family with a full-time worker will have an income substantially above the poverty line.

--Provide increased benefits and more sensitive treatment to those most in need.

--Reduce complexity by consolidating the current AFDC, Supplemental Security Income (SSI), and Food Stamp programs, all of which have differing eligibility requirements, into a single cash assistance program, providing for the first time a uniform minimum Federal payment for the poor.

--Provide strong incentives to keep families together rather than tear them apart, by offering the dignity of useful work to family heads and by ending rules which prohibit assistance when the father of a family remains within the household.

--Reduce fraud and error and accelerate efforts to assure that deserting fathers meet their obligations to their families.

--Give significant financial relief to hard-pressed State and local governments.

THE NEED FOR REFORM

In May, after almost four months of study, I said that the welfare system was worse than I expected. I stand by that conclusion. Each program has a high purpose and serves many needy people; but taken as a whole the system is neither rational nor fair. The welfare system is antiwork, anti-family, inequitable in its treatment of the poor and wasteful of taxpayers' dollars. The defects of the current system are clear:

--It treats people with similar needs in different fashion with separate eligibility requirements for each program.

--It creates exaggerated differences in benefits based on state of residence. Current combined state and Federal AFDC benefits for a family of four with no income vary from $720 per year in Mississippi to $5,954 in Hawaii.

--It provides incentives for family breakup. In most cases two-parent families are not eligible for cash assistance and, therefore, a working father often can increase his family's income by leaving home. In Michigan. a two-parent family with the father working at the minimum wage has a total income, including tax credits and food stamps, of $5,922. But if the father leaves, the family will be eligible for benefits totalling $7,076.

--It discourages work. In one Midwestern state, for example, a father who leaves part-time employment paying $2,400 for a full-time job paying $4,800 reduces his family's income by $1,250.

--Efforts to find jobs for current recipients have floundered.

--The complexity of current programs leads to waste, fraud, red tape, and errors. HEW has recently discovered even government workers unlawfully receiving benefits, and numbers of people receive benefits in more than one jurisdiction at the same time.

The solutions to these problems are not easy--and no solution can be perfect; but it is time to begin. The welfare system is too hopeless to be cured by minor modifications. We must make a complete and clean break with the past.

People in poverty want to work, and most of them do. This program is intended to give them the opportunity for self-support by providing jobs for those who need them, and by increasing the rewards from working for those who earn low wages.

PROGRAM SUMMARY

The Program for Better Jobs and Income has the following major elements:

--Strengthened services through the employment and training system for placement in the private sector jobs.

--Creation of up to 1.4 million public service and training positions for principal earners in families with children, at or slightly above the minimum wage through state and local government and non-profit sponsors.

--An expansion of the Earned Income Tax Credit to provide an income supplement of up to a maximum of well over $600 for a family of four through the tax system, by a 10% credit for earnings up to $4,000, a 5% credit for earnings from $4,000 to the entry point of the positive tax system, and a declining 10% credit thereafter until phase-out. A major share of the benefit will accrue to hard-pressed workers with modest incomes struggling successfully to avoid welfare.

--Strong work requirements applying to single persons, childless couples and family heads, with work requirements of a more flexible nature for single-parent family heads with children aged 7 to 14. Single-parent family heads with preschool aged children are not required to work.

--A Work Benefit for two-parent families, single-parent families with older children, singles and childless couples. The Federal benefit for a family of four would be a maximum of $2,300 and, after $3,800 of earnings, would be reduced fifty cents for each dollar of earnings.

--Income Support for single-parent families with younger children and aged, blind or disabled persons. The Federal benefit would be a base of $4,200 for a family of four and would be reduced fifty cents for each dollar of earnings.

--New eligibility requirements for cash assistance which insure that benefits go to those most in need.

--Fiscal relief to States and localities of $2 billion in the first year, growing in subsequent years.

--Simple rules for state supplements to the basic program, in which the Federal government will bear a share of the cost.

COSTS

In my May 2, 1977 statement I established as a goal that the new reformed system involve no higher initial cost than the present system. It was my belief that fundamental reform was possible within the confines of current expenditures if the system were made more rational and efficient. That belief has been borne out in our planning. Thereafter, Secretary Califano outlined a tentative no cost plan which embodied the major reform we have been seeking:

--Consolidation of programs.

--Incentives to work.

--Provision of jobs.

--Establishment of a national minimum payment.

--Streamlined administration.

--Incentives to keep families together.

--Some fiscal relief for State and local governments.

Subsequently, we have consulted with State and local officials and others who are knowledgeable in this area. As a result of those consultations we have gone beyond the no cost plan to one with modest additional cost in order to provide more jobs, particularly for current AFDC family heads, additional work incentives, broader coverage for needy families and greater fiscal relief for states and localities.

The Program For Better Jobs and Income will replace $26.3 billion in current programs which provide income assistance to low-income people. In addition, the program will produce savings in other programs amounting to $1.6 billion. The total amount available from replaced programs and savings is $27.9 billion.

CURRENT FEDERAL EXPENDITURES AND SAVINGS

( 1978 Dollars)

EXPENDITURES

Billions

AFDC............................................................................................................................... $6.4

SSI.................................................................................................................................... 5.7

Food Stamps..................................................................................................................... 5.0

Earned Income Tax Credit................................................................................................ 1.3

Stimulus Portion of CETA Public Jobs............................................................................ 5.5

WIN Program................................................................................................................... .4

Extended Unemployment Insurance

Benefits (27-39 weeks).................................................................................................... .7

Rebates of per capita share of Wellhead

Tax Revenues to Low-Income People

if Passed by Congress ¹.................................................................................................... 1.3

Sub-Total......................................................................................................... 26.3

1 The National Energy plan calls for rebate of the wellhead tax revenues to taxpayers through the income tax system and to "the poor who do not pay taxes" in effect through income maintenance programs.

SAVINGS

Decreased Unemployment Insurance

Expenditures............................................................................................................................... .4

HEW Program to Reduce Fraud and

Abuse ....................................................................................................................................... .4

Decreases in Required Housing Subsidies

Due to Increased Income ²......................................................................................................... .5

Increase in Social Security Contributions³................................................................................................................................. .3

Sub-total........................................................................................................................ 1.6

TOTAL.......................................................................................................................... 27.9

2 This does not decrease housing programs nor reduce the amount of cash assistance paid to residents of subsidized housing. It is merely an estimate of the savings to the Department of Housing and Urban Development's housing subsidy programs on account of higher incomes going to tenants under the new program.

³ This does not increase anyone's Social Security Tax, nor does it take any money out of the Social Security Trust Funds. It merely recognizes that the millions of people taken off of dependence on welfare and given a job will become contributors to the Social Security System.

The new Program for Better Jobs and Income will have a total cost of $30.7 billion. The additional cost of the program above existing costs is $2.8 billion in spending. In addition, $3.3 billion of tax relief is given to working low and moderate income taxpayers through an expanded income tax credit.

COST OF NEW PROGRAM

Billions

Work Benefit and Income Support ..................................................................... $20.4

Earned Income Tax Credit ⁴ .............................................................................. 1.5

Employment and Training .................................................................................. 8.8

TOTAL .................................................................................................. 30.7

4 This is the cost of the portion of the expanded EITC which will be received by those who do not pay income taxes. Income taxpayers with families will receive benefits totalling $3.3 billion.

The additional cost above current expenditures has been used to make important improvements in our original plan:

--Increased fiscal relief has been provided for states and localities, particularly for those which have borne the greatest financial burdens.

--Incentives which strengthen family ties have been improved by adopting a broader definition of eligible applicants to permit more generous payment than in the earlier plan to older persons and young mothers with children who live in extended families.

--Work incentives for low wage workers have been increased by expanding the Earned Income Tax Credit for those in private and non-subsidized public work to cover and supplement approximately twice the income covered by the existing EITC.

--A deduction for child care will permit and encourage single parents to take work which will lift them out of poverty.

--Up to 300,000 additional part-time jobs have been added for single parent families with school age children (if adequate day care is available, such parents will be expected to accept full-time jobs).

With these improvements the Program for Better Jobs and Income will help turn low income Americans away from welfare dependence with a system that is fair, and fundamentally based on work for those who can and should work.

PROGRAM DETAIL

EMPLOYMENT SERVICES AND JOB SEARCHING

A central element of this proposal is a new effort to match low-income persons with available work in the private and public sector. It will be the responsibility of State and local officials to assure an unbroken sequence of employment and training services, including job search, training, and placement. Prime sponsors under the Comprehensive Employment and Training Act, state employment service agencies, and community-based organizations will play major roles in this effort.

JOBS FOR FAMILIES

A major component of the program is a national effort to secure jobs for the principal wage earners in low income families with children. The majority of poor families--including many who are on welfare for brief periods of time--depend upon earnings from work for most of their income. People want to support themselves and we should help them do so. I propose that the Federal government assist workers from low income families to find regular employment in the private and public sectors. When such employment cannot be found I propose to provide up to 1.4 million public service jobs (including part-time jobs and training) paying at the minimum wage, or slightly above where states supplement the basic Federal program.

This program represents a commitment by my Administration to ensure that families will have both the skills and the opportunity for self-support.

This new Public Service Employment Program is carefully designed to avoid disruptive effects to the regular economy:

--Applicants will be required to engage in an intensive 5-week search for regular employment before becoming eligible for a public service job. Those working in public service employment will be required to engage in a period of intensive job search every 12 months.

--In order to encourage participants to seek employment in the regular economy, the basic wage rate will be kept at, or where states supplement, slightly above, the minimum wage.

--Every effort will be made to emphasize job activities which lead to the acquisition of useful skills by participants, to help them obtain employment in the regular economy. Training activities will be a regular component of most job placements.

The development of this job program is clearly a substantial undertaking requiring close cooperation of all levels of government. I am confident it will succeed. Thousands of unmet needs for public goods and services exist in our country. Through an imaginative program of job creation we can insure that the goals of human development and community development are approached simultaneously. Public service jobs will be created in areas such as public safety, recreational facilities and programs, facilities for the handicapped, environmental monitoring, child care, waste treatment and recycling, clean-up, and pest and insect control, home services for the elderly and ill, weatherization of homes and buildings and other energy-saving activities, teachers' aides and other paraprofessionals in schools, school facilities improvements, and cultural arts activities.

LEARNED INCOME TAX CREDIT

The current Earned Income Tax Credit (EITC) is an excellent mechanism to provide tax relief to the working poor. I propose to expand this concept to provide benefits to more families and provide relief to low and modest income working people hard hit by payroll tax increases, improve work incentives, and integrate the Program for Better Jobs and Income with the income tax system. The expanded EITC, which will apply to private and non-subsidized public employment, will have the following features:

--A 10% credit on earnings up to $4,000 per year as under current law.

--A 5% credit on earnings between $4,000 and approximately $9,000 for a family of four (the point at which the family will become liable for federal income taxes).

--A phase-out of the credit beyond roughly $9,000 of earnings at ten percent. The credit will provide benefits to a family of four up to $15,600 of income.

--The credit will be paid by the Treasury Department and the maximum credit for a family of four would be well over $600.

WORK BENEFIT AND INCOME SUPPORT

I propose to scrap and completely overhaul the current public assistance programs, combining them into a simplified, uniform, integrated system of cash assistance. AFDC, SSI and Food Stamps will be abolished. In their place will be a new program providing: (1) a Work Benefit for two-parent families, single people, childless couples and single parents with no child under 14, all of whom are expected to work full-time and required to accept available work; and (2) Income Support for those who are aged, blind or disabled, and for single parents of children under age 14. Single parents with children aged 7 to 14 will be required to accept part-time work which does not interfere with caring for the children, and will be expected to accept full-time work where appropriate day care is available.

These two levels of assistance are coordinated parts of a unified system which maintains incentives to work and simplifies administration.

--For those qualifying for income support the basic benefit for a family of four with no other income will be $4,200 in 1978 dollars. Benefits will be reduced fifty cents for each dollar of earnings, phasing out completely at $8,400 of earnings. Added benefits would accrue to those in regular private or public employment through the Earned Income Tax Credit.

--An aged, blind, or disabled individual would receive a Federal benefit of $2,500 and a couple would receive $3,750--more than they are now receiving. That is higher than the projected SSI benefit for either group--about $100 higher than for a couple and $120 higher for a single person.

--For those persons required to work who receive a Work Benefit, the basic benefit for a family of four with no other income will be $2,300. To encourage continued work, benefits will not be reduced at all for the first $3,800 of earnings and will thereafter be reduced by fifty cents for each dollar earned up to $8,400. Again, the Earned Income Tax Credit will provide added benefits to persons in regular private or public employment.

--We are committed to assure that inflation will not erode the value of the benefits, and that real benefits will be increased over time as federal resources grow. To preserve flexibility in the initial transition period, however, we do not at this time propose automatic indexing of benefits or automatic increases in their real value. (The figures contained in this message expressed in 1978 dollars will be adjusted to retain their real purchasing power at the time of implementation).

--Single parent family heads will be able to deduct up to 20% of earned income, up to an amount of $150 per month to pay for child care expenses required for the parent to go to work.

--No limits are placed on the right of states to supplement these basic benefits. However, only if states adopt supplements which complement the structure and incentives of the Federal program will the Federal government share in the cost.

Eligibility rules for the Work Benefit and Income Support will be tightened to insure that the assistance goes to those who are most in need.

--To reduce error and direct assistance to those most in need, benefits will be calculated based on a retrospective accounting period, rather than on the prospective accounting period used in existing programs. The income of the applicant over the previous six-month period will determine the amount of benefits.

--The value of assets will be reviewed to insure that those with substantial bank accounts or other resources do not receive benefits. The value of certain assets will be imputed as income to the family in determining the amount of benefits.

--Eligibility has been tightened in cases where related individuals share the same household, while preserving the ability of the aged, disabled and young mothers to file for benefits separately.

STATE ROLE AND FISCAL RELIEF FOR STATES AND LOCAL COMMUNITIES

Public assistance has been a shared Federal and State responsibility for forty years. The program I propose will significantly increase Federal participation but maintain an important role for the states.

--Every State will be assured that it will save at least ten percent of its current welfare expenses in the first year of the program, with substantially increased fiscal relief thereafter.

--Every State is required to pay ten percent of the basic Federal income benefits provided to its residents except where it will exceed 90 percent of its prior welfare expenditures.

--Every State is free to supplement the basic benefits, and is eligible for Federal matching payments for supplements structured to complement and maintain the incentives of the Federal program. The Federal government will pay 75% of the first $500 supplement and 25% of any additional supplement up to the poverty line. These State supplements will be required to follow Federal eligibility criteria to help achieve nation-wide uniformity.

--Where States supplement the income support they must also proportionally supplement the work benefit and the public service wage.

--There will be a three-year period during which states will be required to maintain a share of their current effort in order to ease the transition of those now receiving benefits. These resources must be directed to payment of the State's 10% share of the basic benefit, to supplements complementary to the basic program, and to grandfathering of existing SSI and partially grandfathering AFDC beneficiaries. The Federal government will guarantee a State that its total cost for these expenditures will not exceed 90% of current welfare costs. States can retain any amounts under the 90% requirement not actually needed for the mandated expenditures. In the second year of the program states will be required to maintain only 60% of current expenditures, in the third year, only 30%. In the fourth year, they will only be required to spend enough to meet their 10% share of the basic benefit.

--States will have the option to assist in the administration of the program. They will be able to operate the crucial intake function serving applicants, making possible effective coordination with social service programs. The Federal government will operate the data processing system, calculate benefits, and issue payments.

--The Federal government will provide a $600 million block grant to the states to provide for emergency needs. These grants will assist the states in responding to sudden and drastic changes in family circumstances.

--The Federal government will provide 30% above the basic wage for fringe benefits and administrative costs of the jobs program, and will reimburse the states for costs of administration of the work benefit and income support program.

In the first year of this program, states and localities would receive $2 billion in fiscal relief, while at the same time ensuring that no current SSI beneficiary receives a reduced benefit and that over 90 percent of current AFDC beneficiaries receive similar protection.

In subsequent years as current recipients leave the rolls and as the maintenance of State effort requirement declines from 90 percent to zero within 3 years, the opportunities for increased fiscal relief will grow.

Under our program for fiscal relief, states will be required to pass through their fiscal relief to municipal and county governments in full proportion to their contributions. Thus, for example, in New York State, where New York City pays 33% of the State's share, New York City would receive 33% of the State's fiscal relief or $174 million.

REDUCTION OF FRAUD AND ABUSE

The few providers and recipients guilty of fraud and abuse in our welfare programs not only rob the taxpayers but cheat the vast majority of honest recipients. One of the most significant benefits of consolidation of existing cash assistance programs is the opportunity to apply sophisticated management techniques to improve their operation. The use of a central computer facility will permit more efficient processing of claims, reduce the incidence of error in calculating benefits, and facilitate the detection of fraud. No longer will people easily claim benefits in more than one jurisdiction.

We will strongly enforce current programs directed at assisting local officials in obtaining child support payments from run-away parents, as determined by judicial proceedings.

We will ensure that the Department of Health, Education, and Welfare will vigorously root out abuses and fraud in our social programs.

We will work for passage of current legislation designed to crack down on fraud and abuse in our Medicaid and Medicare Program. The administration of these programs will be a major challenge for federal and state officials. It provides a valuable opportunity to demonstrate that government can be made to work, particularly in its operation of programs which serve those in our society most in need.

IMPLEMENTATION

Because of the complexity of integrating the different welfare systems of the 50 states and the District of Columbia into a more unified national system, we estimate that this program will be effective in Fiscal Year 1981. Moreover, we recognize that the National Health Insurance plan which will be submitted next year must contain fundamental reform and rationalization of the Medicaid program, carefully coordinated with the structure of this proposal. However, we are anxious to achieve the swiftest implementation possible and will work with the Congress and State and local governments to accelerate this timetable if at all possible.

Given the present complex system, welfare reform inevitably involves difficult choices. Simplicity and uniformity and improved benefits for the great majority inevitably require reduction of special benefits for some who receive favored treatment now. Providing the dignity of a job to those who at present are denied work opportunities will require all the creativity and ingenuity that private business and government at all levels can bring to bear. But the effort will be worthwhile both for the individual and for the country. The Program for Better Jobs and Income stresses the fundamental American commitment to work, strengthens the family, respects the less advantaged in our society, and makes a far more efficient and effective use of our hard-earned tax dollars.

I hope the Congress will move expeditiously and pass this program early next year.

JIMMY CARTER

The White House,

August 6, 1977.