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Curb welfare spending or raise minimum wage?

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As the unintended effects of welfare reform grow, legislators are debating remedies ranging from curbing spending on welfare-to-work benefits to raising the minimum wage to ensure workers can more easily live on what they earn.

When deficits soared to more than $1 trillion during the depths of the recent global economic downturn, driven in part by $700 billion a year in means-tested welfare spending, many Republicans who previously supported the programs because they are designed to reward work efforts changed their minds. Today, most Republican legislators are calling for curbs in the programs, arguing they now allow too many able-bodied adults to get away with minimal work.

The House GOP majority late last month approved a bill that included nearly $40 billion in cuts in food stamp spending, which experienced the most hyperbolic growth of all the programs, more than doubling since 2007. Various Republican-led committees are also looking into curbing the growth of Medicaid, Supplemental Security Income and other fast-growing benefit programs.

Robert Rector, a Heritage Foundation welfare scholar who helped draft the 1996 law, lamented what he said was the emergence of a massive "hidden welfare state" that has led to 1 in 3 Americans drawing benefits from one of 80 separate welfare programs.

"The main problem was that we reformed only one anti-poverty program out of 80," he said, referring to what was known as Aid to Families With Dependent Children, which was eliminated in 1996. Food stamps and all the other programs now need to be transformed so they are not "one-way handouts" but rather for people earning their benefits by either working, or preparing to work or upgrading their career prospects.

"Those in need of aid should receive assistance; in return, they should take steps toward supporting themselves," he said an a National Review opinion piece. "This principle was the foundation of welfare reform in 1996."

But Democrats say forcing the working poor, many of whom already are holding down two or three minimum-wage jobs, to do more to "earn" their benefits is unfair. People who are already doing hard manual work for more than eight hours a day have little time or the wherewithal to improve their career prospects though better education and training, they say.

Democrats, for the most part, continue to support the programs, which they credit with averting Depressionlike hardship for people laid off and forced into low-income jobs by the recession.

They are taking a different tack in addressing the plight of the working poor and tackling the cost of their welfare benefits. This year, President Obama proposed an increase in the minimum wage to $10 an hour, and Democrats in many cities and states are proposing even higher mandatory wages or "living wages" of $15 an hour to try to break the trend toward employers offering lower and lower wages.

While the Republican and Democratic approaches diverge significantly and seem to provide little ground for compromise, they both would accomplish the same goal of curbing growth in benefits, said John Slater, a partner at Focus LLC, a Washington-based investment bank. By forcing an across-the-board increase in wage levels, the minimum wage legislation would elevate many low-wage earners above the income thresholds where they qualify for benefits and result in reduced welfare spending.

"Much of this burden can be shifted to employers and their customers, though that would result in higher retail prices," he said. The focus on the minimum wage may be justified because so many more jobs now are paid at that level, he said.

"Thirty years ago, burger flippers at McDonald's were high school students earning money for a Saturday night date. Today, they are increasingly breadwinners with a family to support," Mr. Slater said.

Raising the mandatory minimum for wages likely would have undesirable economic effects, such as prompting small businesses to reduce hiring and making some U.S. industries less competitive. But those negative impacts have to be weighed against the "societal costs of a continued drift to a world where a large percentage of the American workforce is dependent on federal subsidies for survival," he said.

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