    [Budget Supplement]
    [Creating Opportunity and Encouraging Responsibility]
    [7. Making Work Pay]
    [From the U.S. Government Printing Office, www.gpo.gov]

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

      I think the objective of welfare reform should be to break the cycle of dependency in a way that promotes
    responsibility, work, and parenthood. I believe that our objective for all Americans should be to make sure that
    every family can succeed at home and at work, not to make people choose.

                                          President Clinton
                                          February 1996

      ----------------------------------------------------------------------
      America's welfare system is broken. It does not serve the taxpayers or
    those trapped in it. And it undermines the values of work and family. We
    must replace it. At the same time, Congress' failure to raise the
    minimum wage has hurt millions of hardworking families.
      For three years, the Administration has worked aggressively to fix
    specific parts of the welfare system, while pursuing comprehensive
    reform. In 1993, the President's economic program gave tax cuts to 15
    million working families through the Earned Income Tax Credit, which
    rewards work over welfare. In 1994, the Federal Government collected a
    record $10 billion in child support (see Chart 7-1). A year later, the
    President signed an Executive Order to make the Federal Government a
    model employer for collecting child support. In July 1995, the President
    ordered that Federal regulations be strengthened to prevent welfare
    recipients who refuse to work from getting higher Food Stamp benefits
    when their welfare checks are cut.

      The Administration's actions--combined with the falling unemployment
    rates that a strong economy has generated--are having an impact. Since
    their peak in March 1994, welfare caseloads have fallen from 14.4
    million to 12.9 million, or 10 percent (see Chart 7-2).

      The Administration has given 37 States the freedom to test ways to
    move people from welfare to work and protect children. The President's
    welfare plan also would dramatically increase State options to structure
    the system, but retain basic standards for helping the poor to live and
    become self-sufficient.
      Through State welfare experiments, 9.9 million recipients across the
    Nation are in households in which adults are being required to work,
    take more responsibility for their children, sign a personal
    responsibility contract, or earn a paycheck from a business that uses
    money otherwise spent on Food Stamps and welfare benefits to subsidize
    private sector jobs. These States are doing their part to promote real
    reform that reflects the basic values that Americans share: work,
    responsibility, and family.
      Now, however, Congress needs to do its part and work with the
    Administration on bipartisan legislation that honors those same values
    by requiring work, demanding responsibility, protecting children, and
    providing adequate resources to get the job done right.
      In 1994, the President sent Congress a dramatic welfare reform plan
    to: time-limit welfare benefits; establish tough work requirements and
    provide child care for welfare recipients; impose tough child support
    enforcement measures on non-custodial parents; increase State
    flexibility to run public assistance programs; and protect children.
    That proposal triggered many others--in Congress and from the Nation's
    governors.
      The President is determined to keep working with Congress to enact a
    bipartisan welfare reform bill. In this budget, the President proposes a
    revised plan to replace the current welfare system with one that
    requires work and provides child care so people can leave
    [[Page 70]]
    welfare for work. This new plan saves about
     $40 billion over seven years while
    promoting sweeping work-based reform and protecting children.

                                 WELFARE REFORM

      To succeed, welfare reform must focus on moving those who can work to
    independence through: tough work requirements; child care; incentives to
    reward States for placing people in jobs; a continued financial
    commitment by States to reform; a flexible program structure that can
    respond quickly to fluctuations in welfare caseloads and adapt to local
    needs; a strong national nutritional safety net; and protection for
    children even if their parents lose assistance.

    Moving People from Welfare to Work

      Welfare reform is mainly about work. The President's plan would repeal
    Aid to Families with Dependent Children (AFDC) and create a new, time-
    limited, conditional entitlement to cash assistance. As soon as they
    join the rolls, beneficiaries would have to develop and sign a personal
    responsibility contract with their welfare office. Within two years,
    able-bodied parents would have to work or lose their benefits--and after
    five years, they no longer would get cash benefits.

      Providing Child Care to Reward Work Over Welfare: Child care is vital
    to moving people off welfare and helping them stay off. Many people stay
    on welfare because when they work, the cost of child care leaves them
    worse off. The budget proposes significantly more funding for child care
    to help low-income parents get the skills to hold a job or look for one.
    Child care funds also would help parents avoid welfare in the first
    place.
      Ensuring Protection During Economic Downturns: In a recession, State
    revenues fall as welfare caseloads rise because more jobless families
    seek public assistance. Without
    [[Page 71]]
    a funding structure that can adjust to
    caseload changes, a recession could render many States unable to keep
    paying welfare benefits and still meet the tough work requirements of
    any real reform. The President believes strongly in maintaining a
    flexible funding structure that adjusts to changing economic
    circumstances.
      Keeping a Stake in Successful Reform: States must maintain their
    commitment to move people from welfare to work. Without it, some States
    may withdraw their support for programs that move people to work and
    drastically cut benefits in a ``race to the bottom.'' States should be
    held accountable for making welfare reform a success. The President's
    proposal requires a sustained State financial contribution. The proposal
    also recognizes that State welfare bureaucracies need a positive
    incentive to focus on the central goal of moving people from welfare to
    work. Thus, the President proposes $800 million in performance bonuses
    to reward States that achieve the best results in moving people from
    welfare to work.

    Requiring Parental Responsibility

      To end welfare as we know it, we must encourage responsible behavior.
    The President's proposal sends a strong message to the next generation
    that they should not have children until they can care for them.

      Strengthening Child Support Enforcement: In his 1994 welfare plan, the
    President proposed sweeping changes to strengthen child support
    enforcement. These included: revoking driver and professional licenses
    for parents who refuse to pay child support; improving interstate laws
    to find such parents; and strengthening the tools to establish paternity
    so that both parents take full responsibility for their children.
      Reducing Teen Pregnancy and Stabilizing Families: In his State of the
    Union address, the President launched a national
    [[Page 72]]
    campaign to cut teen pregnancy by a third over
    the next 10 years. The budget proposes $30
    million to address the problem and support grass-roots community
    efforts. A National Clearinghouse on Adolescent Pregnancy would provide
    information, data, and technical assistance to teen pregnancy prevention
    programs, including education about abstinence.
      Teens who become parents often need support and guidance, especially
    to meet their children's emotional and material needs. Under the
    President's proposal, minor parents would have to live in an adult-
    supervised environment as a condition of receiving temporary employment
    assistance. To help them become self-sufficient, minor parents also
    would have to participate in education or job training activities.

    Protecting Children

      Welfare reform should not punish children.

      Maintaining our National Commitment to Abused and Neglected Children:
    In 1993, the Administration secured legislation to provide close to $1
    billion for the new Family Preservation and Support program. The law
    recognized that child abuse and neglect are serious, growing problems.
    Recently, reported child maltreatment and the need for out-of-home
    placements have both risen sharply--about 2,000 children die each year
    due to abuse and neglect.
      Some congressional welfare bills would cut child protection programs,
    leading to more uninvestigated reports of mistreatment, more children
    left in unsafe homes, and more children languishing while they await
    adoption and permanent homes. Congress should reject such cuts and,
    instead, maintain a flexible system that can respond over time to
    changes in children's need for protection.

      Maintaining our National Nutrition Safety Net: Every day, the national
    nutrition safety net protects millions of children, working families,
    and elderly. The Food Stamp program reaches one in 10 Americans every
    month--over 13 million children and two million elderly people. About 26
    million children receive lunches supported by the Agriculture Department
    each school day. Another 2.5 million children a day participate in the
    child and adult care feeding program.
      Throughout their history, Food Stamps and Child Nutrition have
    produced significant, measurable improvements in the nutrition of
    children and families. The programs work because of: national standards
    on nutrition, eligibility, and benefits; funding structures that ensure
    that the programs respond to changing needs caused by economic
    fluctuation; and Federal oversight that helps ensure their integrity.
    The Food Stamp program helps to ensure that low-income families and
    individuals have access to the resources they need to maintain an
    adequate diet. The President's plan maintains the national nutrition
    safety net for Food Stamps and Child Nutrition, enabling them to respond
    to the changing and disparate circumstances of families and children.
      Under the President's plan, the Food Stamp program continues to index
    basic benefits with inflation; counts all energy assistance as income;
    and imposes a new work requirement that makes adults aged 18-50 with no
    dependents ineligible for Food Stamps after six months of each year
    unless they work 20 hours a week or participate in workfare or training
    (eligibility continues if a State does not supply a training or workfare
    slot). Tough new integrity measures crack down on fraudulent Food Stamp
    trafficking and waste. In addition, the plan gives States unprecedented
    flexibility to run the Food Stamp program. It better targets food
    subsidies for Family Day Care homes and makes other minor changes in
    Child Nutrition programs.

      Protecting Children Whose Parents Reach the Time Limit: As we have
    said, welfare reform should not punish children. Even after a family's
    cash benefits end, the President's plan calls for vouchers for goods and
    services so that children continue to receive essential items, such as
    clothing and housing.
      Protecting Health Coverage for Poor Families: Health care is an
    important part of the strategy to move poor people from welfare to work.
    The President proposes to retain the Federal guarantee of coverage under
    Medicaid--which provides health care to low-income Americans--for those
    who receive cash
    [[Page 73]]
    assistance. In addition, his plan does not restrict
    Medicaid for documented immigrants.

    Reforming Supplemental Security Income (SSI)

      The SSI program provides critical financial support for the neediest
    aged, blind, and people with disabilities. The budget supports key
    reforms to ensure that SSI continues to reach those most in need.
      The budget tightens eligibility standards for childhood disability
    benefits. It would deny benefits to adults who are on SSI due to
    substance abuse. It proposes improved SSI and Social Security Disability
    program integrity measures, such as continuing disability reviews. It
    would give the Social Security Administration new tools to collect SSI
    overpayments from individuals no longer on the SSI rolls. Finally, it
    proposes to allow a family to use any large, retroactive SSI benefit to
    establish a dedicated savings account for a child with disabilities,
    with funds in the account usable only for education and training,
    special equipment, housing modifications, or therapy and rehabilitation.

    Making Equitable Changes in Benefits for Legal Immigrants

      The President believes that legal immigrants should have the
    opportunity, and bear the responsibility, to be productive members of
    society. He also believes they should be able to tap the social safety
    net when the need arises.
      The budget proposes to hold sponsors who bring immigrants into the
    country legally responsible for their financial well-being.
    Specifically, it would count (or ``deem'') sponsors' income when
    determining whether immigrants are eligible for SSI, Food Stamps, or
    AFDC--until immigrants become citizens. These rules, however, would not
    apply to those who suffer a disabling impairment after entering the
    country, the very elderly who have lived in the country for at least
    five years, those who have worked for over five years, or veterans and
    their families. The budget preserves Medicaid eligibility for low-
    income, eligible legal immigrants. It also creates a consistent
    definition of eligibility for documented aliens for AFDC, SSI, and
    Medicaid, and lets States apply this definition to their own State-
    funded programs.

                       THE EARNED INCOME TAX CREDIT (EITC)

      To move people from welfare to work, the Government must do more than
    set time limits and work requirements in welfare programs. It must
    ensure that those who work can support their children. As a wage
    supplement, the EITC helps low-income parents do that.
      This tax credit has long enjoyed broad, bipartisan support as a vital
    tool for making work pay. Congress created it 20 years ago, and
    Presidents of both parties have pushed successfully to expand it. The
    most recent was President Clinton, who teamed up with Congress in 1993
    to reward work for 15 million families.
      The budget maintains these gains for hard-working, low-income
    families. In addition, the President proposes to allow States, on a test
    basis, to make advance EITC payments to low-income working families--
    that is, payments during the tax year, rather than a lump sum at the
    end--to learn whether this would help move more families from welfare to
    work. Currently, employers can include a portion of a family's expected
    EITC in an employee's paycheck, but few of them do. The Administration
    also seeks to cut program costs by improving compliance and targeting.
    (For more details on the compliance and targeting measures, see Chapter
    12.)

                                THE MINIMUM WAGE

      In real, inflation-adjusted dollars, the value of the minimum wage is
    nearing its lowest level in 40 years. The President proposes to raise
    the minimum wage from $4.25 to $5.15 an hour over two years, in two
    steps of 45 cents each.
      A higher minimum wage would truly make work pay. A 90-cent rise would
    mean over $1,800 a year in higher earnings for full-time, full-year
    workers at the minimum level who now make less than $9,000 a year. With
    the proposed increase, nearly 10 million working Americans would get an
    immediate
    [[Page 74]]
    pay raise. Another nine million low-wage workers with wages up
    to a dollar above the new minimum also could benefit indirectly,
    presuming that their paychecks rise as well.
      The stereotype of minimum-wage teenagers in comfortable circumstances
    who work only for ``extras'' is sadly inaccurate. In truth, minimum-wage
    paychecks mostly go for expenses like rent and baby food. The average
    minimum wage worker brings home half of his or her family's earnings.
      Nevertheless, about a quarter of workers who would get a pay raise
    with this increase are teenagers. These teenagers' jobs are their
    introduction to the world of work. Over three-fifths of all workers have
    been paid at the minimum wage at some time during their working lives.
      Generally, economists agree that while a minimum wage increase of 90
    cents an hour would raise the living standards of millions of low-wage
    workers, it would cost the economy few, if any, jobs.