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Measuring Poverty: A New Approach (1995)

Chapter: Federal-State Cost Sharing

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Suggested Citation:"Federal-State Cost Sharing." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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THE POVERTY MEASURE AND AFDC 350 calculating disposable income to try to develop effective incentives for recipients to become self-supporting through work and to encourage family stability and better parenting. To date, results show limited effects on such behaviors as work effort from changes in benefit levels and the tax rate on earnings. The evidence is not yet in on more recent state initiatives, such as not increasing benefits when another child is born or reducing benefits if parents do not stay in school or fail to have their children vaccinated. It is important, moreover, to note that other programs besides AFDC raise concerns about incentives. For example, assistance programs for retired or disabled people, such as Social Security and SSI, have negative effects on work effort (see Hurd, 1990; Quinn, Burkhauser, and Myers, 1990; Rust and Phelan, 1993; Wise, 1992). Federal-State Cost Sharing In the United States, federal-state cost-sharing provisions have important effects—not always intended—on program benefit levels and the possibilities for changing those levels. For AFDC, the federal government historically has tried to provide incentives to low-income, low-benefit states to raise benefits by picking up a higher share of assistance program costs in these states. However, there has been little effect on states' behavior: low-benefit states have generally opted to minimize their own budget outlays rather than to raise benefits, and, hence, the variation in benefits across states has remained high (see Peterson and Rom, 1990). Similarly, states have taken advantage of the fact that the Food Stamp Program, for which benefits are funded entirely by the federal government, will partly make up for lower AFDC benefit standards. The current situation in which low-income, low-benefit states receive higher rates of federal reimbursement makes it difficult to devise a politically palatable scheme for raising AFDC benefits to some national minimum standard. A review of one such proposal by the Congressional Budget Office (CBO) (1989a), the Partnership Act of 1987 (introduced in the 100th Congress as S. 862 but never enacted), starkly illuminates the problems. The Partnership Act proposed to expand the federal role in financing AFDC and Medicaid and to pay for these expansions by eliminating a number of grant-in-aid programs (e.g., Community Services Block Grants and Urban Mass Transit Research). The act provided for a national minimum AFDC benefit standard that, when combined with food stamps, would ultimately reach 90 percent of the federal poverty line for families with no other income. At the same time, the federal matching rate for AFDC benefits up to the minimum standard would be raised to 90 percent. The evaluation of the federal and state costs of this proposal found that it was not cost-neutral overall as it was intended to be. Rather, if the program had been fully phased in by 1994, CBO (1989a) estimated net costs to the federal government of $38 billion and net savings to the states of $22 billion,

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of:

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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