Welfare Spending and the Poverty Rate by State

States that Are More Generous With Cash Welfare Have Less Poverty

Discussion:

The correlation between high cash welfare benefits and low poverty is very strong. Some of the states with very low poverty rates also spend very little on welfare. For example, New Hampshire spends less than $50 per capita on cash welfare benefits, but has a poverty rate of only 9%. However, all of the states that have high poverty rates spend little on welfare. This is consistent with the possibility that there are multiple factors that can lead to low poverty rates, but that high welfare spending is one of them. For example, New Hampshire spends little on cash welfare benefits, but spends a great deal on education and the result is a low poverty rate, but other states have achieved a low poverty rate by spending a lot on welfare, but very little on education (for example, Utah).

It is a common belief on the right that welfare benefits, and especially cash welfare benefits, create dependency and hence ultimately increase poverty. The data clearly disproves that premise. If welfare spending increased poverty, the states that provide the most generous benefits would have higher pre-transfer poverty rates rather than the lower rates we see.

The conclusion to draw might be that states with low poverty rates do not necessarily need to increase cash welfare spending, but states with high poverty rates almost certainly would see those poverty rates decrease dramatically if they began spending more on welfare.

It is also important to note that to some extent, lifting people out of poverty pays for itself. The poverty rate is calculated based on a pre-tax, pre-welfare benefit, basis. That means that as more people rise out of poverty, they make more income and hence pay more in taxes, which offsets the cost of lifting them out of poverty.

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States that Are More Generous With Cash Welfare Have Less Poverty

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