After riding into office on a wave of rhetoric about small government and “welfare queens,” President Ronald Reagan made sure his first budget, The Omnibus Reconciliation Act of 1981, reflected campaign promises to shrink social programs and shift more power to states. In an ironic twist, one little-known change introduced new welfare restrictions by placing maximum allowable assets for eligibility, previously determined state by state, in the hands of the federal government. This small change, still essentially in place for many Americans today, redefined poverty as what Michael Sherraden eloquently described as a "trap of low assets.”
Reagan’s budget set asset limits at a meager $1,000, a significant reduction in many states, meaning that families in need were required to spend through their savings to less than $1,000 before receiving help from the country’s primary assistance program. And they did. In one study published 10 years after Reagan left office, researchers found that 40 percent of low-income, single mothers (including non-recipients) reduced personal savings by an average of $1,250.
Three decades later, I learned how persistent the fear of the “welfare queen” narrative is when I pushed—unsuccessfully—to modernize the asset limit for Arkansas’s family assistance program in 2011. These limits restrict the amount of assets or savings families who receive government assistance can have while still remaining eligible for benefits. I argued that such limits on the poor ($3,000 in Arkansas, for example) create disparate incentives when compared to other policies (like mortgage-interest deductions and tax-sheltered retirement accounts) which are aimed at encouraging wealth accumulation among the middle class.