A Carload of Contradictions

Author: John Monczunski

For poor people it is the classic Catch-22. Ever since the welfare reforms of the ’90s, most aid recipients have been required to work to qualify for the Temporary Assistance for Needy Families (TANF) program. The problem is, since you need dependable transportation to get to work, very often you need a car. But if you own a car worth more than $1,000 you no longer qualify for aid in nine states, while other states have a higher limit.

“The policy appears to be contradictory,” says James X. Sullivan, Notre Dame assistant professor of economics. “A lot of states have recognized this and have raised the exemption or removed the value restriction on vehicles altogether, but not all.”

Upon analyzing data on vehicle ownership and expenditures, Sullivan found that aid-recipient-ownership of vehicles has, in fact, increased in those states with loosened value restrictions. “A single mother with no more than a high school education in a state with a $1,000 vehicle limit is 17 percent less likely to own a car than a comparable single mother living in a state that does not pose a limit on vehicles,” Sullivan notes. Additionally, he found that the rate of vehicle ownership increases 5 percent for every $1,000 increase in the vehicle-value limit in those states that still impose limits. Easing the restrictions appears to have had the intended effect of increasing auto ownership, presumably helping employment efforts.

Sullivan says some economists argue that removing or raising the restrictions is a mistake because it offers public-assistance recipients an incentive to invest in an asset that depreciates rather than in a savings account which would appreciate in value. Ultimately this is not in the best interest of the poor, these economists assert.