The gravamen (yes, I'm still in law school) of the Cato report in question is that welfare "pays" more in most states than a minimum wage job. From the report:
Far from condemning welfare recipients to a life of poverty, welfare actually exceeds the FPL [Federal Poverty Level] in 42 states and the District of Columbia (as show [sic] in Table 5). In fact, in the District of Columbia, Hawaii, and Massachusetts, welfare pays more than twice the poverty level.
I don't mind that the Cato Institute is opposed to welfare. I do mind that they lie to try to influence policy on welfare, particularly when the Republicans in the House are about to push for additional budget cuts.
The truth of the matter, of course, is that even a minimum wage job is likely to leave a family better off than no job at all. This is true in part because many assistance programs do not automatically cut off the moment that you start to work. The programs have income-based eligibility requirements, and many people who work minimum wage jobs will continue to qualify for these programs.
This does not show up in the Cato report, because the Cato report did not bother to include continued eligibility for benefits when they compared "welfare" with a minimum wage job. Their comparison assumes that welfare "pays" better than a minimum wage job based on the assumption that the welfare recipient collects from every major assistance program, and that the minimum wage earner collects only pay + the Earned Income Tax Credit (which they condescendingly point out is actually a form of welfare).
It doesn't take very long to identify most of the sources of intellectual dishonesty in the Cato report. I'm going to hit the high points there, and provide a few examples of how things look in a more realistic (but still very favorable to Cato) scenario.
We'll start by looking at some of the most basic lies in the report.
First, their "typical welfare family" is nothing of the kind. They base their calculations entirely on families that are eligible for Temporary Assistance to Needy Families (TANF). However, most of the programs that they include in the welfare income have a much broader reach than nonworking families. Here's a quick breakdown:
Nationwide, in Fiscal Year 2010, there were a total of 1,847,155 households with active TANF cases. In the same fiscal year, 18,618,436 households received SNAP (food stamp) benefits, and another 65,989,147 individuals (~25,577,188 households based on the census 2.58 individuals/household) received medicaid benefits. According to the Cato report's own definitions, households on both of those programs should be "welfare families." With less than 10% of SNAP households also receiving TANF, and less than 3% of Medicaid households receiving SNAP, it's easy to see that Cato's "typical welfare family" is actually based on an extreme case, not on anything that any of us would consider to be an "average."
But let's drill down further.
In order to determine what welfare "pays," the authors of the Cato report based their calculations on the assumption that the "typical welfare family" consists of "a single mother with two children." Cato provides no citation (naturally) for this assumption.
It should also be noted that while Cato does not explicitly state this anywhere, Cato's "typical welfare family" actually assumes that both the children in the family are under age 5 - they include WIC benefits for both children in their calculation of what welfare "pays." Less than 20% of single mother families have 2 children under age 18 - let alone age 5. Here, again, the "typical welfare family" is anything but.