This is because TANF families must assign ("turn over" legal rights to) child support paid by noncustodial parents on their behalf to the state to reimburse governments for welfare costs. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171 , enacted February 8, 2006) provides incentives for states to allow more of the child support collected on behalf of TANF families to go to the family and most (if not all) of the child support collected on behalf of former TANF families to go to the family. This report illustrates "what if" scenarios if six states (California, Illinois, Maine, Maryland, Oklahoma, and West Virginia) were to adopt the DRA child support pass-through and disregard policies for TANF families. The DRA provisions would reduce the "cost" of the pass-through and disregard policy more for poorer states than for higher-income states. Background

The CSE program (Title IV-D of the Social Security Act) was enacted in 1975 as a federal/state/local partnership to help strengthen families by securing financial support from noncustodial parents. The state then decides whether to pay any received child support to the family. As of April 2007, 27 states have no pass through or disregard policy; 12 states pass through and disregard up to $50 per month; 7 states pass through a gap payment or supplement (3 of these states also pass-through an additional $50) and disregard the entire amount of the monthly gap payment/supplement (plus the $50 if passed-through); 2 states pass through and disregard an added amount to the TANF cash benefit, but the amount is not considered a child support pass-through; 1 state passes through all child support payments to custodial parents but does not disregard any of that income; 1 state passes through up to $50 monthly but does not disregard that income; and 1 state passes through and disregards all child support collected on the family's behalf. Impact of DRA Provisions on Family Income

The DRA policies aim to increase the incomes of TANF cash welfare families. Under pre-DRA policies, the hypothetical family of three, with $300 in child support income per month, would be ineligible for TANF cash welfare. The increased disregard permits families to receive child support without losing eligibility for TANF cash. In Illinois and Maryland, the hypothetical family of two children and a mother working half-time at the minimum wage is ineligible for TANF under pre-DRA rules. For other families, however, the costs of switching to the DRA policies would actually be borne by the state through increasing TANF cash welfare expenditures. Table 6 shows how the cost of increasing family income under DRA provisions through the child support pass-through and disregard would be borne by the federal government and the states for a family whose noncustodial parent pays $300 per month in child support. Some of the advantages include the following:
An increase in income available to families who receive Temporary Assistance for Needy Families (TANF) cash benefit payments. Assuming that Maryland adopts a pass-through and disregard policy when the provisions of the Deficit Reduction Act take effect, a mother with two children and no earnings would receive both child support paid by the noncustodial parent and maximum TANF benefits up to a monthly total of $749 ($549 from TANF and $200 from the child support pass-through and disregard) if the noncustodial parent paid at least $200 per month in child support. Full-Time Earnings at Federal Minimum Wage
A Maryland mother with two children who works full-time at the new fully-phased in federal minimum wage ($7.25 per hour) is not eligible for a TANF cash benefit payment, under either current state policy or if the state adopted the new DRA pass-through and disregard policy. P.L. 109-171 requires the federal government to waive its share of the child support collections passed through to TANF families by the state and disregarded by the state—up to an amount equal to $100 per month in the case of a family with one child, and up to $200 per month in the case of a family with two or more children. This provision takes effect on October 1, 2008.
The Child Support Enforcement (CSE) program was enacted in 1975 as a federal-state-local partnership to help strengthen families by securing financial support from noncustodial parents. Families receiving cash welfare from the Temporary Assistance for Needy Families (TANF) block grant must assign (turn over rights to) child support received from noncustodial parents to the state to reimburse it and the federal government for their welfare costs. States decide whether to pay any of the child support collected for TANF families to the family.
The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) provides incentives for states to allow more of the child support collected on behalf of TANF families to go to the family without a reduction in welfare benefits. Under DRA, beginning in October 2008, the federal government will share in the cost of passing through up to $100 per month for a family with one child, and up to $200 per month for a family of two or more children, of collected child support to TANF families. This report illustrates the potential impact of the DRA policy on families and governments in six states (CA, IL, ME, MD, OK, and WV) chosen because of their diversity in both TANF and pre-DRA child support pass-through policies. It shows the direct effects of "what if" the states fully adopted the DRA policy.
The DRA policies can increase the incomes of a TANF cash welfare family consisting of a mother and two children by up to $200 per month. This can be a substantial supplement to TANF cash benefits. Actual income increases depend on how much child support is paid by the noncustodial parent, pre-DRA state policies, the amount of other income (including earnings) of the family, and TANF benefit rules. The DRA has its greatest impact on families with no income other than child support. It mainly affects families who receive TANF; it does not directly affect families with incomes too high to receive TANF. In some states, a family of three with a minimum wage earner (the new fully phased-in federal minimum wage of $7.25 per hour; P.L. 110-28) at 20 hours per week is ineligible for TANF; in most states, a family with a full-time minimum wage earner is ineligible for TANF.
The increased pass-through and disregard of child support for TANF families also has its costs. Disregarding additional child support when determining TANF financial eligibility can make additional families eligible for TANF. The cost of increasing family income through DRA's enhanced pass-through and disregard is often borne by reductions in child support collections kept by the state and federal governments. However, sometimes the cost could be borne through increased TANF spending. The DRA rules reduce the "cost" of the pass-through and disregard more for poorer states than for higher-income states.
This report provides a limited discussion of DRA's effect on former TANF families. The report addresses only the "direct" effects of adopting the DRA child support pass-through and disregard. Adoption of DRA child support policies might have other, indirect, behavioral effects. This report will not be updated.