Back to welfare without work?

Helping people move from welfare to work was the hallmark of a major reform signed by President Clinton in 1996. That policy got results that helped recipients, and also established an important principle to guide federal policymaking. That principle is that moving citizens from welfare to work is good for the citizen, and for society. Now there’s a push for the lame-duck Congress to revive a short-lived program that could encourage some recipients to move in the wrong direction: from work to welfare.

As a part of the American Rescue Plan enacted in March 2021, the Biden administration expanded the existing child tax credit and transformed it into a child allowance, disconnecting it from work in the process. The child allowance was only authorized for one year because of its very high cost. In an atypical turn of events in Washington, the policy was not renewed at the end of 2021 after Sen. Joe Manchin objected that it discouraged work. But now some in Washington want to bring back the policy proposal and make it a part of the year-end spending package that members of Congress are currently negotiating.

The child allowance overhauled the child tax credit created in the 1990s. The original policy allowed working families to keep a modest credit against their taxes to help defray the costs of raising children. That sent two important messages. First, it recognized that parents perpetuate society for the benefit of everyone. Acknowledging their contribution to the common good through family tax relief makes sense. Second, the policy also underscored the importance of work, because only working parents could claim the credit on their tax returns.

But the American Rescue Plan policy changed the tax credit to provide cash assistance to non-working parents in the form of monthly payments. The previous maximum annual award of $2,000 per child was related to work. The new child allowance awarded an annual rate of $3,000 per child ages 6-17 and $3,600 for each child under six. The cash payments were distributed with no strings attached, regardless of whether parents who received them were working.

The child allowance cash payments were a throwback to the old welfare system prior to the reforms of the 1990s. That model provided cash assistance with no requirement for recipients to find work. Long-term dependence on government welfare and unwed childbearing increased. By the mid 1990s there was widespread agreement that the system disserved many of those it was intended to help. The 1996 welfare reform established work requirements and time limits on benefits. Participants needed to work or prepare for work in order to receive support. The reform encouraged employment and discouraged long-term dependence on government welfare.

The child allowance included in the American Rescue Plan abandoned that pro-work paradigm. A majority of the benefits went to those who owed and paid no taxes. Experts warned that the increased scale of the benefits could discourage work. An analysis of the program by University of Chicago researchers quantified the impact of the program’s work disincentive. They estimated that reviving and making permanent a policy like the 2021 child allowance could decrease employment among single mothers by roughly one million.

That would be a serious reversal of the welfare-to-work policy established in the 1990s, after which welfare rolls dropped by half, employment of single mothers rose, and child poverty fell. By contrast, the child allowance would function like a guaranteed income, regardless of employment—and therefore disincentivize work.

In the waning days of 2022, congressional policymakers should resist a return to “work-free welfare,” as one expert has described it. Moving forward, policymakers need to disentangle two goals: easing burdens on working families and fighting poverty. Both are critical to the country’s overall welfare. Both also require wisdom to know how best to craft policies based on sound principles about human flourishing and careful analysis of the evidence about how ideas—however well-intended—work in practice when implemented. On both counts, policymakers can do better than encouraging a move from work to welfare.