Cashing out an effective antipoverty policy

Since 2020, dozens of cities nationwide have launched short-term pilot programs providing no-strings cash assistance to small numbers of low-income community members. The initiatives are billed as experiments to prove the merits of guaranteed or basic income policy, providing cash payments unrelated to work. A number of pilots have tapped federal pandemic funding, and a coalition of local and county officials is lobbying for such a permanent policy at the federal level. Meanwhile in Washington, D.C., President Biden’s budget proposal, released on March 9, calls for reviving the child allowance cash grants that the federal government temporarily distributed in 2021.

The two efforts have in common the goal of perpetuating unconditional cash payments initiated during the Covid-19 pandemic beyond the benefits already provided by federal safety net programs. But such short-term pandemic policies offering cash grants disconnected from work are not a solid foundation for long-term flourishing. The most promising policies for decreasing poverty and increasing economic security help recipients advance on a work-based trajectory.

Reports from the pilot projects shed little light on the potential impact of wider guaranteed income programs because their design doesn’t test the dynamics of a permanent policy’s effect on work choices. The pilots are small-scale and short-term, ranging from one to three years. For example, Paterson, N.J., provided $400 monthly to 110 residents for one year. Los Angeles County is giving $1,000 monthly to 1,000 residents for three years. As analysts have noted, such temporary benefits with a clear end date are unlikely to influence patterns of work engagement to any great extent. By contrast, cash distributions under a guaranteed income program would be broad-based and ongoing, with much more extensive implications.

Researchers at the University of Chicago recently provided insight into how such unconditional cash payments could affect work participation when they modeled the impact of a permanent version of the Biden child allowance. The temporary child allowance policy, enacted under the American Rescue Plan in March 2021 and phased out in December 2021, expanded the preexisting child tax credit (CTC). Under the CTC, the $2,000 annual maximum per child is an income tax credit that working parents can claim. But the Biden policy severed the link to work and increased the size of payments. Regardless of work, families received $3,600 for each child under age six and $3,000 for children up to age 17. Three-quarters of the expanded payments went to families with no income tax—a new cash welfare benefit.

The Chicago researchers estimated that such a child allowance policy, if made permanent, would result in 1.5 million parents leaving the workforce, including about one million single parents. The latter households would have no working parent and rely on welfare instead. These work disincentives would significantly reduce the policy’s antipoverty potential, reversing progress made since the welfare reform of the 1990s.

The good news in the wake of that welfare reform offers compelling evidence against unconditional cash grants. Research based on the most detailed data to date confirms a major reduction in poverty among single parents between 1995 and 2016—decreasing by 62 percent during that time. The beginning of the decline corresponds to the welfare policy changes during the Clinton administration. A major federal welfare program was overhauled to stop providing unconditional cash grants and to start requiring work-capable individuals to find a job or prepare for work. The work requirement was eased for single mothers of young children, and no work at all was required during a child’s first year.

Around the same time as this reform, known as Temporary Assistance to Needy Families (TANF), policymakers expanded another cash assistance program designed to encourage work. The Earned Income Tax Credit (EITC) is a benefit targeted to working parents at the lowest end of the income scale that grows as their income increases. By contrast, a guaranteed income would move in the opposite direction, providing cash grants unrelated to work—a throwback to pre-1990s welfare policy that did not adequately serve the flourishing of those it intended to help.

In addition to TANF and EITC, today’s federal safety net provides multiple lines of assistance to low-income households for food, housing, medical care, and other social services. That full picture needs to be in focus when debating new cash payments like those under the Biden child allowance, which would add yet another line of benefits.

If we seek the welfare of our neighbors and good stewardship, we can’t be content with the status quo. The current safety net needs reform to better target benefits to those truly in need, to improve outcomes, and to encourage work where applicable. What antipoverty policy doesn’t need is a throwback to ineffective welfare policy or a carry-over of pandemic crisis measures in the form of cash grants disconnected from work.