Comment: extending social benefits would be a mistake in the long run
In the $ 1.9 trillion stimulus package, is the second largest welfare expansion in U.S. history. President Joe Biden’s plan would increase family allowances – social cash allowances for parents with children – from an annual amount of $ 2,000 per child to a maximum payment of $ 3,600 for each child under age 6 and $ 3,000 for children 6 to 17 years old.
The result: $ 78 billion a year in new cash grants to families, on top of the nearly half a trillion dollars the government currently spends on cash, food, shelter and medical care for low-income families with children.
The annual cost of this welfare program would eclipse the initial costs of the Medicaid, Food Stamps, and Aid to Families with Dependent Children programs. Only the Affordable Care Act would be more expensive.
Moreover, what is crucial, it eliminates the need to work to get the benefits.
Do we really need history to repeat itself? We have already been on the path to “cash social benefits without work”.
In the 1990s, the Help for Families with Dependent Children cash benefit program, or AFDC, was clearly failing: one in seven children in the United States was enrolled in AFDC. Work among beneficiary parents was very low and the typical family received AFDC benefits for 14 years. The number of unmarried pregnancies has been increasing for decades.
The program was reformed with the signing of President Bill Clinton. For the first time, recipients of cash assistance were required to work or prepare for work as a condition of receiving benefits.
In response, the number of welfare cases experienced its first significant drop in half a century. Child poverty, which had been static for decades, has declined at an unprecedented rate, especially among black children.
But the Biden plan would eliminate work in the already massive children’s cash grant program. This change would overturn the foundations of labor-based social protection reform. For the first time in a quarter of a century, the government would revert to the policy of providing cash assistance to non-working families.
This reversal would slow, if not stop, the steady decline in poverty that has occurred in single-parent families since the start of welfare reform. Returning to unconditional cash assistance would jeopardize work and marriage in low-income communities and make it more difficult for children in these communities to climb the ladder of upward social mobility.
The impact of unconditional no-work cash assistance on employment was tested in a series of experiments in the 1970s called the “negative income tax” or NIT experiments. These large-scale random assignment experiments were conducted in Seattle; Denver; Gary, Indiana; New Jersey; Pennsylvania; and rural areas of North Carolina and Iowa. Low-income families and individuals were randomly assigned to “treatment” groups that received experimental welfare benefits and to control groups that did not. The experimental benefits were varied in the maximum benefit given and the gradual reduction in benefits. None of the experimental programs required any work.
The NIT experiments have shown that higher benefits without an obligation to work have a decisive negative impact on income and employment. In fact, for every $ 1 in additional benefits awarded, earnings have decreased by 66 cents. Worse yet, the experiences had a long-term negative effect on participants’ incomes that persisted long after the programs ended. Each $ 1 of higher benefits provided by the experimental programs resulted in a $ 5 drop in lifetime earnings for beneficiaries.
Some advocates argue that the Biden cash grant scheme would not have the NIT anti-labor effect because the benefits are uniform. Most families receive the same $ 3,000 per child, regardless of income. But the NIT experiments showed that the anti-work impact came from the lack of work requirement and the maximum benefit given; the modification of the reduction rates had no impact on the works.
Right now, the Biden plan would be temporary – but advocates intend to make this welfare expansion permanent. If the expanded child tax credit is passed permanently, it would destroy the foundation for welfare reform. This increase in unemployed cash benefits would remove more low-income Americans from the workforce.
This will make it much more difficult to raise incomes and reduce poverty in the long run. Non-working families will be pushed to the margins of society, and children raised without the role model of an adult who works at home will have a harder time succeeding.
If we really care about the long-term success of low-income Americans – especially children – policymakers should start by stopping this assault on welfare reform.
Robert Rector is Senior Fellow in Home Policy Studies at the Heritage Foundation, heritage.org, where Leslie Ford is Visiting Fellow in Home Policy Studies.