A Safety Net for the Future: Overcoming the Root Causes of Poverty

By Angela Rachidi

Matt Weidinger

Scott Winship

Few conservative domestic policy achievements over the past 40 years have been as important as the welfare reforms of the 1990s. These reforms initially comprised innovative state experiments authorized by policy waivers during the George H. W. Bush and Clinton administrations. They culminated in the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, which replaced the former cash welfare program Aid to Families with Dependent Children (AFDC) with a work-focused block grant combining state flexibility with federal accountability—the Temporary Assistance for Needy Families (TANF) program.

Key Points:

  • The 1996 welfare reform reduced poverty dramatically by putting millions of poor Americans on a path to self-sufficiency, but policymakers have since increased the number of Americans receiving unconditional transfers.
  • Policymakers should recast safety-net programs to better encourage work and marriage, thereby addressing the key underlying causes of long-term poverty.
  • Policy should also encourage state governments to promote upward mobility by allowing them to innovate with program design and holding states financially accountable to achieve the aims of antipoverty programs.

Along with welfare reform, numerous policy changes during the 1990s provided more generous benefits to low-income workers. These reforms included expanding the earned income tax credit (EITC), creating the child tax credit (CTC), and providing additional childcare subsidies. Efforts to enforce child support payments from noncustodial parents were also strengthened.

Together, these reforms dramatically reduced the number of families receiving cash welfare. In 1992, 14 percent of children were in AFDC-receiving families in a given month. By 2000, just 6 percent were in families enrolled in TANF, and by 2019, 3 percent were.1 Meanwhile, child poverty declined by over half, and possibly by much more, in the decades following PRWORA’s enactment.2 Employment among single mothers increased from 59 percent in 1992 to 73 percent in 2019.3 The five-decade increase in nonmarital birth rates preceding welfare reform moderated before declining to rates not seen since the late 1980s.4

Yet this policy victory was narrow and incomplete. TANF now comprises a small portion—about 5 percent—of federal safety-net dollars (excluding health care programs). Many safety-net programs retain the work and marriage disincentives that bedeviled AFDC, and when TANF receded, several of those programs expanded. The resulting safety net undermines the very choices that lead families to upward mobility and long-term prosperity.

As the 1996 reforms retreat from memory, many activists, advocates, and policymakers have propounded a revisionist history, denying welfare reform’s success and concluding that it actually increased deep poverty.5 While these claims contradict the facts, progressives have used them to justify calls for creating a child allowance, which would reverse some of welfare reform’s successes. Meanwhile, the rate of single parenthood remains historically elevated, the safety net remains an expensive thicket of programs administered via poorly coordinated bureaucracies, and upward mobility remains disappointing. States have limited means—and few financial incentives—to innovate in order to help families achieve better outcomes.

Low-income families in the US would benefit tremendously from a revival of conservative policymaking to reshape the American safety net. This chapter envisions a safety net for the 21st century that better promotes work and strong families, strengthens the social contract, aligns federal and state incentives, and slows the growth in safety-net spending. In the following sections, we provide an overview of the current safety net, outline principles for reform, and describe specific proposals to realize this vision.

We propose dramatically rebalancing responsibilities between the federal government and states to promote economic independence in service of family well-being and child opportunity. In exchange for greater flexibility in program administration, states would be responsible for financing an increasing share of the largest cash and in-kind safety-net programs. Policies would incentivize states to move individuals from welfare to employment in innovative ways by working within the limits set by federal policies or operating their own programs via waivers.

States would have an incentive to help families find employment, because doing so would allow them to count federal tax credits received by these families toward their share of safety-net spending. In addition to paying half or more of major safety-net program costs, the federal government would support working families through a reformed tax credit consolidating existing credits and better encouraging marriage. The federal government would increase its support for childcare as its responsibility for financing safety-net benefits declined.

Figure 1. Federal Benefits and Services for Low-Income Individuals

Note: The numbers indicate annual program budgets, in millions of US dollars. * Programs have annual obligations of less than $100 million, according to the Congressional Research Service. Source: Authors’ calculations using data from the Congressional Budget Office, Congressional Research Service, and agency budgets.

Overview of the Current Safety Net for Low-Income Families

The social safety net for low-income families and individuals in the US has evolved over several decades into a tangle of over 80 programs overseen by numerous federal agencies and largely administered by the states. (See Figure 1.) Current programs help low-income people afford food, housing, heating, and childcare while funding employment supports such as health care, education, and job training.

Assistance falls into two main categories: direct cash that recipients can use without restrictions and in-kind assistance. In-kind assistance can take the form of a voucher, which has a monetary value with restricted use (such as for groceries), or direct provision of goods and services (such as public housing and school lunches). Excluding tax programs, which the IRS generally administers through annual federal income tax filings, most safety-net programs operate through the states and involve an application and eligibility determination process.

The social safety net’s disjointedness and complexity require needy families to interact multiple times with government agencies to access benefits. Some complexity is necessary to ensure only eligible families receive assistance. However, the myriad possible program and service combinations create a bureaucratic web that government officials and benefit recipients must navigate.6

The largest share of safety-net spending goes to means-tested health insurance programs, including Medicaid and the Children’s Health Insurance Program. According to data from the Centers for Medicare & Medicaid Services, total Medicaid spending in fiscal year (FY) 2020 topped $649 billion, of which the federal government supported 67 percent, and the program covered approximately 76 million individuals.7 Medicaid overshadows other safety-net spending and deserves its own reforms (covered in Chapter 5 of this volume).

The remaining major means-tested safety-net programs (including refundable credits paid under the EITC and CTC) cost taxpayers over $300 billion annually in just federal outlays, as Table 1 illustrates. Excluding health care, the largest programs in terms of recipients and dollars cover four areas: income support, food and nutrition assistance, childcare, and housing and energy assistance. Table 1 briefly describes major programs and their 2019 costs before significant increases related to the coronavirus pandemic.8

Table 1. Description and Recent Federal Cost of Major Means-Tested Safety-Net Programs

Program Description Federal Cost in 2019
Income Support
Earned Income Tax Credit (EITC)
  • The EITC provides at tax time a lump-sum benefit of up to about $6,700, depending on household income and family size, including to those without federal income tax liability.9
  • The EITC phases in at different rates depending on family size, starting with the first dollar earned and increasing as earnings rise.
  • The EITC phases out completely at $53,000 in annual income (in 2022) for families with three or more children and at lower amounts for families with fewer children.
  • It is administered by the IRS, which requires little interaction between recipients and the government.
  • The EITC targets low-income households, with the bottom two-fifths of tax units receiving $59 billion in benefits in calendar year (CY) 2019.10
The refundable portion was $62.0 billion, which does not include over $8 billion in annual tax relief that the program provided to families with federal income tax liability.11
Child Tax Credit (CTC)
  • In CY2022, the CTC provides up to $2,000 per child for families with income tax liability, including up to $1,400 per child for families without income tax liability, phasing in at 15 percent of earnings above $2,500.12
  • The CTC was temporarily expanded for 2021, including by (1) increasing the benefit amount, (2) making the benefit entirely refundable (that is, no longer contingent on work and earnings by recipient adults), and (3) making benefit payments in monthly installments between July and December 2021.
  • The CTC’s refundable portion targets low-income households, with the bottom two-fifths of tax units receiving $32 billion in benefits in FY2019.13
The refundable portion was $46.0 billion. The program also provided over $72 billion to families with federal income tax liability.14
Supplemental Security Income (SSI)
  • SSI provides monthly cash payments to low-income disabled adults, children, and seniors, with benefits ranging up to $841 per month for individuals and up to $1,261 per month for eligible couples in 2022.15
  • SSI requires an application to the Social Security Administration; working-age recipients must demonstrate a severe disability preventing gainful employment, while children are assessed based on the severity of their physical and mental impairments.
  • Eligibility is generally limited to individuals below the federal poverty guideline, which was $13,590 for a one-person household in 2022.
Direct assistance was $54 billion.16
Temporary Assistance for Needy Families (TANF)
  • TANF is a federal block grant administered by the states.
  • States can use funds to provide various benefits and services, including cash assistance, to low-income families with children.
  • Direct cash assistance comes with federal time limits and work requirements.
  • Income eligibility varies by state, and initial eligibility for cash assistance is generally limited to families below the federal poverty level. Benefit amounts also vary by state.17
The federal share was $16.5 billion. In FY2019, approximately 21.1 percent of TANF funds supported direct cash assistance; 10.5 percent supported work, education, and training activities; and 24.7 percent supported childcare, including transfers to the Child Care and Development Fund.18
Food and Nutrition Assistance
Supplemental Nutrition Assistance Program (SNAP)
  • SNAP, also known as “food stamps,” provides a monthly benefit to low-income households for food and beverages.
  • Benefits for nonworking able-bodied adults without dependents are subject to time limits, which the federal government has allowed states to waive in recent years.
  • SNAP benefits range from $250 per month for a one-person household to $992 per month for a family of five in FY2022.19
  • Gross income must be below 130 percent of the federal poverty threshold for most household types to qualify.
  • Direct assistance was $60.4 billion.20
    Other Nutrition Programs
    • These include the National School Lunch Program; the Supplemental Nutrition Program for Women, Infants, and Children; the Emergency Food Program; and the Child and Adult Care Food Program.
    Program expenditures were $32.0 billion.21
    Housing and Energy
    Housing (Housing Choice Vouchers and Public Housing)
    • Programs provide two types of assistance: tenant-based assistance such as vouchers to eligible families used for housing costs and project-based assistance such as apartments in public housing.
    • Programs are administered by state housing authorities.
    • Voucher amounts vary by state and follow fair market rent guidelines. Public housing assigns apartments to eligible recipients. Both programs generally require families to contribute 30 percent of income toward housing costs.
    • Funding is limited, and not all eligible families receive assistance.
    Program expenditures were $29.9 billion.22
    Low Income Home Energy Assistance Program (LIHEAP)
    • LIHEAP assists low-income families with heating and electricity costs.
    • It is administered by the states.
    • Income eligibility varies by state, but household income must be below 150 percent of the federal poverty threshold, with categorical eligibility provided through TANF, SNAP, and SSI.
    • Benefit amounts vary widely by state.23
    Program expenditures were $3.6 billion.24
    Child Care and Development Fund, which includes funding through the Child Care and Development Block Grant, also known as the Child Care Subsidy Program
    • The fund provides vouchers to eligible low- and moderate-income families to cover childcare costs, with some assistance through direct childcare “slots.”
    • States generally pay childcare providers directly. Base rates vary by state, with a median of approximately $780 per month for toddlers in 2019 (the most recent available data).25
    • Income eligibility varies by state, but household income must be below 85 percent of the state median income.
    • Funding is limited, and not all eligible families receive assistance.
    • Families with income above the federal poverty level generally have a co-payment.
    The federal share was $8.2 billion.26 

    Source: Authors’ compilation using sources listed in the endnotes.

    Participation in tax programs and the Supplemental Nutrition Assistance Program (SNAP) is relatively high because these are open-ended entitlements. Other programs, such as TANF, housing assistance, and childcare subsidies, operate through block grants or other appropriations with fixed federal funds, meaning not all eligible recipients may receive assistance.

    Contrary to the impression often given by the political left, federal spending on safety-net programs has actually risen substantially since the 1990s, even ignoring Medicaid. The White House Office of Management and Budget provides historical data on mandatory federal outlays, which show that spending on food assistance, SSI, family support (mainly TANF), and refundable tax credits has almost doubled in constant dollars since the year before the 1996 welfare reforms. (See Figure 2.)

    Figure 2. Real Federal Outlays on Major Means-Tested Safety-Net Programs, 1995–2020

    Note: Dollar amounts are adjusted to 2020 dollars and exclude funds spent on health care. Outlays include only the refundable portions of the EITC and CTC, not the portions that offset taxes paid.S ource: Authors’ calculations using data from White House, Office of Management and Budget, “Table 8.6—Outlays for Mandatory and Related Programs in Constant (FY 2012) Dollars: 1962–2027,” https://www.whitehouse.gov/omb/historical-tables.

    The resulting federal safety net spends a rapidly rising amount on benefits and services for low-income families through a blizzard of federal programs. While that spending has contributed to significant reductions in material hardship over time, it has been less successful at decreasing dependency and increasing upward mobility, which suggests a new “welfare reform” is needed.

    Key Conservative Principles for Reforming the Safety Net

    Conservatives have long contested the growth of the welfare state, arguing that the rapidly growing spending described above undermines work, marriage, and responsible personal behavior. The same underlying principles that were the hallmarks of 1990s welfare reform legislation remain the backbone of conservative welfare policy today.27

    These principles start with the belief that sound public policy should promote work as the best way to reduce poverty and that this is one of the most effective ways to help a family transition from poverty to the middle class. Closely related is the need to limit dependence on government benefits, such as through time limits that focus recipients and the bureaucrats serving them on addressing hurdles that might otherwise leave families dependent for extended periods. We believe policies that encourage dependence counteract what families truly want—the dignity of work and self-sufficiency.

    Another key principle is that strong families, ideally led by married parents, best advance long-term progress against poverty and dependence. Finally, shared responsibility between state and federal governments is fundamental to reducing poverty and increasing upward mobility. The government’s funding structure should reinforce that partnership and promote the achievement of positive results, instead of continuously shifting the burden of program financing to the federal government, even when states’ efforts fail to help families escape poverty. Unfortunately, a review of recent developments on each front offers cause for concern—and underlines the need for reform.

    In recent years, federal policy has shifted from conditioning benefits on participation in work or training, a key feature of the 1996 reforms. SNAP provides benefits to tens of millions of recipients each month, including millions of able-bodied adults without dependents who are not expected to engage in training programs, much less work. This recalls the years following welfare reform, when hundreds of thousands of former AFDC recipients simply transitioned to Supplemental Security Income (SSI) rather than engage in TANF’s work activities.28

    Worse, Democrats in 2021 temporarily eliminated the long-standing requirement that CTC recipients have at least modest earnings to qualify for that benefit. They simultaneously increased the benefit amount, paying it in monthly installments for the first time in the second half of 2021. Combined, those changes temporarily re-created the former work-free welfare check system replaced by the 1996 reforms. Plans by Democrats to make these changes permanent failed, but their intention to roll back work-based welfare reforms was clear.

    Recent years have also seen significant backtracking on limiting dependence on government benefits. Much of this has been associated with the COVID-19 pandemic—including an unprecedented $700 billion in federal unemployment benefits paid to, at one point, over 30 million recipients.29 But other policies—such as significant and permanent expansions in SNAP benefits for over 40 million recipients and the CTC’s temporary conversion into a work-free monthly benefit—have nothing to do with the pandemic. Instead, they reflect a progressive vision of a large and universal welfare state.30

    While marriage has been a significant bulwark for families against financial disruptions during the pandemic, many families have experienced stress as never before. Marriage continues to decline, and the public increasingly perceives it as an elite good.31 At a minimum, policymakers should avoid creating new marriage penalties and reduce existing ones in benefit programs.

    Finally, the trend toward fully federal-funded benefit programs that require no financial “skin in the game” from states has become unmistakable in recent years. This has resulted in even more perverse financial disincentives than those preceding the 1996 welfare reforms. For example, today, federal SNAP benefits automatically flow into a state as more residents qualify. States are not required to contribute a penny of matching funds, even if they fail to assist families in going to work and escaping poverty. The same dynamic applies under SSI. Current policy has incentivized states to shift people from TANF (which has a work requirement but costs states money) to SSI (which discourages work and which the federal government fully funds). That means states generally have no financial stake in helping adults prepare for and find work that accommodates their disabilities.

    Safety-Net Reforms to Better Assist Families in Need

    With these principles and problems in mind, we propose three reforms to promote work, limit dependence on benefits, strengthen families, and improve the federal-state partnership so safety-net programs deliver better results. Our reforms would reorient the safety net on the federal and state levels so this reformed system’s financial architecture encourages more work and intact families, rather than greater welfare receipt and ongoing dependence. We envision a safety net in which the federal government better promotes work through refundable tax credits and childcare subsidies while offering states new opportunities and incentives to innovate—and expecting more state funding, especially from those states that maintain the status quo.

    Reform Federal Tax Benefits to Better Promote Work and Marriage. The first priority is to reform existing refundable tax credits so they support work and marriage better. We also believe the existing package of tax credits and provisions needs reform to reduce administrative complexity and eliminate overlapping functions.

    To enhance work incentives, federal policymakers could reform the CTC and EITC in various ways, such as increasing phase-in rates, raising the maximum credit amount, extending this maximum amount to workers with higher incomes, and reducing phaseout rates.

    Notably, research has found that the EITC induces nonworkers to work more effectively than it increases work effort.32Therefore, one of the most important policy goals regarding tax credits is to maintain the work incentive by phasing it in as earnings increase. In fact, research indicates that providing the same credit to workers and nonworkers—as the Democrats proposed in their 2021 Build Back Better plan—would reduce employment (by as much as 1.5 million jobs under the proposal, with most of the decrease coming from single parents).33

    The current EITC also includes a marriage penalty that policymakers should reduce. The EITC is usually more generous for two low-income working parents if they cohabitate than if they are married, raising the prospect of couples losing thousands of EITC dollars if they choose to marry.34 The CTC offsets some of the EITC’s marriage penalty, but not all of it. And increasing the EITC for childless workers, as temporarily occurred in 2021, exacerbates the marriage penalty.35

    One way to address the marriage penalty is to increase the income at which the EITC starts to phase out for married couples relative to single parents.36 Another option is to change the EITC schedule so at any level of earnings, the credit is substantially larger for married parents than for single parents with the same number of children.37

    In a forthcoming volume, two of us (Angela Rachidi and Matt Weidinger) propose a comprehensive approach that would consolidate the EITC, CTC, and head-of-household filing status into one “working family credit.”38 This would allow policymakers to align EITC and CTC program rules and reduce program redundancy while giving them one tax tool to address poverty and provide tax relief to offset child-rearing costs.

    The working family credit would be as generous as current policy is for parents with very low incomes. However, it would be more generous than current tax credits are for working families with earnings between $20,000 and $50,000, and it would phase out more slowly than the current EITC does. Both features would better promote work and marriage.39

    Our working family credit would have a maximum ranging from $6,000 for a family with one child to $12,000 for a family with three or more children (adjusted each year for inflation), and it would provide a benefit similar to that under current law to families with annual income below $20,000 (for single parents) and $25,000 (for married parents). To recognize the potential need for more resources at earlier ages, policymakers could also consider allowing families to request an advance on a portion of this credit—effectively drawing down from future credits—when children are young.40

    We estimate the working family credit would cost an additional $25 billion per year if enacted today. The proposals below, to the extent they succeed in promoting work over dependence, would increase these costs by helping more low-income parents enter and remain in work. Any additional costs, however, would be more than offset by reduced federal spending on other safety-net programs, as we describe below.

    Reinvigorate the Federal-State Partnership to Promote More Work and Less Dependence. While the working family credit would strengthen and clarify the federal role in promoting work and stronger families, states (which operate most means-tested benefit programs) must take a larger role in shoring up those key facets of healthy family and community life. Under the safety net’s current organization, in which the federal government takes on most of the financial burden, states not only lack strong incentives to support work and marriage but actually have significant financial disincentives to doing so.

    A recent Joint Economic Committee (JEC) report noted that “states do not have strong incentives to properly steward the welfare system because the federal government provides the vast majority of funding.”41 As Figure 2 illustrates, this problem has worsened with significant expansions in programs that are entirely federally funded (most notably SNAP, SSI, and the CTC), which absolve states of financial responsibility for assisting low-income families. As the JEC report continued, “Requiring states to contribute more of their own funding to welfare programs could also increase their motivation to discourage long-term dependence and promote self-reliance.”42

    To address this fundamental flaw, we propose a gradual transition toward more equitably shared financial responsibility between the federal and state governments for several of the largest non–health care transfer programs—SNAP, SSI, public housing assistance, and the Low Income Home Energy Assistance Program (LIHEAP). Unless altered as part of state waiver demonstrations (see below), federal policies for these programs would continue as today in terms of eligibility, benefits, and administration. But we envision a steady transition over time so that within one decade, all states share in up to 50 percent of the annual cost of these programs—unless they achieve improved outcomes for those in need, which would allow them to offset some of these new costs.

    How could that goal be achieved without creating significant new burdens on states? We propose offering states a financial stake in achieving better outcomes for families. Specifically, when a state successfully moves a family from welfare to work, it would be able to count the additional support that newly working family would receive through the working family credit against its state match requirement. The federal government would partially or fully cover the offset amount. (So in practice, no state would end up bearing half of program costs when benefit recipients work.) States could continue to offset their required match in this way in subsequent years, up to a cap, provided the beneficiary (or former beneficiary) continued to work.43

    Far from encouraging a “race to the bottom,” this approach would incentivize states to invest in families to help them achieve economic independence through employment. Absent their seeking a waiver to operate a demonstration program, states would need to abide by current program rules. SNAP would remain an entitlement, for instance, and SNAP spending would be expected to rise during recessions.

    Moreover, our approach would reward states for successfully transitioning families not simply off safety-net benefits but into employment. It would also encourage states to focus their efforts on families with children, since the bulk of federal tax credits go to them. Meanwhile, by receiving offsets to their state match for increasing employment—in the form of additional federal dollars for remaining beneficiaries—states could maintain a robust safety net for those facing temporary unemployment or employment challenges (such as the severely disabled) and the elderly.

    Working beneficiaries, such as those receiving SNAP or housing assistance, would generate offsets for states for any tax credits they received as they drew benefits. States would want to invest in these recipients while they generated an offset so the recipients could soon become independent. It would also be in a state’s interest to encourage more nonworking families to combine work and benefit receipt. Ultimately, states would want to transition as many families as feasible completely out of safety-net programs and into work.

    As successful states decreased dependence on government programs in favor of work, federal costs for those programs would decline, even as costs for the federal tax credits might increase. In the short run, the expected decline in federal spending might not be dollar for dollar due to the proposed offsets to the state match. Initially, federal spending for those programs might not fall at all. However, over time, state incentives should significantly reduce the number of program beneficiaries, lowering costs for the federal government and the states.

    Additionally, federal outlays for state match offsets would shrink as former beneficiaries’ tax credit amounts gradually exceeded the cap for those offsets. In equilibrium, fewer families would receive safety-net benefits, federal and state spending on those benefits would decrease, and continued incentives would motivate states to operate programs that invest in beneficiaries to move those who can into work. This dynamic would leave federal savings to cover the longer-run cost of pro-work and pro-marriage tax credits. Federal savings would also go toward increased childcare subsidies, administered similarly to current policy, which are needed to ensure that parents can successfully find and remain in work.

    The key to this reform is that state governments must pay more toward the safety net, but the financing structure will incentivize them to implement strategies that improve outcomes for welfare beneficiaries—and thereby reduce the state’s exposure to increased costs. Because they would be subject to current program policy related to benefits and eligibility, their ability to innovate would be somewhat limited, however. Our next proposal would allow states to experiment with various strategies to overcome these limitations, encouraging them to find creative ways of promoting independence and lowering their costs in the end. We anticipate that most states would seek out such experimentation, given the new incentives to do so.

    Expand Demonstration Program Authority. Under the new state-federal financial arrangement we propose, states will face strong incentives to move families out of safety-net programs and into work and independence. To help them achieve this goal, we propose the federal government authorize demonstration programs, including “superwaivers” (waivers of rules that involve multiple federal programs), potentially covering any of the programs displayed in Figure 1. The states’ matching requirements for the major programs would remain as described above; however, superwaivers would significantly expand states’ control over key program rules and allow them to consolidate funding streams across federal programs.44

    If states could justify (with respect to family outcomes and program costs) proposed changes to SNAP, SSI, housing assistance, TANF, LIHEAP, or any of the other myriad safety-net programs, they would be allowed to alter benefit, eligibility, and other rules. (See the example in the sidebar.) States would need to demonstrate the capacity to carry out the demonstration project, including an evaluation component, and establish clear and measurable outcomes to define success.

    That makes mandating specific federal requirements—as the 1996 welfare reform law did—far less important, leaving room for states to experiment and test what works best given local conditions. It also encourages policies with a proven evidence base, because states would face a financial burden for operating ineffective programs.

    In sum, if the financial architecture of the federal-state system points in the right direction—including by holding states financially accountable for failing to achieve positive results—states can and should be allowed to exercise greater control over the policies they deem best suited to local needs. Past federal (and state) policies offer a broad menu from which they might select to implement this vision. But unlike prior such proposals, states would bear direct—and in the early years, growing—financial responsibility for achieving improved results.

    For example, states could follow the work-based welfare reforms of the 1990s for the rest of the safety net. Under TANF, states must have a minimum share of adult beneficiaries (that is, those receiving a regular cash benefit) participating in work activities, including subsidized employment, school, and training.

    State Safety-Net Demonstration Project Example

    A state could choose to combine Supplemental Security Income, Supplemental Nutrition Assistance Program benefits, Temporary Assistance for Needy Families funding, Section 8 housing benefits, child support, childcare assistance, and education and training dollars to develop a program that provides cash assistance and support services to poor families with children. Rather than requiring families to apply for program benefits separately, the program would establish income criteria, assess eligibility, and develop a family assistance budget and service plan. The budget would help a family meet its food, housing, and other expenses while developing a plan that sets clear goals for employment and self-sufficiency.

    The state could impose work requirements as a condition of receiving the assistance and set a time limit for cash support. The state could set state benefit levels to decline as earnings increase, with federal refundable tax credits in mind. In this way, a state could avoid prohibitively high effective marginal tax rates as adults work and earn more. The state could also implement transitional benefits to address marriage penalties, possibly disregarding the second adult’s income during the first three years after marriage in determining the household’s benefit eligibility.

    Some states have experimented with work requirements for housing assistance; some tried to implement Medicaid work requirement waivers approved by the Trump administration, but courts and the Biden administration blocked those efforts. Consistent with their expanded funding responsibilities, states would have new discretion—but not a mandate—to apply work requirements and other policies proven to reduce dependency, such as time limits and related policies.

    Unfolding technology will backstop this improved design by allowing program administrators to tailor benefit packages across multiple programs. Blockchain and other financial technology (fintech) offer opportunities to rethink how the government provides benefits. Emerging fintech tools hold promise to make safety-net policies more efficient and effective. For example, digital currency, using blockchain technology, could “lock” and “unlock” government benefits conditional on parents taking steps to become more independent, such as completing a job-training program or remaining in a job for a specified period.

    Fintech could make it more practical to customize and smooth benefit reductions as earnings increase, considering multiple programs to avoid high effective marginal tax rates. Payments could be more easily reserved for particular expenditures, such as services to address child learning disabilities and paid leave after the birth of a new child.

    Benefits may increasingly resemble limited-use digital vouchers, designed to support and promote work and healthy marriage. Although this technology is still emerging, experts believe transformation in the financial system is inevitable. Government programs should anticipate these changes and leverage them to improve how benefit programs operate.

    Impact on the Federal Budget

    The reforms suggested in this chapter would involve significant and, in the coming decade, growing changes in federal and state entitlement spending patterns involving multiple programs. However, it is not the scope of the changes that would make scoring this proposal challenging but rather their intended aim of altering state behavior in the direction of promoting more work and less benefit receipt.

    For example, the proposal calls for gradually shifting over 10 years from current full federal funding for major programs such as SNAP, SSI, and public housing to at least 50 percent federal and up to 50 percent state funding. Based on Congressional Budget Office (CBO) baseline projections, if all other factors remain constant, that shift could save federal taxpayers close to $500 billion over the first decade, including nearly $100 billion in the 10th year.46Similarly, we estimate that the working family credit proposal would cost an additional $25 billion in 2022, with added costs increasing after 2025 due to the expiration of the child tax credit expansions included in the 2017 Tax Cuts and Jobs Act. Over the entire decade, the expanded benefits reflected in the working family credit would cost federal taxpayers about $50 billion per year, offsetting some of the decade’s savings from transitioning certain federal program responsibilities to states. In the 10th year, additional working family credit costs compared to the current-law baseline are expected to be around $60 billion—suggesting the proposal could save federal taxpayers some $40 billion per year by the 10th year when considering the savings from shifting half the costs to the states.

    But savings are far from the end, or even the point, of these reforms. Their broad purpose includes driving states toward assisting more people in going to work—or working more—instead of depending on taxpayer benefits for support. To the degree states succeed, federal working family credit payments would rise more than suggested above, but federal and state spending on other benefit programs would decline. If SNAP and SSI caseloads, for example, drop significantly as the reformed system promotes more work and marriage, actual program spending might be even lower than what is projected, resulting in additional savings to the federal government and states. The proposal anticipates devoting such savings to offsetting the cost of greater working family credit payments attributable to more work and supporting additional federal support for childcare.

    Those and other complicated interactions will be a challenge for the CBO to score, and lawmakers will ultimately decide how best to allocate any savings. Our purpose is to get the financial architecture right so states have improved incentives to promote work and marriage instead of benefit receipt, thereby better alleviating poverty and improving the prospects of American children and families while slowing the growth of federal spending over the long term.


    The reforms outlined above would be transformational, resulting in a more accountable safety net with equitable federal and state roles that support work and marriage as the most effective long-term solution for low-income families. Critics will argue this approach is paternalistic, ungenerous, and even inefficient compared with providing nearly universal federal benefits such as child allowances. But these critiques ignore that supporting and promoting work and marriage helps families empower themselves and achieve improved outcomes in the long run.47 Our approach shifts from simply accommodating poverty in the US to supporting the principles that will lead to family prosperity—more work, less government dependence, more marriage, and a larger stake in results at the state level.

    The alternative approach, popular among some on the left and right, is to offer all but the wealthiest families with children new monthly federal benefit checks while maintaining a vast welfare bureaucracy. Simply put, the thicket of safety-net programs in the US is enormously inefficient, yet the progressive solution is to layer still more benefits on top. We propose comprehensive reform that encourages states to consolidate programs while transitioning as many families as possible from welfare into work and eventual self-sufficiency.

    In practical terms, our proposal offers generous federal support to low-income working families through refundable tax credits and childcare subsidies—with tax credits ranging from a maximum of $6,000 to $12,000 per year (adjusting for inflation over time) depending on the number of children. Only those families with no employment for the entire year would be ineligible for federal tax credits. We believe nonworking families are the most vulnerable and need more focused services and supports than federal tax credits and child allowances can provide. With this in mind, our proposal increases states’ financial stake in helping nonworking families find and sustain employment and access federal tax credits for working families.

    This revised system would spend more on promoting work and strengthening families. But unlike with proposals that simply increase costs for taxpayers without holding programs accountable, the costs of additional support for work would be paid for by reducing the incentives for nonwork and single parenthood—and therefore government benefit receipt. Through demonstration projects, individual states would determine the best route to that goal through rigorous testing and evaluation, leveraging results from other states about what works best. States that fail to achieve improved outcomes would pay a larger share of total costs, as is appropriate and as should have occurred long ago.

    In the end, the reforms detailed above would expect and reward personal effort and work, reduce long-term dependence on benefits, promote stronger families and more individual agency, and shift more social-welfare responsibility and accountability to states and localities, where they belong. This contrasts with current policies that absolve parents of responsibility and expect almost nothing in exchange for large monthly federal benefits. If enacted well, these policies would increase upward mobility, promote stronger families, and better position parents to care for themselves and their loved ones, without prolonged support from other taxpayers. American families—especially those needing assistance—deserve no less.


    Thank you to Peyton Roth, Thomas O’Rourke, and Tim Sprunt for their excellent research assistance and support.