# Welfare Reform 

December 15, 2022 • Publications 

By [Michael D. Tanner](https://www.cato.org/people/michael-d-tanner) 

![EtAW - Welfare Reform hero](/sites/cato.org/files/styles/aside_3x/public/2022-12/etaw-welfare-reform-hero-resize.png?itok=__DM6rk3) 

#### [Empowering the New American Worker](https://www.cato.org/empowering-new-american-worker) 

19-part series 

##### Introduction 

1. ##### [Introduction](/publications/introduction) 

By [Scott Lincicome](https://www.cato.org/people/scott-lincicome)

##### Ensuring a Sound Macroeconomic Foundation 

1. ##### [Ensuring a Sound Macroeconomic Foundation](/publications/ensuring-sound-macroeconomic-foundation) 

By [Jeffrey Miron](https://www.cato.org/people/jeffrey-miron) and Pedro Aldighieri

##### Facilitating Personal Improvement 

1. ##### [Private Sector Labor Regulation](/publications/facilitating-personal-improvement-private-sector-labor-regulation) 

By [Ryan Bourne](https://www.cato.org/people/ryan-bourne) and Brad Subramaniam
2. ##### [Higher Education](/publications/facilitating-personal-improvement-higher-education) 

By [Neal McCluskey](https://www.cato.org/people/neal-mccluskey)
3. ##### [Occupational Licensing](/publications/facilitating-personal-improvement-occupational-licensing) 

By [Chris Edwards](https://www.cato.org/people/chris-edwards)
4. ##### [Independent Work](/publications/facilitating-personal-improvement-independent-contracting-gig-work) 

By [Scott Lincicome](https://www.cato.org/people/scott-lincicome) and Ilana Blumsack
5. ##### [Entrepreneurship and Home Businesses](/publications/facilitating-personal-improvement-entrepreneurship-home-based-businesses) 

By [Chris Edwards](https://www.cato.org/people/chris-edwards)
6. ##### [Criminal Justice](/publications/facilitating-personal-improvement-criminal-justice) 

By [Scott Lincicome](https://www.cato.org/people/scott-lincicome) and Ilana Blumsack

##### Enabling Mobility and Independence 

1. ##### [Transportation](/publications/transportation) 

By [Colin Grabow](https://www.cato.org/people/colin-grabow)
2. ##### [Remote Work](/publications/remote-work) 

By [Scott Lincicome](https://www.cato.org/people/scott-lincicome) and Ilana Blumsack
3. ##### [Employee Benefits](/publications/employee-benefits) 

By [Vanessa Brown Calder](https://www.cato.org/people/vanessa-calder)
4. ##### [Welfare Reform](/publications/welfare-reform) 

By [Michael D. Tanner](https://www.cato.org/people/michael-d-tanner)

##### Improving Living Standards 

1. ##### [Childcare](/publications/childcare) 

By [Ryan Bourne](https://www.cato.org/people/ryan-bourne)
2. ##### [K‑12 Education](/publications/k-12-education) 

By [Neal McCluskey](https://www.cato.org/people/neal-mccluskey)
3. ##### [Health Care](/publications/healthcare) 

By [Michael F. Cannon](https://www.cato.org/people/michael-f-cannon) and [Jeffrey A. Singer](https://www.cato.org/people/jeffrey-singer)
4. ##### [Housing Affordability](/publications/housing-affordability) 

By [Vanessa Brown Calder](https://www.cato.org/people/vanessa-calder)
5. ##### [Homeownership](/publications/homeownership) 

By [Norbert J. Michel](https://www.cato.org/people/norbert-michel)
6. ##### [Essential Goods](/publications/essential-goods) 

By [Gabriella Beaumont-Smith](https://www.cato.org/people/gabriella-beaumont-smith)

##### Conclusion 

1. ##### [Conclusion](/publications/conclusion) 

By [Scott Lincicome](https://www.cato.org/people/scott-lincicome)

[ 

Return to Series Home 

](https://www.cato.org/empowering-new-american-worker) 

[ 

Download PDF 

](https://www.cato.org/sites/cato.org/files/2023-01/empowering-new-american-worker-welfare-reform.pdf) 

## The Issue

#### The U.S. welfare system makes it hard to move from welfare to work and to become self-sufficient

The bulk of government efforts to fight poverty can be best described as throwing money at the problem. Contrary to public perception, the American welfare system is far from stingy. Although the exact number fluctuates yearly, the federal government funds more than 100 separate anti-poverty programs. Some 70 of these provide cash or in-kind benefits to individuals, while the remainder target specific groups.

Altogether, the federal government spent more than $1.1 trillion on welfare programs in 2021. State and local governments added about $744 billion in additional funding. Thus, government at all levels is spending roughly $1.8 trillion per year to fight poverty (not counting payments related to COVID-19). Stretching back to 1965, when President Lyndon Johnson first declared war on poverty, anti-poverty spending has totaled more than $25 trillion.[1](#_ednref1)

Yet the results of all this spending have been disappointing. In terms of material deprivation, welfare payments have reduced poverty. In fact, a 2018 Cato Institute study suggests that if all benefits and other factors are fully accounted for, the true poverty rate may be under 3 percent.[2](#_ednref2) Other studies are more cautious but still suggest that welfare programs reduce poverty rates by half or more. On the other hand, these studies also suggest that most of the improvement took place in the welfare programs’ early years, and that the marginal gains of recent additional spending have been minimal.

More significantly, current welfare policy seems almost perversely designed to work against its overarching goal of enabling Americans to not just endure poverty more comfortably but to escape it altogether. This goal requires that the incentives within the welfare system encourage work, savings, and family formation.

Overall, the system should make it as easy as possible for people to leave welfare for work, but several factors undermine that objective.

First, the magnitude of the current welfare system, with its multitude of overlapping programs—often with contradictory eligibility requirements, differing rules, mixed oversight, and divided management—is a bureaucratic nightmare.

For example, there are 34 housing programs run by seven different cabinet departments, including even the Department of Energy. There are 23 different programs providing food or food-purchasing assistance administered by three different cabinet departments. There are 13 different healthcare programs administered by three separate agencies within the Department of Health and Human Services as well as the Department of Veteran Affairs. Five cabinet departments oversee 15 cash or general-assistance programs. Altogether, 13 cabinet departments and four independent agencies administer at least one explicitly anti-poverty program.[3](#_ednref3)

The complexity and lack of transparency make it difficult to measure whether programs are accomplishing their goals. Many existing programs have become fiefs for special interests, providing a bureaucratic roadblock to reform. And, while the overhead and administrative costs for most programs are modest (generally less than 5 percent), the costs do add up. Moreover, the sheer number of programs works to suck more people into the welfare system, increasing both cost and enrollment, without necessarily targeting those efforts to the people who are most in need.

Second, households in or near poverty that do receive assistance and participate in multiple programs can face marginal effective tax rates that are counterproductive, deterring work effort or putting a low ceiling on how much these families can increase their standard of living. In those cases, much of each additional dollar earned is clawed back through higher taxes or reduced benefits.

A 2013 Cato Institute study, for example, found that an unemployed single mother with two children who participated in seven common welfare pro-grams—Temporary Assistance for Needy Families (TANF); food stamps (SNAP); Medicaid; housing assistance; Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); energy assistance (LIHEAP); and free com-modities—could take home an income higher than what she would have earned from a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), for which she would have been eligible, if employed. In fact, in Connecticut, Hawaii, Massachusetts, New Jersey, New York, Rhode Island, Vermont, and Washington, DC, welfare paid more than a $20 per hour job ($25.44 in 2022 dollars), and in five additional states it paid more than a $15 per hour job ($19.08 in 2022 dollars) job.[4](#_ednref4) As a result, someone who left welfare for work could have found themselves worse off financially.

A 2012 Congressional Budget Office report looking at the example of Pennsylvania found that marginal tax rates, after accounting for the loss of benefits, could reach extremely high levels, discouraging labor-force entry and work hours. The report found that unemployed single taxpayers with one child would face an effective marginal tax rate of 47 percent for taking a job paying the minimum wage in 2012, and if their earnings disqualified them from Medicaid, they could have faced an astonishing marginal tax rate of 95 percent.[5](#_ednref5)

Likewise, Maag et al. (2012) looking at a single parent with two children, found that in moving from no earnings to poverty-level earnings, this family faced a marginal tax rate that was as high as 25.5 percent in Hawaii.[6](#_ednref6) A 2014 Illinois Policy Institute study found that a single mother with two children in that state who increased her hourly earnings from the minimum wage of $8.25 to $12 would increase her net take-home wage by less than $400 per year. Even worse, if she further increased her earnings to $18 an hour, her annual net income would *decrease* by more than $24,800 due to benefit reductions and tax increases.[7](#_ednref7)

Although inflation and policy changes over the last decade have changed some of these studies’ details, the general conclusions remain the same today. For example, the Federal Reserve Bank of Atlanta’s Career Ladder Identifier and Financial Forecaster Policy Rules Database illustrates the public assistance program eligibility based on household incomes. The examples in Figures 1A and 1B depict the welfare benefits earned by a single parent with two children under five years of age. The most common welfare programs (TANF, SNAP, EITC, WIC, Medicaid, and Section 8 Housing Vouchers) were chosen to portray the benefit drop-off as household incomes increase.[8](#_ednref8) The two counties in question, Los Angeles County, California, and Wake County, North Carolina, have very different eligibility rules for various programs leading to differing marginal tax rates in the two jurisdictions. Yet both show a sizable barrier to leaving welfare for work.

![Figure 1A: Welfare benefits by employment income, Los Angeles County, California](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/6756a167-bda2-4782-8849-eedf8b168adf.jpg) 

![Figure 1B: Welfare benefits by employment income, Wake County, North Carolina](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/d076f83a-9120-4356-9ff7-0c1ae89257fb.jpg) 

Third, many programs are designed in ways that further discourage economic and geographic mobility. Some also include a bias against marriage, which has been shown to be correlated with higher earnings and financial independence. A mother who marries the father of her children may lose a substantial portion of her benefits depending on her new spouse’s income. Unmarried parents are better able to meet the income and asset eligibility tests for programs such as TANF and SNAP. For example, if a single mother with a net income of 125 percent of the federal poverty level marries someone with an income, it could push them over the threshold, and no one in the household would be eligible for SNAP. If they chose instead to cohabitate without marrying, the benefits would continue to flow. As detailed below, there is a similar mechanism in the EITC: benefits begin to phase out and are exhausted at lower income levels for married couples.[9](#_ednref9)

Furthermore, the majority of welfare benefits today are provided not in cash but rather as in-kind benefits. This effectively infantilizes the poor: they are not expected to budget or choose among competing priorities the way that people who are not on welfare are expected to do, and they simply follow the government’s choices, values, and priorities instead of their own. Indeed, direct cash assistance programs, including refundable tax credits, made up just 22 percent of federal assistance in 2020, down from roughly 29 percent two decades ago. In-kind programs—such as food stamps, housing assistance, and Medicaid—provide the poor with assistance, but only for specific purposes. In most cases, the payments are made directly to providers. The person being helped never even sees the money.

Virtually all programs go even further in limiting the use of benefits to government-approved purchases. For example, WIC can only be used to purchase certain foods determined by government regulation. SNAP’s use is restricted to stores that stock a certain level of healthy food products, often eliminating the eligibility of small neighborhood stores. Even with cash programs like TANF, state lawmakers have enacted a host of restrictions around things like the locations where electronic benefit transfer cards may be used to access ATMs.

Thus, the current welfare system not only stigmatizes the poor, but also is one more factor pushing them into narrowly concentrated neighborhoods clustered around subsidized housing because the system relies on providers who are willing to accept government benefits (e.g., landlords willing to take Section 8 vouchers). Those neighborhoods often offer poor schools, few jobs, high crime rates, a lack of role models, and have been shown to inhibit residents’ upward income mobility.[10](#_ednref10)

One program that provides cash directly to the poor is the EITC, but it is rife with problems that discourage work and family formation. The EITC is specifically designed as a wage supplement and is tied directly to work to offset the high marginal tax rate that many poor people encounter when they leave welfare for work. The evidence suggests that the EITC increases work effort, and single mothers, in particular, have seen significant labor-force gains.

Studies also suggest that the EITC has been more successful than other welfare programs in reducing poverty. The Census Bureau claims that the poverty rate would be 2.5 percent higher in the absence of refundable tax credits.[11](#_ednref11) As measured by the additional outlays needed to lift one million people out of poverty (using the supplemental poverty measure), refundable tax credits are clearly more cost-effective than other types of welfare programs.

As the EITC has grown, however, problems with the program have become more apparent. For example, the benefit level for childless workers is small and phases out quickly because the EITC focuses on families. The maximum credit available to a childless worker was only $1,502 in 2021, and all benefits phase out before the earned income hits $21,430 (the maximum credit for a single parent with one child was $3,618).[12](#_ednref12) Childless workers under age 25 are not allowed to claim the EITC at all. As a result, they accounted for only 3 percent of EITC funding.

As noted above, moreover, the EITC can impose significant marriage penalties. According to the Tax Policy Center, “if a single parent receiving the EITC marries, the addition of the spouse’s income may reduce or eliminate the credit.”[13](#_ednref13) Furthermore, the credit is mostly determined by the number of children in a family, thus making the maximum credit the same for a single parent as it is for a married couple. As a result, a married couple with two children would receive a maximum annual credit of $5,980—the same as for a single filer with two children. But the married couple would exhaust EITC benefits upon hitting $53,665 of total earned income, while the single parent would do so at only a few thousand dollars less ($47,915). Thus, the single parent can continue to receive benefits at higher income levels relative to the poverty level than married couples can—and the credit is more generous since the benefits are being distributed among the three people, rather than four.

Finally, as a refundable tax credit, the EITC is paid annually in the manner of a tax refund. While such a lump-sum payment can certainly help many low-income families, it still leaves them relying on wages throughout much of the year. In its current form, the EITC represents an income supplement, not a wage supplement, and does not address the year-round financial needs of low-income families who are often left living paycheck to paycheck, or worse, for the rest of the year.

## The Policy Solutions

#### Consolidate and decentralize federal welfare programs; move to cash transfers; emphasize individual control

Given the failure of more than 50 years of federal welfare policy to significantly reduce poverty or increase economic mobility, it should be apparent that the federal government does not know best. Nor have we demonstrated that we know enough about how to reduce poverty to impose a one-size-fits-all policy throughout the country. Five decades of failure should have taught us to be modest.

Wherever possible, Congress should shift both the funding and operational authority for welfare and other anti-poverty programs to the states. The “laboratories of democracy,” as Justice Louis Brandeis described them, should be the primary focus of anti-poverty efforts, not an afterthought. That means more than simply giving states the authority to tinker with programs as they exist today. It means federal funding, even in block grant form, should not be accompanied by federal strings. Instead, states should be given control over broad categories of funding, with the ability to shift funds freely between programs at their discretion, but within a framework in which their efforts are rigorously evaluated and held accountable for achieving results. Some states may wish to emphasize job training or public service jobs. Others may feel that education provides the biggest bang for the buck. In some states, housing may be a priority; in others, the need for nutrition assistance may be greater. Some may wish to impose strict eligibility requirements, while others may choose to experiment with unconditional benefits, even a universal basic income.

Moreover, states that have successfully reduced poverty while also reducing the number of people on the welfare rolls should be allowed to shift funds to other priorities entirely. Success should be rewarded. States that fail to achieve results, after accounting for factors beyond their control, should have their funding reduced, with any shortfall made up from state funds. Failure should not be subsidized.

While shifting funds from the federal government to the states represents a good first step, the states should go even further by moving away from in-kind benefits and to direct cash payments. While it is reasonable for taxpayers to seek accountability for how their funds are used, this paternalism may be both unnecessary and self-defeating. For starters, arguments that the poor can’t be trusted with cash are too often based on erroneous and racially biased stereotypes rather than on sound evidence. In fact, studies from states that drug-test welfare recipients suggest that the use of drugs is no higher among welfare recipients than among the general population.[14](#_ednref14) And numerous studies have shown that even when welfare recipients are given totally unrestricted cash, they do not increase their expenditure on “temptation goods” like tobacco or alcohol.[15](#_ednref15)

Furthermore, cash benefits can allow the poor to decide for themselves how much of their income should be allocated to rent, food, education, or transportation. They might also choose to save more or invest in learning new skills that will help them earn more in the future. A 2015 Financial Industry Regulatory Authority report found that 53 percent of American households with incomes less than $25,000 had no investment accounts, compared to just 1 percent of households making over $150,000 a year without investment accounts.[16](#_ednref16) We can’t expect people to behave responsibly if they are never given any responsibility.

Cash benefits also could encourage mobility, helping to break up geographic concentrations of poverty that can isolate the poor from the rest of society and reinforce the worst aspects of the poverty culture, especially if those benefits are received early in life. Armed with money instead of vouchers redeemable only at certain locations, the poor could escape bad neighborhoods the same way vouchers and tax credits allow children to escape bad schools. Doing so can produce tremendous results: Chetty et al. (2016), for example, found that families that moved into low-poverty areas before their children entered their teen years saw the children go on to earn 31 percent more later in life than did comparable children who remained in high-poverty areas. Beyond higher earnings, children from families that moved saw a wide range of other positive outcomes. They were more likely to attend college, less likely to be single parents, and more likely to live in better neighborhoods when they grew up and left home.[17](#_ednref17)

Any cash payment system should be designed to help low-income Americans solve their immediate problems without becoming ensconced in the welfare system. Thus, Congress could encourage states to expand existing cash-diversion programs, which provide lump-sum cash payments in lieu of traditional welfare benefits.[18](#_ednref18) Currently in use in 32 states and DC, these programs are designed to assist families facing an immediate financial crisis or short-term need. The family is given a single cash payment in the hope that if the immediate problem is resolved, there will be no need for going on welfare. In exchange for receiving the lump-sum payment, welfare applicants in most states—but not all—give up their eligibility for TANF for a period ranging from a couple of months to a year.[19](#_ednref19) Several studies indicate that for individuals who had not previously been on welfare, diversion programs significantly reduced their likelihood of ending up there. Studies also suggest that diversion participants are subsequently more likely to work than become traditional recipients of welfare.[20](#_ednref20)

Finally, Congress should reform the EITC to turn it into a pure wage supplement. Benefits should be available to childless adults and should not rise with the number of children in a family. Payments should arrive monthly rather than in an annual lump sum. Any additional cost due to expansion should be paid for by reductions in other welfare programs.

## Action Plan

Reforms to federal, state, and local policy will ensure that workers have the compensation, flexibility, and benefits that meet their diverse needs.

Provision of public welfare to at least some people may be justified, according to certain ethical viewpoints, but is insufficient and counterproductive to effectively deliver human flourishing. We should not judge the success of our efforts to end poverty by how much charity the state redistributes to the poor, but by how few people need such charity in the first place.

Truly improving the lives of the poor is not a question of spending slightly more or less money, tinkering with the number of hours mandated under work requirements, or rooting out fraud, waste, and abuse. We need a new debate, one that moves beyond our current approach to fighting poverty to focus on what works rather than noble sentiments or good intentions—a system built on work, individual empowerment, and Americans’ philanthropic impulse.

#### Congress should therefore

- consolidate all current welfare and anti‐​poverty programs;
- shift remaining welfare programs to the states with as few strings as possible;
- encourage states to transition from in‐​kind benefits to cash grants;
- encourage states to make greater use of welfare diversion (lump-sum cash) programs; and
- transform the EITC into a pure wage supplement linked to work rather than family size/​composition.

#### State governments should—

- transition from in‐​kind benefits to cash grants;
- review benefit levels; phaseout ranges and asset and income tests to reduce “welfare cliffs” and disincentives to work, savings, and family formation;
- avoid arbitrary and punitive restrictions on the use of benefits;
- expand the use of diversion programs and lump-sum payments in lieu of traditional benefits; and
- make greater use of federal waivers to experiment with different ways to deliver benefits, combine programs, and change program incentives.

[![Empowering Book Cover](/sites/cato.org/files/styles/serial_cover_phone/public/2022-11/FireShot%20Capture%20186%20-%20%20-%20.png?itok=LIuU8TWS)](https://www.cato.org/sites/cato.org/files/2023-01/empowering-new-american-worker-welfare-reform.pdf) 

### Download This Publication

##### Welfare Reform 

[ 

Download PDF 

](https://www.cato.org/sites/cato.org/files/2023-01/empowering-new-american-worker-welfare-reform.pdf) 

##### About the Author 

[![Michael D. Tanner](/sites/cato.org/files/styles/author_picture/public/2021-01/Michael%20Tanner.jpg?itok=fvQbEN_H)](/people/michael-d-tanner) 

##### [Michael D. Tanner](/people/michael-d-tanner)

Former Senior Fellow, Cato Institute

[ 

](mailto:mtanner@cato.org) 

Show Endnotes 

Hide Endnotes 

##### Notes

[1](#_edn1) Author’s calculations based on the following sources: “Fiscal Year 2022 Budget Summary,” U.S. Department of Education, May 2021; “FY 2021 Performance Budget Justification,” Appalachian Regional Commission, February 2020; “Assets for Independence Demonstration Program,” Federal Grants Wire; “Appropriations Committee Releases Fiscal Year 2022 Labor, Health and Human Services, Education, and Related Agencies Funding Bill,” Committee on Appropriations, U.S. House of Representatives, July 11, 2021; “Justification of Estimates for Appropriations Committees,” Administration for Children and Families, U.S. Department of Health and Human Services, 2022; “Children’s Health Insurance Program,” Congressional Budget Office; “Commodity Supplemental Food Program: Tentative Caseload Assignments for the 2022 Caseload Cycle,” Food and Nutrition Service, U.S. Department of Agriculture; “Community Development Block Grants Section 108 Loan Guarantees,” Federal Grants Wire; “Mayor Bowser Applauds HUD for $38.8 Million Investment in Affordable Housing,” Washington, DC, Department of Housing and Community Development; Joseph V. Jaroscak, “Community Development Block Grants: Funding and Allocation Processes,” Congressional Research Service, R46733, March 24, 2021; Patrick A. Landers et al., “Federal Spending on Benefits and Services for People with Low Income: FY2008–FY2020,” Congressional Research Service, R46986, December 8, 2021; “Drug-Free Communities Support Program Grants,” U.S. Department of Health and Human Services; “FY 2021 Food and Administrative Funding for Emergency Food Assistance Program,” U.S. Department of Agriculture; Katie Jones and Maggie McCarty, “USDA Rural Housing Programs: An Overview,” Congressional Research Service, R47044, March 8, 2022; “State Administrative Expenses for Child Nutrition,” Federal Grants Wire; “Food Distribution Program on Indian Reservations,” U.S. Department of Agriculture, January 2020; “Graduate Assistance in Areas of National Need,” U.S. Department of Education, January 22, 2021; “FY 2022 Operating Plan,” Health Resources and Services Administration, U.S. Department of Health and Human Services, May 2022; “High School Graduation Initiative Also Known as School Dropout Prevention Program,” U.S. Department of Education, August 5, 2014; “Indian Child Welfare Act Title II Grants,” Federal Grants Wire; “Native American Programs: Summary of Resources,” U.S. Department of Housing and Urban Development, 2022; “Fiscal Year 2023: The Interior Budget in Brief,” Bureau of Indian Affairs, U.S. Department of the Interior, 2022; “Job Opportunities for Low-Income Individuals,” Federal Grants Wire; Gary Guenther, “Internal Revenue Service Appropriations, FY2022,” Congressional Research Service, IF11979, March 25, 2022; “Migrant Education—High School Equivalency Program,” U.S. Department of Education, November 30, 2015; “Migrant Education Program: Funding Status,” Office of Elementary and Secondary Education, U.S. Department of Education; “Budget of the United States Government: Fiscal Year 2023,” Office of Management and Budget, White House; “Projects for Assistance in Transition from Homelessness,” Federal Grants Wire; “Promoting Safe and Stable Families: Title IV‑B, Subpart 2, of the Social Security Act,” U.S. Department of Health and Human Services, June 10, 2021; “Public Housing Fund: Summary of Resources,” U.S. Department of Housing and Urban Development, 2022; Kara Clifford Billings, “School Meals and Other Child Nutrition Programs: Background and Funding,” Congressional Research Service, R46234, May 23, 2022; “Special Programs for the Aging, Title III, Part D, Disease Prevention and Health Promotion Services,” Federal Grants Wire; “Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers,” Federal Grants Wire; “Special Programs for the Aging, Title III, Part C, Nutrition Services,” Federal Grants Wire; “State Administrative Matching Grants for the Supplemental Nutrition Assistance Program,” Federal Grants Wire; “The President’s Fiscal Year 2022 Budget Request,” Child Welfare League of America, June 4, 2021; “Summer Food Service Program,” Economic Research Service, U.S. Department of Agriculture, August 3, 2022; “Temporary Assistance for Needy Families,” Congressional Budget Office, May 2022; “Title V Delinquency Prevention Program,” SAM​.gov; “Transitional Living Program Fact Sheet,” Family and Youth Services Bureau, U.S. Department of Health and Human Services; “Undergraduate Scholarship Program for Individuals from Disadvantaged Backgrounds,” Federal Grants Wire; “Contribution Factor and Quarterly Filings —Universal Service Fund (USF) Management Support,” Federal Communications Commission; “The President’s Budget Request for Refugee and Asylum Services: Fiscal Year (FY) 2020,” National Immigration Forum, April 3, 2019; Joe Belden and Michael Feinberg, “Leaky Roof? A USDA Home Repair Program Is an Option,” *Daily Yonder,* June 15, 2022; “Guaranteed Rural Housing Loans (Section 502),” U.S. Department of Housing and Urban Development, January 2004; Anna Maria Garcia, “Weatherization Program Notice BIL 22–1,” U.S. Department of Energy, March 30, 2022; “Weatherization Assistance Program,” Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy; “FY 2022 Congressional Budget Justification: Training and Employment Services,” Employment and Training Administration, U.S. Department of Labor, 2022; “WIOA Pilots, Demonstrations, and Research Projects,” Federal Grants Wire; “WIC Farmers’ Market Nutrition Program,” National Sustainable Agriculture Coalition, May 2019; “WIC Program Grant Levels by Fiscal Year,” Food and Nutrition Service, U.S. Department of Agriculture, July 19, 2022; “Memorandum: The Child Care and Development Fund (CCDF) in FY2021 Reconciliation Proposals,” Congressional Research Service, February 17, 2021; “Federal Grant Funding,” National Association of Community Health Centers; “Public and Indian Housing, Family Self-Sufficiency,” U.S. Department of Housing and Urban Development, 2020; Brynne Keith-Jennings, “Introduction to Puerto Rico’s Nutrition Assistance Program,” Center on Budget and Policy Priorities, November 3, 2020; “Supportive Housing for Persons with Disabilities (Section 811),” Office of Housing, U.S. Department of Housing and Urban Development; Maggie McCarty, Libby Perl, and Katie Jones, “Overview of Federal Housing Assistance Programs and Policy,” Congressional Research Service, RL34591, March 27, 2019; “Appropriations Committee Releases Fiscal Year 2022 Transportation, and Housing and Urban Development, and Related Agencies Funding Bill,” Committee on Appropriations, U.S. House of Representatives, July 11, 2021; “FCC Announces Updated Lifeline Minimum Service Standards and Indexed Budget Amounts,” Benton Institute for Broadband and Society, July 30, 2021; “Low-Income Housing Tax Credit (LIHTC),” Office of Policy Development and Research, U.S. Department of Housing and Urban Development; “Ryan White HIV/AIDS Program Funding,” Health Resources and Services Administration, U.S. Department of Health and Human Services; “National School Lunch Program,” Economic Research Service, U.S. Department of Agriculture, Economic Research Service, January 13, 2022; “Section 8 Housing Assistance Payments Program,” Federal Grants Wire; “Senior Farmers Market Nutrition Program,” National Sustainable Agriculture Coalition, July 2019; “Child Nutrition Discretionary Grants Limited Availability,” Federal Grants Wire; “FY 2022 Congressional Budget Justification: State Unemployment Insurance and Employment Service Operations,” Employment and Training Administration, U.S. Department of Labor, 2021; “Unemployment Insurance,” Federal Grants Wire; Adrienne L. Fernandes-Alcantara, “Federal Youth Employment and Job Training Programs,” Congressional Research Service, IF11640, August 31, 2020; and Libby Perl, “Veterans and Homelessness,” Congressional Research Service, IF10167, February 15, 2022.

[2](#_edn2) John F. Early, “Reassessing the Facts about Inequality, Poverty, and Redistribution,” Cato Institute Policy Analysis no. 839, April 24, 2018.

[3](#_edn3) Author’s calculations based on the sources in note 1.

[4](#_edn4) Michael Tanner and Charles Hughes, “The Work versus Welfare Trade-Off: 2013,” Cato Institute White Paper, August 19, 2013, p. 3.

[5](#_edn5) “Illustrative Examples of Effective Marginal Tax Rates Faced by Married and Single Taxpayers: Supplemental Material for Effective Marginal Tax Rates for Low- and Moderate-Income Workers,” Congressional Budget Office, November 2012, p. 13.

[6](#_edn6) Elain Maag et al. “How Marginal Tax Rates Affect Families at Various Levels of Poverty,” *National Tax Journal* 65, no. 4 (December 2012): 759–82.

[7](#_edn7) Erik Randolph, “Modeling Potential Income and Welfare-Assistance Benefits in Illinois: Single Parent with Two Children Households and Two Parents with Two Children Household Scenarios in Cook County, City of Chicago, Lake County and St. Clair County,” Illinois Policy Institute, Special Report, December 2014, p. 45.

[8](#_edn8) Author’s calculations based on “Benefits Cliffs Across the U.S.,” Policy Rules Database Dashboard, Federal Reserve Bank of Atlanta.

[9](#_edn9) Elaine Maag and Adam Carasso, “Taxation and the Family: What Is the Earned Income Tax Credit?,” in The Tax Policy Briefing Book (Washington: Tax Policy Center, 2020).

[10](#_edn10) Raj Chetty and Nathaniel Hendren, “The Impacts of Neighborhoods on Intergenerational Mobility I: Childhood Exposure Effects,” National Bureau of Economic Research Working Paper no. 23001, May 2017; and Vincient Whatley, “The Importance of Neighborhoods and Intergenerational Economic Inequality in the United States,” Washington Center for Equitable Growth, November 19, 2021.

[11](#_edn11) “Income, Poverty and Health Insurance Coverage in the United States: 2019,” press release, U.S. Census Bureau, September 15, 2020.

[12](#_edn12) “Earned Income and Earned Income Tax Credit (EITC) Tables,” Internal Revenue Service, January 21, 2022.

[13](#_edn13) C. Eugene Steuerle, “Biden’s Expanded EITC Adds Significant Marriage Penalties,” *Tax Vox* (blog), Tax Policy Center, August 3, 2021.

[14](#_edn14) Harold Pollack and Lisa R. Metsch, “Welfare Reform and Substance Abuse,” *Milbank Quarterly* 83, no. 1 (2005): 65–100; and “Drug Testing Welfare Recipients: Recent Proposals and Continued Controversies,” Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, October 2011.

[15](#_edn15) David K. Evans and Anna Popova, “Cash Transfers and Temptation Goods: A Review of Global Evidence,” World Bank Policy Research Working Paper no. 6886, May 2014; and Paul Y. Yoo et al., “Unconditional Cash Transfers and Maternal Substance Use: Findings from a Randomized Control Trial of Low-Income Mothers with Infants in the U.S.,” *BMC Public Health* 22 (2022).

[16](#_edn16) Gary Mottola, “A Snapshot of Investor Households in America,” FINRA Investor Education Foundation, September 2015.

[17](#_edn17) Raj Chetty, Nathaniel Hendren, and Lawrence F. Katz, “The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment,” *American Economic Review* 106, no. 4 (2016): 855–902.

[18](#_edn18) Although more states have authorized lump-sum payments than any other type of diversion program, the Department of Health and Human Services reports that these programs are rarely used in practice. Montana, Utah, and Virginia appear to have the most extensive experience with the concept. “Table I.A.1: Formal Diversion Payments,” TANF Policy Tables, Welfare Rules Database, Urban Institute.

[19](#_edn19) “Table I.A.1: Formal Diversion Payments.”

[20](#_edn20) Carmen Solomon-Fears, “Welfare Reform: Diversion as an Alternative to TANF Benefits,” Congressional Research Service, RL30230, June 16, 2006.

[![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) 
This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/). 

[ 

Download PDF 

](https://www.cato.org/sites/cato.org/files/2023-01/empowering-new-american-worker-welfare-reform.pdf)