Welfare Reform at 30: $1.6 Trillion Safety Net Needs Rework

The 1996 welfare reform law turned 30 on Saturday, but the work-first principle behind it is under pressure as local governments launch at least 122 guaranteed-income pilots and federal welfare spending reaches $1.6 trillion a year.

"Government assistance should help people move toward work and independence, not make poverty a permanent condition," said Paul Ryan, former House speaker and visiting fellow at the American Enterprise Institute, writing with Les Ford, president of Ford Policy Solutions and former White House Domestic Policy Council member.

The current system punishes families who make progress. In Illinois, a family earning an additional $1,000 at a certain threshold loses more than $25,000 in net resources. Federal Reserve Bank of Atlanta researchers found a hypothetical single parent in the District of Columbia gains nothing financially as earnings rise from $11,000 to $65,000.

Ryan and Ford are teaming with states, technologists and nonprofits to launch Resources for Independence, Stability and Employment (RISE) pilot programs — combining current benefits into one trackable system that phases down gradually as earnings rise, with work, education or training required. They argue UBI would cost roughly $2.5 trillion a year if every adult received $10,000, and that unconditional cash reduces work.

Benefit Cliffs Punish Progress

The dozens of disconnected federal programs — covering food, cash, health, child care and energy assistance — operate with conflicting eligibility and reporting requirements, creating what Ryan and Ford describe as a "wasteful, siloed system." Federal welfare spending accounts for 1 of every 5 dollars in the $7.4 trillion federal budget.

UBI does not solve the benefit cliff problem, they argue. The OpenResearch randomized trial in Illinois and Texas found guaranteed income reduced labor-force participation by 4.1 percentage points and annual earnings by roughly $1,800. An American Enterprise Institute review of U.S. guaranteed-income experiments likewise found lower employment. Making the 2021 expanded child tax credit permanent would have cost about $1.6 trillion over a decade.

The appeal of UBI is understandable, Ryan and Ford acknowledge. The safety net is badly broken, and unconditional cash offers a simple alternative. But they argue it would make unconditional assistance a permanent feature rather than reforming the incentives that discourage work and marriage. Experiments with a negative income tax in the 1970s consistently produced employment and earnings losses, they note.

The 1996 Model

Before Congress acted in 1996, governors in Iowa, Michigan, Minnesota and Wisconsin tested work-focused policies and proved better results were possible for low-income families. After reform, employment among single mothers rose from about 51 percent in 1992 to 76 percent in 2000, while child poverty fell substantially.

RISE pilots will combine current benefits into one trackable, flexible benefit; phase that benefit down gradually as earnings rise; pair families with case management; and require work, education or training. Results will be assessed using randomized controlled trial standards, Ryan and Ford said.

"States once lacked the technology to modernize benefits," they wrote. "Today, new privacy-protected platforms can replace the patchwork of cards, vouchers and payments with one system that distributes benefits, applies requirements, audits spending and adjusts assistance continuously as incomes rise."

The stakes are generational. When parents don't work and families depend on the safety net, they face higher rates of intergenerational poverty, worse physical and mental health, and shorter life expectancies. When parents gain employment, their well-being improves and their children see better health, behavioral and education outcomes.

"Our safety net should catch people when they fall," Ryan and Ford wrote. "It shouldn't hold them down or pay them to remain there."

This article is for informational purposes only and does not constitute investment advice.