October 13, 2021
Center for American Prosperity
Supporting Working Parents, Not Providing Free Income, Is the Way to Help Families Get Ahead
October 13, 2021
- Over 8 million workers—more than half of them women—have disappeared from U.S. payrolls since the start of the pandemic, reversing decades of enhanced economic participation by women and threatening the financial stability of families.
- In response to the previous anemic labor market recovery that followed the 2007-09 financial crisis, the Trump administration unleashed economic growth through tax reform, deregulatory efforts, and providing assistance to families through an expansion to the Child Tax Credit that preserved the pro-work features of the provision and helped usher in a period of record low poverty and record high income gains.
- By contrast, the current administration’s expansion of the Child Tax Credit has transformed it from a support mechanism for working families into a universal basic income entitlement with no work requirement, causing a rupture in the bipartisan consensus on the importance of work for recipients of the credit that has existed since 1996.
- Recent research finds that this policy change is likely to drive 3 percent of working families out of the labor force and cause a loss of 1.5 million jobs without making a much of a dent in child poverty.
A year and a half since the first pandemic-related lockdowns went into effect, data from September indicates that over 8 million people remain jobless compared to how the economy would have looked had it remained on its robust pre-pandemic trajectory. The share of U.S. prime-age (25-54 years old) population that is employed is now at its lowest level in over thirty years, with the exception of the previous slow recovery following the 2007-09 financial crisis—a period when multi-year unemployment benefit extensions transformed the program from a temporary support into a de facto universal basic income scheme, with the consequence of stunting the return to normalcy until Congress finally reversed course. For women, this dismal state of affairs is dismantling decades of progress in their economic participation. For prime-age men, never before in the pre-pandemic period since World War II has their engagement with the labor market been so tenuous. Left in the wake of this economic destruction are families, and especially children, who, on top of financial distress, also face the lost opportunity to learn from their parents about the value of hard work and sacrifice and how to prepare themselves for entering the workforce in adulthood. In contrast to the current administration’s approach of substituting paychecks with government checks—causing potentially millions of lost jobs according to recent estimates and studies—the best way to help struggling families is to support their ability to find meaningful work that allows them to care for and provide for their children.
Seemingly intent on repeating the mistakes of post-2008, the current administration’s “solution” to helping struggling families is to return to a work-is-optional entitlement mentality by downgrading the Child Tax Credit (CTC) from a policy that supports work to a de facto universal basic income program by sending monthly government checks of $300-360 per child to families without any expectation that either parent has a job or is even looking for a job. Instead of “Building Back Better,” this move hearkens back to the period before the bipartisan success of welfare reform in 1996, when unconditional cash payments draped in a veneer of compassion ensnared people in a perpetual state of destructive, spirit-sapping government dependence.
In 1996, when both parties came together to institute work requirements as part of welfare reform, they did so not as a way to penalize impoverished individuals, but to liberate them from the intergenerational poverty trap and to provide temporary support as a springboard to greater resilience and opportunity. The public overwhelmingly believes in this bipartisan consensus on the value of work, with 78 percent favoring work requirements for those receiving government benefits. Even more importantly, the evidence shows that promoting work helps break the poverty and dependency cycle. For example, one recent study finds that children affected by welfare reform grew up to be noticeably less likely to face food insecurity as adults, with the trend most noticeably observed among women and children who were younger when reforms were instituted. A broad survey of the research on welfare reform work requirements finds that the “evidence overwhelmingly shows positive effects on employment.”
The Trump a dministration embraced the importance and dignity of work while also recognizing that many families still struggle to make ends meet. Rising costs of childcare, medical care, housing, and education have been an ongoing reality for many families—albeit only recently at the dramatically elevated inflation rate that households are now grappling with as the twin crises of trillions of deficit-financed dollars of federal spending and supply shortages collide into each other. As a result, the 2017 Tax Cuts and Jobs Act included a provision making the CTC more generous for families while retaining its pro-work incentive structure. In the pre-pandemic years that followed, America experienced a blue-collar boom that delivered economic opportunity to every corner of the labor market, but especially to workers who have struggled in recent decades. Poverty across every racial group reached record lows and income gains reached record highs as previously discouraged workers came off the sidelines to take advantage of rising pay and better job prospects. Among different age groups, children experienced the largest percentage decline in poverty.
Unfortunately, the current administration has taken all the wrong lessons from the success of the 2016-20 period. Prosperity rose not because more people became dependent on government for income in place of work, but rather because the 2017 CTC expansion helped working families cover expenses such as childcare and commuting costs, allowing more parents to engage in meaningful work in order to provide for their families and communities. By contrast, the 2021 CTC expansion ignored this lesson and dispensed with any pretense of promoting work. Instead, it converted the program into a monthly universal basic income entitlement scheme for families with children. A recent study out of the University of Chicago analyzes comprehensive, detailed data to assess this CTC transformation, finding that this policy shift reduces the economic reward for working—that is, the amount by which one becomes economically better off by moving from not working to working—by at least $2,000 per child for most workers with children. The authors then simulate and quantify the anti-poverty effects of the new CTC, taking into account its elimination of work incentives. Their exercise shows that the policy change will drive nearly 3 percent of working parents out of the labor force and reduce their employment by 1.5 million jobs. Moreover, deep child poverty will likely not fall with this anti-work version of a CTC expansion. But none of this should come as a surprise. Previous research has demonstrated that expanding child subsidies tied to work increases labor force participation, while doing so unconditionally without any connection to work causes people to exit the labor market.
A job is not just another source of income that is equivalent to income from government. Unlike government entitlements, jobs also provide a sense of purpose that induces people to invest in their own skills, jobs strengthen the bonds of mutual responsibility between workers and their families and communities, and they break the chains of intergenerational poverty and aimlessness that leave children unsure of their place in the world or how to contribute to it. To address both the material and spiritual poverty that continues to plague too many families, policymakers ought to take a page out of the Trump administration’s playbook and find ways to support working families, not drive them away from work altogether.
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