Welfare reform cut child poverty in half. What will President Biden’s American Rescue Plan do?

The federal government will soon start sending monthly checks totaling up to $300 per child to middle- and low-income families. President Biden promises this policy — part of the recently passed American Rescue Plan — will cut child poverty in half in the US. Some have described the plan as “the most far-reaching anti-poverty legislation in more than 50 years” and “the biggest antipoverty effort in a generation.” Ironically, President Biden’s plan actually undermines our nation’s most effective anti-poverty programs— welfare reform and the earned income tax credit (EITC),  which actually have cut child poverty in half over the past three decades.

Poverty scholars have historically relied on the official poverty measure to evaluate US anti-poverty policies. But the official poverty measure is severely flawed because it discounts many government payments to poor families, such as food assistance and refundable tax credits, which have increased in size dramatically in recent years. As a result, when scholars look to the official poverty measure they fail to recognize the large and sustained declines in poverty that have materialized in this country, most notably after policy reforms in the 1990s.  

The Supplemental Poverty Measure — which accounts for government benefits — presents a very different story. In fact, the often-cited National Academies of Science Roadmap to Reducing Child Poverty found dramatic poverty reductions between the early 1990s and 2016 when using the Supplemental Poverty Measure. Economists Bruce Meyer (an AEI vising scholar) and James Sullivan found similar trends using a consumption-based poverty measure, as did Richard Burkhauser (another AEI visiting scholar) and his co-authors using a “full-income” poverty measure. These trends led the authors of the Roadmap to Reducing Child Poverty to state clearly (page 57):

“When measured by the Official Poverty Measure, poverty rates changed very little between 1967 and 2016; by contrast, when measured by the anchored Supplemental Poverty Measure (SPM), they fell by nearly half over that period, due to the increases in government benefits.” 

As shown in the figure above from the Roadmap to Reducing Child Poverty, child poverty rates only began to fall after the welfare reforms of the 1990s, when Congress conditioned government assistance on work and increased government benefits to supplement earnings. Expansions to the EITC in the 1990s made it one of the most effective anti-poverty programs in the US, supplementing the earnings of working families based on the number of dependent children in the household. This cash payment was only available for families with earnings, subsequently increasing work rates among single mothers — the group most at risk for poverty — and cutting child poverty.

Recent research from Princeton economist Henrik Kleven suggests that these employment gains might only have been possible in the context of welfare reform, which conditioned government assistance on employment among other things. All of this points to something that used to be widely accepted by people on the left and right: Government assistance plus work is a winning combination.        

Yet, despite the success of policy changes from the 1990s, some still characterize President Biden’s CTC expansion as uniquely poised to reduce child poverty: “If it were to be made permanent, it would be the most important anti-poverty program for children in our history.” This not only fails to acknowledge the success of the 1990s reforms, but it also directly contradicts the lessons learned. The expanded CTC reduces the work incentive in the current package of refundable tax credits, while weakening existing programs that condition assistance on work.

Safety net reforms in the 1990s cut poverty in half for children in the United States. Policymakers and scholars should be more willing to acknowledge this reality and build upon our country’s policy successes, not roll them back. The American Rescue Plan may be “Ending the End of Welfare as We Knew It”.  Time will tell if this translates to meaningful reductions in child poverty.