By indexing TANF benefits to inflation, states can keep families from falling behind

The current cycle of inflation has underscored the peril that rising prices pose to low-income families, including those who rely on government benefits to make ends meet. Vulnerable in the best of economies, these families are especially susceptible to even moderate upticks in the cost of living when benefit payments aren’t indexed to inflation.

For families relying on benefits to cover rent, groceries, and other essentials, the silent erosion from inflation is potentially devastating. 

To protect families from inflation, policymakers have typically relied on indexation so that benefits automatically adjust with the cost of living.

Indexation has been a standard feature of social policy since enactment of automatic cost-of-living adjustments, or COLAs, for Social Security payments. Such adjustments previously required individual acts of Congress. The 1972 legislation made them automatic beginning 1975.

But since then, Congress, focused on deficit reduction, has repeatedly excluded automatic inflation adjustments from major family support programs. The Child Tax Credit, for instance, went without meaningful inflation protection for nearly three decades after its introduction in 1997. As a result, families relying on the CTC experienced steady erosion of its real value until Congress included permanent indexation provisions in 2025. The dynamic is evident in state unemployment insurance programs. A recent Niskanen Center analysis found that states with automatically indexed taxable wage bases outperform nonindexed states over time across numerous measures of program solvency and benefit adequacy.

The lesson from both the CTC and state unemployment programs is the same: Where indexation is absent, erosion is a near-certainty.

Temporary Assistance for Needy Families (TANF) cash assistance at the state level has received less attention, yet it exhibits the same structural split: some states’ TANF programs operate with automatic indexation that protects the real value of their benefits, others do not. The consequences are not very visible in the short term but can drive a huge wedge between them and states without indexation in the long term. The differences come from three design choices: whether to index TANF benefits at all; what to index them to; and how much the benefit should be in the first place. 

Only 10 states have some form of indexation, using four methods: indexing to the federal poverty level (FPL); indexing to inflation; indexing to a state-specific measure such as local cost-of-living adjustment or growth in state revenue subaccount; or indexing to a formula that requires some state action to update. Indexing to the current-year FPL has the advantages of being a national measure; clearly stating what it’s based on; scales with family size; and is updated on a fixed federal schedule.

Failure to index TANF benefits is leaving too many families behind

The federal TANF block grant reflects the erosion at two levels. The core funding that states receive each year is legislatively fixed and has not been adjusted since the program’s creation in 1996. Because the block grant is not indexed to inflation, it has lost about half of its real value since then, nor has it been adjusted to population, so fewer real dollars now cover more children. When Congress converted Aid to Families with Dependent Children (AFDC) into the TANF block grant in 1996, it gave states full discretion over how much to pay families in cash assistance, with no requirement that those amounts ever be revised.

The consequences of setting benefit levels as a fixed dollar amount are clear because nothing appears to change: the dollar figure on the benefit is the same this year as last. But inflation does the cutting quietly. A benefit set in nominal terms loses real purchasing power every year as prices rise, so a family receiving the “same” check can afford steadily less of the rent, food, and utilities it was meant to cover. In any given year the erosion can be marginal, but it substantially reduces benefits over time. For example, Georgia and North Carolina have not raised their benefits since 1996 ($280 and $272 a month for a family of three, respectively), which is a 46 percent loss in real value as of 2023. 

Many states set their maximum TANF benefit amounts in nominal terms and only update them occasionally. But other states have built in indexation mechanisms to adjust the amount automatically to different thresholds, creating a wide variation in how well TANF cash assistance holds its value across the country. 

Varieties of TANF indexation

Among indexation states, some index the benefit to the federal poverty line, others to an inflation measure, and a few to their own formulas. These methods work differently with different results. Table 1 below summarizes the four approaches and the states using each. 

Table 1: TANF indexation method by state, 2025

Indexing to the Federal Poverty Level. The most common approach is to link the benefit to the federal poverty level. The Department of Health and Human Services publishes the FPL annually, reflecting changes in consumer prices. The FPL already serves as the eligibility threshold for a wide range of federal programs including Medicaid, SNAP, and the Affordable Care Act. States that index their TANF benefit to a fixed percentage of the FPL automatically inherit its annual adjustment without needing to revisit the benefit level themselves. The appeal of linking to the FPL is that it’s transparent, comparable across states, and already embedded in the administrative infrastructure most states use to determine program eligibility. 

Several states use this approach, though at different levels. 

• New Hampshire sets its benefit at 60% of FPL, producing a monthly benefit of $1,332 for a family of three. 
• Illinois sets its benefit at 35% of FPL ($777/month).
• Texas ties its benefit to 17% of FPL ($382/month).
• Connecticut sets its Standard of Need at 55% of FPL and pays a benefit equal to 73% of that standard, producing a benefit of roughly 40% of FPL ($892/month for a family of three). Because the multipliers are fixed in statute and the standard of need is anchored to the FPL, the benefit rises whenever the guidelines do. 

Indexing to Inflation. The second most common approach is indexing TANF benefits to inflation measures. Ohio and Maine both apply the Social Security Administration’s cost-of-living adjustment directly to their payment standard (the amount a family with no other income receives), so the new benefit equals the prior year’s benefit multiplied by one plus the COLA. The COLA tracks changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of the prior year to the third quarter of the current year. 

Despite using the same mechanism, the benefit amounts are very different: Maine’s benefit was $895/month for a family of three as of 2025 and Ohio’s is $623/month. These figures reflect the base amount each state was paying when indexation began, and whether it has raised that base since. Maine increased its maximum benefit 20 percent in October 2024 and indexed from there, while Ohio began indexing in January 2009 and has not raised its base since. This is what distinguishes the method from FPL indexation, where the benefit is a share of a current national standard rather than a level inherited from the past. 

Nebraska is indexed indirectly: Its payment standard is a fraction of the state’s standard of need — that is, an estimate of what a family requires each month for basic expenses — so benefits are adjusted when the standard of need changes. Nebraska adjusts its standard of need to the Consumer Price Index from a 1997 baseline and sets the payment standard at 55 percent of that figure, producing $584/month. Because Nebraska adjusts biennially rather than annually, its benefit can fall behind inflation in the intervening year before catching up. 

State-specific mechanisms. Some states have indexation mechanisms that track neither the FPL nor a national inflation index. Wyoming indexes its TANF benefit to a state-specific cost-of-living index, the Wyoming Cost of Living Index (WCLI). It adjusts the payment standard each year by the inflation rate the state measures for itself, which was 4.2 percent in 2025, producing a benefit of $902/month for a family of three. The logic is that prices in Wyoming do not necessarily move with the national average. 

California ties its benefit not to prices but to growth in a state revenue subaccount funded by sales tax and part of vehicle license fee revenue. When revenues in that subaccount grow sufficiently, they automatically fund a benefit increase. California’s benefit for a family of three stands at $1,175/month, but the mechanism stalled in 2025-26 when revenue growth was insufficient to trigger an adjustment. Compared with the price-indexed mechanisms, this one depends on fiscal factors that may not move along with the rising costs families face.

Nominally indexed, practically variable. South Carolina presents a cautionary case. Its benefit formula is FPL-derived on the surface since the state sets a Standard of Need at 50 percent of FPL and applies a ratable reduction percentage — that is, a percentage cut to each family’s payment standard — to determine the actual payment. Unlike the fixed percentages used by Illinois or New Hampshire, however, South Carolina’s ratable reduction is recalculated annually by the state’s Department of Social Services based on the amount appropriated for the program and the anticipated number of recipients. It can also be adjusted mid-year if caseloads shift. The ratable reduction stood at approximately 33.72 percent in 2015 and had risen to 40.46 percent by 2024, producing a current benefit of $449/month for a family of three. This makes South Carolina’s benefit not a true indexation model but one that still depends on annual appropriations.

The case for indexing to the federal poverty level

Of the four methods, indexing as a share of the current-year FPL is the most effective, for three reasons. First, it makes the benefit level a deliberate choice. For example, a state that sets its benefit at 35 percent of FPL has chosen that percentage and can be asked to justify it, while Ohio’s $623 was not chosen but it is the amount the state happened to be paying when it began indexing, so there is no stated rationale to argue with. Second, it gives states a common measure, so a legislature can see where its benefit stands among other states. Third, it takes the least administrative work, since HHS publishes the guidelines every January and the thresholds also scale with household size without states having to recalculate it. 

Indexation protects whatever level a state has chosen, but it does not make that level adequate. A state can index to the poverty line at 60 percent or at 17 percent, and this piece does not try to say which is right. Benefit adequacy is the next question. What is clear for now is that a benefit keeping up with prices should not depend on whether a legislature acts each year.