One of the many changes in the revised Family Security Act 2.0 (FSA 2.0) proposed by Senators Mitt Romney (R-UT), Steve Daines (R-MT), and Richard Burr (R-NC) was the addition of an income requirement. While Senator Romney’s initial proposal provided a flat benefit to all families (until a phase-out which started at $200,000), the revised proposal excludes families who did not have an income in the previous year. Starting with the first dollar that families earn, the benefits phase-in as their income increases, with the full benefit provided once earnings reach $10,000.
This “income requirement” has sometimes been conflated with a “work requirement” — even by Romney himself. But, the FSA 2.0 does not have a work requirement in the traditional sense many other programs do. These institutional details matter, and it’s worth exploring how the income requirements proposed in the FSA 2.0 differ operationally from the work requirements frequently attached to other social programs. “Work requirements” typically involve large bureaucratic obstacles that stop people from accessing social programs, even when they are working. “Income requirements” pose much lower administrative burdens, so substantially more eligible people can access the program.
Work requirements fail to achieve their stated goal
“Work requirements” have been attached to programs like Temporary Aid to Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP – or “food stamps”), and Medicaid. While the programmatic details differ from program to program (and given that these are administered at the state level, state to state), they typically require the recipient to verify that they are working at frequent intervals, typically monthly. Failure to be employed or to document employment results in disqualification from the program.
Many supporters of work requirements believe that a large population would stop working without them — a viewpoint the data doesn’t readily support. As Matt Bruenig has pointed out, the vast majority of nonworkers are people who “cannot or should not” work, such as children, students, the elderly, and disabled people. Moreover, there’s little evidence to support the notion that an increase in welfare benefits substantially decreases hours worked. There is such an effect, but it is limited. Economist Ioana Marinescu has estimated that for every $10 in increased benefits, wage earnings decrease by only $1. Most people are not looking for enough money just to get by. If there is work available that pays a competitive wage, they will take it. Instead, what is more likely to push people away from work are poorly-designed welfare programs that take benefits away as earnings increase, creating a poverty trap.
Work requirements not only solve a problem that does not exist but create complex bureaucracies that attempt to verify that people are working. Unfortunately, these bureaucracies tend to create their own problems. For example, the Arkansas Medicaid program instituted work requirements under a Medicaid 1115 waiver in 2018, but these were set aside by a court order in 2019. The program required Medicaid recipients to submit documentation that they had worked 80 hours each month. If they failed to submit that documentation three months in a row, they would be kicked off the program.
A significant problem with this initiative was that many Medicaid recipients were unaware of the requirement. While the state had sent people communications about the program through multiple mediums, the efforts to reach them often failed. Even when recipients were aware of the requirement, it could be hard to document. The website that you needed to submit documentation on was a dinosaur that people had difficulty navigating through.
More importantly, the website was hard to access. It was bizarrely programmed to be unavailable every night from 9 pm to 7 am, and there were complaints of frequent unscheduled outages. Medicaid recipients also only had a short time to report — you needed to document your hours by the fifth day of the following month to be in compliance. Any barrier which caused you to delay documentation could easily lead to non-compliance.
All of these barriers may seem small individually, but they add up. Only 1,200 out of 20,000 Medicaid recipients successfully navigated the documentation requirements. The rest lost their health insurance and might not have even realized it until they needed to draw on it.
Work requirements still could be considered to have achieved their goals if the program had successfully filtered only the nonworking population out of Medicaid or induced more people to join the workforce. But this was not the case. Many of the people who lost insurance were only kicked out because of a failure to document work they were actually doing.
Income requirements have problems — but they can be mitigated
The Family Security Act 2.0 does not impose work requirements like the programs mentioned above. Instead, it provides benefits that scale with income. As noted above, parents would not receive anything unless they reported income in the previous year and would qualify for the full benefit with $10,000 in earnings.
In this regard, it’s similar to many other income tax benefits, including the current Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) — though it’s worth noting that while the old CTC and EITC do not provide benefits that exceed your tax liabilities, the FSA 2.0 could.
The fact that income requirements are superior to work requirements does not make them perfect. Common problems facing income requirements include:
- They exclude many people with no earnings. Many people who have no earnings do not have other options. They may have a good reason for not working (for example, grandparents who are a child’s primary caregiver) or struggle to find a job in a recession. Income requirements exclude many people who could use the additional support.
- Bureaucratic hassles limit uptake. The government needs to know how much people earned in the previous year to implement an income requirement. In the case of the EITC, that means potential recipients had to file taxes during the last year. But many people — especially low-income earners — fail to file. As a result, only around 80 percent of people eligible for the EITC claim it.
- The money may come at the wrong time. The EITC is given based on your income in the previous year. Because incomes are often volatile (especially for low-income earners), it may be the case that someone who needed the money one year may not receive it until the following year, after the need has passed. On the other hand, a family who had initially qualified for the benefits through their earnings but left their job after becoming a parent would continue to receive benefits the following year.
These are important limitations. Nevertheless, they are minor compared to the issues with traditional work requirements. While work requirements create large bureaucracies to verify work status, income requirements operate within existing systems. This has big effects. For example, only 28 percent of families eligible for TANF, which has work requirements, claimed benefits in 2012 – a far cry from the 80 percent rate of EITC programs.
|Exclusion of the very poor
|Yes. Work requirements, by their nature, exclude people who are not working, even if they were unable to work through no fault of their own.
|Yes. Income requirements, by design, exclude people with no income, even if they were unable to work through no fault of their own.
|Effects on labor force participation
|Small (plausibly zero). Many states imposed Medicaid work requirements during the Trump administration, with no detectable effect on workforce participation.
|Contested. Some economists have found large effects on workforce participation from the EITC. However, a recent re-analysis suggests no effect.
|Effects of bureaucratic hurdles
|Large. Programs with work requirements, such as TANF or Medicaid, typically fail to reach most eligible people. For example, TANF only reached 28 percent of the eligible population in 2012.
|Moderate. Programs with income requirements, such as the EITC, typically reach 80 percent of the eligible population.
We should be looking for ways to minimize the bureaucratic procedures people must go through to access their benefits. The FSA 2.0 emulates one of the best-performing anti-poverty programs by emulating the EITC framework.
Looking beyond wage income
An additional benefit of an income requirement is that increasing what counts as income can open up the program to more caregivers of children.
For example, take the two caregivers who might be excluded from the FSA 2.0 mentioned above: grandparent caregivers and unemployed caregivers in a severe recession. They are not working through no fault of their own. But both groups could receive substantial incomes through programs such as Social Security and unemployment insurance, pushing their families above the $10,000 requirement. Senator Joe Manchin (D-WV) has previously supported making nonworking grandparents caring for grandchildren eligible to receive the CTC, despite his support for work requirements. An earnings requirement that includes nonwage income can square that circle. The FSA 2.0 plan is currently ambiguous on how it will count income, but under the normal definition of gross income, both would apply.
Recognizing other forms of nontaxable income toward an income requirement could further expand FSA eligibility. For example, student grants and loans are not typically taxed but could still be counted as income to help students qualify for the FSA.
A fully refundable child allowance is still the best policy. The shift away from the first version of the FSA is disappointing but appears to be a necessary concession given the failure to pass earlier versions. As bipartisan discussions take place, we encourage legislators to push for eliminating the income requirements, especially for parents of younger children and children raised by grandparents. But we should not lose sight of the FSA 2.0’s potential to simplify and strengthen family policy.
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