Incentives, challenges, and dilemmas of TANF: A case study

In: Journal of policy analysis and management: the journal of the Association for Public Policy Analysis and Management, Band 21, Heft 4, S. 577-586

Abstract

AbstractThis paper compares the incentives inherent in TANF (Temporary Assistance for Needy Families), the
U.S. welfare system in place after the 1996 reforms, with those of TANF's predecessor, AFDC (Aid to
Families with Dependent Children), using the experience in one state, Wisconsin, as an example. Is the new
program successful in avoiding the "poverty trap" of the old welfare system, in which the marginal tax
rates imposed on earnings and benefits were so high that they discouraged work effort outside a narrow earnings
range?As women receiving assistance begin working more hours and earning more, income‐conditioned benefits
(Food Stamps, EITC, Medicaid, and subsidies for child care) are reduced and withdrawn, in effect
constituting a "tax" on earnings. Under TANF, there is more support for these families, at least in
Wisconsin, and so economic well‐being should be higher for most women with earning in this range than it
was under AFDC. But marginal tax rates under TANF remain high, and in some income ranges they are higher than
under AFDC.Once in the work force, former TANF recipients have earnings over the long run that expose them to very high
marginal tax rates, which decrease the benefits of working harder and make it very difficult to gain full eonomic
independence. Evidence from other sources suggest that most low‐skilled women have earnings in the same
range and so are likely to face similar reductions in benefits such as child care subsidies or the EITC as their
earnings increase, even if they are not receiving welfare‐related benefits. © 2002 by the Association
for Public Policy Analysis and Management.