America can reform welfare with important lessons from Europe

Both President Trump and Speaker Paul Ryan have said that welfare reform will be a priority after tax reform to enable people on welfare rolls to move back into the workforce. Reforming welfare is a good idea, not so much because people are gaming the “system,” as Trump has said, but because welfare in America is not a system at all, and lacks a coherent approach to improving the lives of low-income people. Modernizing welfare into a safety net focused on upward mobility through work would fix this. It would also track with mainstream American values.

A majority of Americans, including 55 percent of people living in poverty, believe the purpose of welfare is to help people get on their feet, not just to dispense benefits. Eight in 10 low-income respondents believe working should be required to receive welfare benefits.

{mosads}But our current approach to welfare does not track well with these American aspirations. Welfare in America is a patchwork of programs with differing rules and requirements, encouraging work in one program, discouraging it in another, and sometimes penalizing a recipient whose earnings increase. The largest — including Medicaid, food stamps, disability insurance, the earned income tax credit, temporary housing assistance and cash assistance — are each administered by different federal agencies.

Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours and could easily find Republican admirers in Congress.

For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement.

Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system.

Lessons from Europe should help American welfare reformers to focus on three objectives. The first and most important is that all welfare programs should focus on getting people who can work into employment, or work training, as quickly as possible. Our programs currently work against each other. For instance, as economist David Autor has shown, even though work is required to receive temporary assistance or earned income tax credit benefits, America’s disability insurance program has become a de facto welfare program for some people who are fit enough to work but choose not to do so.

The second objective is eliminating penalties on increased earnings so low-income workers do not have to think twice about getting a pay raise or a better job. The Congressional Budget Office estimates that a worker whose earnings grow from the federal poverty level to 150 percent of that level experiences the equivalent of a tax increase from 17 percent to 65 percent because of how welfare benefits phase out. Welfare reform should align phase-out rates so that as earnings increase, benefits decrease along a sliding downward scale at the same rate in all programs, as in the British system.

The third goal is granting maximum flexibility to local agencies and organizations so they can combine resources to address a wider range of obstacles to work than is allowed under current law. This is important because, according to Census data, most poor people who are not working do so mostly for reasons other than not being able to find a job. States should have the flexibility to combine resources to help cover costs associated with caregiving, auto repairs, moving, and whatever else is preventing someone from being able to hold down a job.

Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.

Ryan Streeter is director of domestic policy studies at the American Enterprise Institute. He served as deputy chief of staff for policy for Indiana Governor Mike Pence, special assistant for domestic policy to President George W. Bush, and policy adviser to Indianapolis Mayor Stephen Goldsmith. You can follow him on Twitter @StreeterRyan.