Is This the New Welfare State?
The enrollment ceremony for the American Rescue Plan Act. Photo courtesy of Senate Democrats.
It’s not possible to say with confidence that Kamala Harris lost her presidential campaign because of the economy, let alone whether she or another Democrat would have fared better with a different economic agenda. But it is simply not serious to claim that the Harris-Walz campaign’s anodyne “New Way Forward” offered visible policies for short-term economic relief besides a vaguely-defined federal ban on price gouging. Insofar as the “Opportunity Economy” concerned the American welfare state, a Harris administration would have disbursed billions to Americans not through direct cash transfers, but through an elaborate system of tax credits. In effect, what little existed of Democratic populism hinged upon wonkish conditionalities: an expanded Child Tax Credit offering $3,600 per child, a one-time $6,000 tax credit for newborns, and $10,000 for first-time homeowners.
This might not have been Harris’s greatest mistake, but it certainly deserves consideration. Tax credits are not a neutral policy instrument. They are opaque, conditional, and invisible to voters by their very design. From their inception, they were a cudgel against the New Deal welfare state. Harris was thus attempting a fundamentally contradictory undertaking: speaking to Americans’ economic anxieties using a policy instrument designed to exclude them from claiming welfare. Put simply, overworked and financially insecure Americans need more than tweaks to the tax code.
“The More He Works, The More He Gets”
The Earned Income Tax Credit (EITC) emerged from a largely forgotten episode in the history of American welfare. In the late 1960s, Congress seriously considered replacing Aid to Families with Dependent Children (AFDC) with a negative income tax (NIT). These proposals would have provided a guaranteed income to families without earnings. As a family’s household income increased, the amount it received from NIT would taper off. NIT proposals received surprisingly broad bipartisan support: In 1971, influenced by NIT, Richard Nixon proposed a “family assistance plan” (FAP) guaranteeing a basic income of $1,600 for four-person households.
Louisiana Senator Russell Long introduced the EITC in 1972 as an intervention against FAP. FAP, he complained, provided “its largest benefits to those without earnings.” This effect, in Long’s opinion, would discourage Americans from working. The result would be moral and social decline. Should FAP pass, Long argued, its recipients would “lay about all day making love and producing illegitimate babies”—accelerating a perceived crisis of welfare dependency and moral decline.
The operative principle of the EITC, Long claimed, would be that “the more he works, the more he gets.” As such, Long proposed a “phase-in” structure, excluding workers earning below $4,000 from the full benefit. A 1975 Senate Finance Committee Report explained in no uncertain terms that the purpose of the EITC was “reducing the welfare rolls” and “encouraging people to obtain employment.” The committee’s unspoken assumption (made explicit by political scientist and scientific racist Charles Murray) was that America’s growing number of welfare recipients was a symptom of moral decay unleashed by the Great Society—and that Americans, living large off the welfare state, just no longer wished to work.
Put simply, the EITC was a conservative welfare reform strategy. As historian Dennis Ventry notes, the EITC thus appealed to legislators as “both an anti-poverty and an anti-welfare program.” Three years after its introduction, president Gerald Ford signed it into law as part of the Tax Reduction Act of 1975. The EITC’s logic—that universalist welfare politics had unleashed a moral crisis of unemployment—would become complementary to Ronald Reagan and Bill Clinton’s cases against the mid-century welfare state.
Expanding the Credit, Shrinking the State
Even as Ronald Reagan crusaded against “welfare queens” and the programs which supposedly sustained them, his Tax Reform Act of 1986 raised the EITC from 11% to 14% of earned income, permanently indexed its income threshold to inflation, and increased the level at which the credit’s phase-out began. Before signing the expansion into law, Reagan described it as “the best anti-poverty bill, the best pro-family measure, and the best job-creation program ever to come out of the Congress.” EITC expansion was, not-so-peculiarly, among Ronald Reagan’s proudest accomplishments.
Through the nineties, expanding the credit found bipartisan support from Republican Dan Quayle to Democrat Bill Clinton. George H.W. Bush expanded the program in 1990, and the Clinton Administration boasted of implementing the “largest EITC expansion ever” in 1993. Even while Clinton cut programs like AFDC, he triumphantly declared that “for the first time now, if you work hard and you have children in your home and you spend 40 hours a week at work, you can be a successful worker and a successful parent, and you will be lifted out of poverty.” The EITC, in sum, is a product of the most anti-government era in recent history.
Unlike, for instance, increasing the minimum wage, policymakers considered the EITC less costly and better targeted to a supposed class of deserving poor. Expanding the EITC, moreover, would not require creating additional bureaucracy—or, worst of all, introducing a new government agency—given that the responsibilities for disbursing it fell upon the IRS. In other words, it was American neoliberals’ favorite policy tool, affording them the appearance of taking on America’s widening inequality while avoiding the expansion of the state such an effort would have required. The EITC and its variants, the Low-Income Housing Tax Credit (LIHTC) and the Child Tax Credit (CTC), thus grew in lockstep with the decline of direct cash assistance.
These programs’ supporters might protest that their historical context isn’t grounds to dismiss them as bad policy. But the tax credit welfare state has also been a resounding failure. Despite Clinton, Bush, and Obama’s numerous expansions to the EITC, extreme child poverty in single-mother households rose 748 percent between 1995 and 2012. This can be clearly attributed to the shift away from cash assistance programs. By guaranteeing parents a certain monthly income, direct transfers rendered it impossible to earn below the poverty line. The EITC’s phase-in, however, keeps money from poor families as a deterrent to unemployment—intentionally inflicting child poverty as a punishment for bad behavior.
And, as Matt Bruenig of the People’s Policy Project notes, the EITC’s work requirement “penalizes people simply for being victims of discrimination in the labor market.” Only five percent of white households are too poor to be eligible for the credit; for black children, this figure is 15 percent, and for Latino children, it is 10 percent. The result is a brutal and racially slanted welfare regime with the EITC as its centerpiece.
Workfare’s Nine Lives
By the numbers alone, Biden’s 2021 stimulus bill, the American Rescue Plan (ARP), constituted America’s first experiment since the Great Society with welfare on a scale befitting a rich country. Biden was attempting a partial break with the recent history of American welfare: the ARP took, most notably, the extraordinarily effective step of eliminating the Child Tax Credit (CTC) phase-in. The provision expired in December 2021, immediately doubling child poverty.
Yet despite its successes, the emergency pandemic-era welfare state pieced together by the ARP failed to reach many of those who needed its funds most. Biden declined to eliminate the EITC’s phase-in, instead expanding benefits to working childless adults—a positive step, though the full benefit excluded millions of families without income. And even in 2021, before it expired, the expanded CTC failed to reach the poorest Americans.
The credit was inaccessible to Americans in deep poverty, who are not required to—and generally don't—file tax returns. Congress and the Biden Administration attempted to reach these households by setting up a website whereby non-filers could receive the tax credit as a monthly check. Even so, the People’s Policy Project found that just 14 percent of the 5.5 million children living in non-filing households actually received the credit. “If your goal is to ensure that the benefit makes it to the poorest kids,” wrote Matt Breunig and Paul E. Williams in 2021, “relying on a tax-filing system that we know the poor have limited interaction with seems less than ideal.”
Congress was attempting something paradoxical: using tax credit programs—a policy tool designed to keep welfare out of Americans’ hands—to build an expansive welfare state. These issues are not bugs in the American welfare state. As long as the system depends upon tax credits, they will be its features. We can expect to continue dealing with them as long as the tax credit remains American policymakers’ tool of choice.
The Democratic Party’s tax credit fetish isn’t a matter of political necessity: CTC expansion wasn’t the only proposal for child poverty relief on the table in 2021. That February, Senator Mitt Romney proposed replacing the CTC with a child benefit administered by the Social Security Administration (SSA). Though imperfect, this was the most universal and progressive option, and upon the plan’s introduction, the New Republic bemoaned the fact that the Democrats had allowed the conservative senator to “set the horizon” on child poverty.
There are encouraging signs the Democratic Party is turning against means-testing. Tim Walz’s flagship achievement as Minnesota governor was his policy of free school lunches for all K-12 students, regardless of family income—a choice he has defended on the grounds that means-testing is “cumbersome and inoperable” while creating arbitrary divisions between “have[s] and have-nots.” Yet this skepticism of means-testing did not translate into policy innovation in the Harris-Walz platform, which fit the contours of the last fifty years of welfare politics.
If the Democrats are to move beyond neoliberal dogma, then what should take tax credits’ place? This question isn’t a difficult one. Critics contend that America simply doesn’t have the state capacity necessary to shift away from tax credits, which are more “administratively convenient” given they are claimed by taxpayers themselves. But this year, the SSA paid benefits to almost 68 million people each month. And though the SSA is more commonly understood as an agency for the retired and disabled, it already administers billions in monthly child benefits. The state capacity is there. A Democratic administration just has to use it.
Direct cash assistance programs like Social Security were designed to expand the American welfare state. Tax credits do the opposite. If the Democrats intend to reach those left out of the neoliberal consensus—the same voters fleeing the party en-masse—why do so with its central policy innovation?
Alex Bronzini-Vender (CC '28) is a staff writer specializing in American political development and political economy. He has written for the Guardian, the LA Review of Books, American Affairs, and elsewhere.