How the New Era of Expanded Welfare Programs is Keeping Americans from Working

|

KEY FINDINGS


Overview

Despite policymakers’ steps to “stimulate” the American economy, it remains in shambles. Inflation is reaching new highs, consumer confidence is through the floor, and government deficits are skyrocketing.123 But perhaps the most critical sign of our struggling economy is the poor state of America’s workforce.

Millions of Americans are opting to stay home rather than return to work. Economists projected 500,000 new jobs in September 2021, but just 194,000 were filled—a colossal disappointment.4 The driving factor is a massive labor shortage. In five of the last six months, job openings hit new record highs.5 Despite these job openings, the size of the workforce contracted in September, and labor force participation now sits near the lowest level in 45 years.67 In fact, nearly 4.3 million Americans quit their jobs in August—a record high.89 There are now more jobs available than people looking for work.10

The evidence is clear: Americans are staying home rather than returning to work. Some states took action to address this labor crisis by ending the expanded federal unemployment benefits and bonuses earlier than their scheduled expiration date. And in those states, this action was a success.11121314 But even with these success stories and the unemployment bonus ending nationwide, the American economy is struggling for one simple reason: For millions of people, staying home still pays better than returning to work.

Using COVID-19 as an excuse, federal policymakers have quietly launched new welfare-like initiatives—and expanded existing ones—that provide regular, recurring payments that discourage work to millions of Americans.

COVID-19 has become an excuse to create and expand welfare programs that discourage work

Congress has pumped nearly $5 trillion taxpayer dollars into COVID-19 “relief” spending.15 Many of these programs enable regular monthly payments that, when combined, are far more lucrative than work. These new initiatives have infected several significant government programs and threaten to tank the American economy.

Child Tax Credits

In 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA), which expanded the existing Child Tax Credit program into a generous credit for millions of Americans.16 Under TCJA, American families could receive up to $2,000 per child to offset their tax liability.17 If the families owed less in taxes than the credit was worth, a portion of the credit was refundable.18 In order to receive the refundable credit, taxpayers needed at least $2,500 in earnings and the credit value increased by 15 cents for every dollar earned above $2,500, up to a maximum refundable credit of $1,400 per child.19 This was an important feature: The credit ensured that Americans worked in order to receive the benefit.

However, the American Rescue Plan Act (ARPA), championed by President Biden and the Democrat-controlled Congress in March 2021, changed everything. The credit amounts were hiked to $3,600 for dependents under the age of six and $3,000 for those six and older.20 The credit was made fully refundable, and the minimum earnings threshold of $2,500 was eliminated—essentially striking the connection to work that existed under the previous tax credit.21 Meanwhile, instead of being distributed in a lump-sum at tax time, the government began paying out these new welfare-style payments in regular monthly installments.22

The disincentive to work is easy to see. What was once a reasonable credit used to offset a working parent’s tax liability at tax time has become a stream of welfare payments distributed in regular deposits into the bank accounts of millions of Americans, even if they are not working. In fact, for a single parent with two dependents, the value of the Child Tax Credit is now larger than the most generous cash welfare payment that same family could receive.23 The Child Tax Credit has become welfare—with no incentive or requirement to work.

Food Stamps

The food stamp program has also been modified under the guise of COVID-19 relief. Beginning with the passage of the Families First Coronavirus Relief Act (FFCRA), the federal government suspended the work requirement for able-bodied adults without dependents in the program—a suspension that remains in effect.24 Previously, able-bodied adults would have to work, train, or volunteer at least part-time in order to qualify for the program.25 Those work requirements remain suspended nationwide despite employers facing one of the worst labor shortages in American history.26

Meanwhile, the federal government has massively increased the amount of food stamp payments. The U.S. Department of Agriculture (USDA) gave states the ability to receive “emergency allotments” that increased the size of food stamp payments during the pandemic.27 Although this was supposed to be a temporary initiative, nearly 40 states are still participating in the program as of October 2021.28

In October 2021, the Biden administration doubled down on its welfare expansion by unilaterally—and potentially unlawfully—implementing the single-largest permanent increase in food stamp benefits in the history of the program.2930 The average benefit paid out increased by roughly 25 percent compared to pre-pandemic levels, while the maximum allowable benefits also increased across the board.31

With the indefinite suspension of work requirements and the significant hike in the size of benefits, the food stamp program has become an even greater trap for government dependency.

ObamaCare Subsidies

The Biden administration also used ARPA to massively expand taxpayer-funded subsidies through ObamaCare. Under ObamaCare, individuals seeking federal subsidies on the exchange were still expected to pay a portion of the cost of their health insurance plans. But ARPA eliminated that expectation altogether for individuals with income below 150 percent of the federal poverty line, shifting those costs to taxpayers and ensuring enrollees do not have any skin in the game.32

ObamaCare also phased out subsidies so that individuals with income above four times the poverty line would not qualify.33 Under ARPA, that threshold was eliminated, and the share of costs higher-income households were expected to pay was also reduced.34

This leads to perverse policy outcomes that subsidize the health care of individuals well above the working class. For example, a family of five living in Arizona with a 60-year-old head of household who earns $150,000 annually now receives nearly $38,000 per year in premium tax credits under ARPA.35 These subsidies will continue until that same household earns more than $500,000 annually.36 Likewise, the average single 60-year-old will continue to qualify for these subsidies until they earn more than ten times the federal poverty line.37

To make matters worse, the Biden administration also deems anyone who receives unemployment benefits at any time in 2021 automatically eligible for these enhanced subsidies, and treats them as if their earnings were near the poverty line, regardless of their actual income.38

Since ObamaCare subsidies are usually distributed on an advanced basis to offset monthly premiums, the recent expansions under ARPA are yet another extension of the welfare state into the lives of millions of Americans.

Other Government Programs

In addition to the Child Tax Credit, food stamps, and ObamaCare subsidies, the COVID-19 pandemic has been used as an excuse to expand government dependency in numerous other areas.

Under ARPA, more childless adults are now temporarily eligible for the Earned Income Tax Credit (EITC)—a program traditionally targeted towards workers with qualifying children.39 States that accepted extra federal Medicaid funds during the pandemic are blocked from raising cost sharing, changing eligibility, or removing anyone from their Medicaid rolls—even if they have become ineligible.40 As a result, millions of Americans are “locked-in” to Medicaid coverage that they no longer qualify for.41

This is especially problematic because Congress forced states to disregard unemployment bonuses for Medicaid eligibility purposes.42 This means that individuals who were collecting upwards of $50,000 per year on unemployment were placed onto Medicaid and cannot be removed unless and until the Biden administration ends the public health emergency.43

This is just a sampling of some of the other government programs that have been expanded since the pandemic began, all of which have enabled the quiet growth of the welfare state that is holding back America’s economy recovery.

Welfare now pays better than work for millions of Americans

These “temporary” expansions and perversions of government programs have infected the American workforce. Today, welfare and welfare-like initiatives simply pay better than work for millions of Americans.

Today, an unemployed parent with two kids who previously worked at a low-income job could collect more than $3,700 per month—nearly $45,000 per year—in government benefits, more than the wages of the average job.44

Before the pandemic, this individual would have been better served to find work as soon as possible. Today, the exact opposite is true, as government benefits pay more than work.

In some states, the situation is even worse. For example, in Arizona, the same individual would collect government benefits that are 75 percent more than a minimum-wage job pays and more than even the average worker earns.45 In West Virginia, that worker would collect benefits worth nearly three times the minimum wage, and worth a shocking 44 percent more than the pay for the typical West Virginian worker.46
While this disincentive to work is occurring, wage growth is at a record high—clearly suggesting that low wages are not the problem, but rather high government benefits.47 At the same time, 10.4 million jobs remain unfilled nationally—including 236,000 open jobs in Arizona and 52,000 open jobs in West Virginia—while Americans stay home from work.484950

Bottom line: Pandemic-enhanced benefits must expire to kickstart the economic recovery

The Bottom Line: Pandemic-enhanced benefits must expire to kickstart the economic recovery
The only way for the American workforce to make a comeback and ensure an economic recovery is for federal policymakers to let these enhanced benefits expire. Specifically, policymakers should: Allow the Child Tax Credit to revert to its already-generous TCJA structure; restore work requirements for able-bodied adults on food stamps; eliminate temporary emergency allotments and reverse the permanent benefit boost in food stamps; allow the enhanced ObamaCare subsidies to sunset; allow the childless EITC changes to revert back to normal; and give states back control of their Medicaid programs.

Only through these common-sense measures—all of which existed prior to COVID-19—can policymakers ignite the economic recovery America needs. And where Congress fails, states must step up. For example, state leaders can opt-out of the federal Medicaid handcuffs to regain control of their Medicaid programs; impose employment and training requirements in the food stamp program to get around the able-bodied adult work requirement suspension; and reject food stamp emergency allotments, among other policy choices. Just as 26 states supercharged their economies by ending expanded unemployment benefits and bonuses early, states have the same opportunity before them to rejuvenate their workforces.

However, until policymakers stop paying people to stay home, America will have more labor shortages, higher inflation, and a growing welfare state with no end in sight.

Now more than ever, policymakers must reject the dependency trap and get Americans back to work.

Appendix 1: Value of Government Benefits and Earnings By State

Government Benefits Compared to Earnings for a Low-Income Single Parent with Two Dependents

Appendix 1: Value of Government Benefits Compared to Minimum and Median Wages By State

Government Benefits Compared to Minimum and Median Wages for a Low-Income Single Parent with Two Dependents