Welfare Reform

Premise: Most poverty is caused by avoidable behavior

Taking three steps — (1) getting at least a high school degree, (2) working full-time in your 20s, and (3) marrying before having children — will give young adults an unparalleled shot at realizing the American Dream. Research indicates that the vast majority (86%) of young adults who take these three steps reach the middle class or higher in their 30s and that 97% avoid poverty at this stage in life.

Problems: (1) low-income kids get trapped in schools that do not meet their needs and have no alternative educational opportunities; (2) our tax and welfare programs discourage work; and (3) our tax and welfare programs discourage marriage with a “marriage tax.”

Solution 1: Reform public programs that encourage dysfunctional behavior

Enact school choice to increase the odds of getting the right student into the right school and staying in school.

Remove penalties for working in current welfare programs. 

Remove penalties for marriage in current welfare programs

Solution 2:  Convert cash entitlements into programs that encourage work and marriage

To strengthen the financial foundations of working families, Congress should pass legislation advancing a permanent, generous family benefit that reinforces work and marriage, loosely modeled on the Family Security Act (2.0), from Senators Mitt Romney and Steve Daines. Under that proposal, families with at least $10,000 in earned income in the last year would receive $4,200 per child per year for children aged zero to five and $3,000 per child for those aged six to 17, paid in monthly installments of $350 and $250, respectively. Families whose income fell below the $10,000 threshold would receive a fraction of the benefit commensurate with their earned income. Such a policy could further support family formation by adding a 20% supplement to the credit per child for married households.

Important: recipients only get this tax credit if they work and have labor income.

Financing option 1: The cost to the federal govenrmtn of enacting these changes should be funded by raising across-the-board rates, if necessary, in the current income tax – which is already the most progressive tax structure in the developed world.

Financing option 2: Since economic growth is the most effective anti-poverty program the world has ever seen , ideal taxation is taxation that does not reduce saving and investment. Replace the income tax with a progressive consumption tax so that people are taxed on what they take out of the system rather than on what they put into the system. A national sales tax, a value added tax and a flat tax are three forms of consumption taxation.