Since 1975, politicians have built huge portions of the American safety net — like the child tax credit (CTC) — around the idea that excluding the poorest Americans from government assistance will motivate them to climb out of deep poverty on their own and get a job.
This long-standing bipartisan consensus is manifest in the twin ideas of work and income requirements. Work requirements are simple: You either have a job or you don’t, and that binary is what determines whether you’re eligible for a handful of welfare programs.
Income requirements are a little wonkier. They stipulate that anyone without any income will receive no benefits. Only after earned income surpasses a specified level do benefits begin kicking in — which is where we get another dry name: “phase-ins.”
In practice, benefitting from programs with income requirements is conditional on already having a job. If you’re unemployed and have no other income, you’re out of luck. In the CTC, phase-ins exclude some 19 million children whose parents don’t have enough income to meet the requirement for receiving the full benefit, while the US retains some of the highest child poverty and mortality rates among peer countries.
The consensus excluding the poorest Americans from some forms of government assistance through phase-ins held until President Joe Biden’s 2021 American Rescue Plan. Its anti-poverty centerpiece was to cut phase-ins from the existing CTC and crank up the payment, creating what’s known as the expanded CTC.
The results were historic. Over the course of 2021, child poverty was cut nearly in half, and the long-running fear at the heart of the American welfare system — that unconditional aid would discourage work — never came to pass.
Then, to the dismay of advocates and recipients alike, Sen. Joe Manchin (D-WV) blocked the Democratic Party’s effort to make the expansion permanent, fearing, among other familiar concerns like the cost, that recipients would just buy drugs (the data shows that recipients spent the money on food, clothes, utilities, rent, and education). Come 2022, phase-ins returned to the CTC, approximately 3.7 million children were immediately thrust back into poverty in January, and the rest of the year saw the sharpest rise in the history of recorded child poverty rates.
Phase-ins have long had critics across the political aisle, but their arguments have generally been grounded in small-scale pilot experiments, appeals to morality, or even philosophizing about human nature. Now that we have real-world evidence from a nationwide, year-long experiment, the expanded CTC’s success should ignite efforts to roll back phase-ins across the board. That also means cutting them from the CTC’s sister program, the earned income tax credit (EITC), which phases in as a supplement to wages for low-income Americans and helps about 31 million Americans.
The expanded CTC is estimated to have reduced child poverty rates anywhere from 29 percent to 43 percent, with the vast majority of that drop attributable to removing phase-ins. Extending that success to include the EITC would cut child poverty by an estimated 64 percent.
Child poverty rates in the US rarely budge more than 1 or 2 percent per year, making any of these approaches a pretty big deal. And even so, they still fall well short of eliminating child poverty outright, which should be the policy objective. Poverty, as the Atlantic’s Derek Thompson wrote in 2018, is a “slow-motion trauma” presently being inflicted on 9 million American children. But cutting phase-ins across both programs would establish a powerful channel for dialing down an avoidable source of trauma, should this new evidence shift the political winds.
“I’ve been grappling with the long arc of the work,” said Aisha Nyandoro, creator of America’s longest-running guaranteed income program, the Magnolia Mother’s Trust. “The time that it actually takes to shift narratives and perspectives. How do you couple that with the immediate urgency for change, when you know individuals are the ones suffering? How do you hold the urgency of now, while also pushing for the long arc of the work?”
We could start by eliminating phase-ins for good.
A brief history of phase-ins
Through the 1960s and early ’70s, just about everyone agreed that the welfare system wasn’t working as it should. The number of recipients tripled within a decade as racial segregation began to ease, stoking a racist backlash against welfare dollars that could, opponents argued, deter Black mothers from the kind of labor — maids, nannies, agricultural work — that was expected of them.
At the same time, left-wing organizers — particularly from the “welfare rights movement” — thought too many people were still left out. They sought to expand eligibility by flooding the system with new recipients until deep reform was necessary. Though that appetite for reform was widely shared, the vision for what would come next forked sharply in two different directions.
Critics like Sen. Russell Long, a Democrat from Louisiana and chairman of the Senate Finance Committee, feared that giving full benefits to people without a job or other income would reward idleness instead of work. Instead, he proposed a “work bonus” plan that passed as the EITC in 1975, the first program to exclude the poorest Americans from government assistance by phasing in benefits alongside earned income. In other words, phase-ins were born.
Since their inception, the purpose of phase-ins was never to directly reduce poverty. Instead, as a 1975 Finance Committee report stated, their “most significant objective” was “encouraging people to obtain employment, reducing the unemployment rate and reducing the welfare rolls.”
The following year, Ronald Reagan’s presidential campaign swept this anti-welfare logic into the political mainstream. Through campaign rhetoric that focused on now-debunked ideas like “welfare queens” and baseless claims of widespread welfare fraud, he burned the fear of welfare dependency into the national consciousness.
Despite the lack of evidence of fraud, the sentiment took root, to the point that Democratic President Bill Clinton enacted welfare reforms in 1996 that sought to “end welfare as we know it” by introducing a series of work requirements to receive benefits. The American safety net, in other words, had been remade around the logic of phase-ins.
So how do phase-ins work, exactly? Phase-ins adjust benefit levels based on income, which is determined through tax filing. Accordingly, the benefits are disbursed as an annual tax credit (with the exception of a portion of the expanded CTC benefit).
While work requirements apply to government programs like SNAP and Medicaid, phase-ins apply to tax credits like the CTC and EITC, which together comprised over $160 billion in federal anti-poverty spending in 2020.
If you’re a visual person, think of phase-ins as the left-hand slope of a trapezoid. (“Trapezoidal programs” are what policy wonks call programs that both phase in as income rises and phase out as income surpasses an upper threshold.) For example, here’s the trapezoid for a household with one child receiving the federal EITC:
At zero dollars of income, there are zero dollars in benefits. Then, as earned income rises, benefits phase in on an upward slope, until reaching a maximum amount. Then, after a plateau, the benefits begin phasing out to avoid giving money to people who don’t need it.
Getting rid of phase-ins would mean starting the maximum benefit right at zero dollars of earned income. Since the expiration of the federal expanded CTC, 11 states have passed smaller versions of the program without phase-ins, like Vermont:
See the difference? If you’re a parent making $0 in income in Vermont, you get the full state CTC ($1,000 per child under 6) — as opposed to the $0 you would get from the phased-in federal CTC.
By design, phase-ins are very good at reducing the welfare rolls by excluding millions in deep poverty from receiving benefits. The logic of phase-ins assumes that kicking someone off welfare will lead them back to work. That isn’t always the case, nor should it be. The majority of non-workers who benefit from welfare are “people who cannot or should not be working,” writes Matt Bruenig, founder of the People’s Policy Project think tank. They include children, students, caregivers, the elderly, and those with disabilities, who together made up roughly 86 percent of non-workers in 2017. Forcing these groups into the labor market often looks like a policy failure, not success.
Even if we grant, for the sake of argument, that using phase-ins to incentivize work is a good idea, the evidence that it actually raises employment is shaky, and growing more so. The strongest argument in favor rested on a rise in employment following the 1993 EITC expansion. But a recent paper by Princeton economist Henrik Kleven argues that, actually, the EITC isn’t what increased employment at all.
“The evidence [supporting phase-ins] is really based on this one expansion of the EITC that coincided with a very hot economy, welfare reform, skyrocketing incarceration rates, and changing cultural attitudes about women’s work,” said Jack Landry, a research associate at the Jain Family Institute (JFI), a nonpartisan applied research organization that focuses on guaranteed income. “There isn’t another piece of evidence to go to for this.”
The matter remains unsettled among economists, who are still trading blows, trying to hone in on exactly how many — if any — single mothers the EITC might’ve pushed into work in 1993. This debate occurs against the backdrop of the literature on unconditional transfers at large, which finds no significant employment effects.
What is not contested is the huge anti-poverty effect of dropping phase-ins, at least in the short term. Maybe an extra $300 per month empowers a few mothers on the margin to work an hour or two less per week, and maybe 10 years down the line, we’d see behavioral responses that don’t show up in the program’s first year — is that “risk” worth rejecting a policy design that can cut child poverty by up to 64 percent today?
Dropping phase-ins was almost solely responsible for the expanded CTC’s dramatic success
When Congress passed the expanded CTC in 2021, it made a number of tweaks in addition to dropping phase-ins, like including 17-year-olds and making half of the benefit available as monthly payments. And it made one other big change: raising the max annual benefit from $2,000 per child to between $3,000 and $3,600, depending on the child’s age.
You might suspect that increasing the payment by at least 50 percent played a significant role in the extra poverty reduction. But as it turns out, it didn’t. Independent reports from both JFI and the Center on Budget and Policy Priorities (CBPP) have found that the boosted impact of the expanded CTC was almost entirely driven by the absence of phase-ins.
The CBPP report estimated that if the temporary expansion were made permanent, it would lift 4.1 million children above the poverty line in one go. Of those 4.1 million, raising the payment level would account for 543,000 children; the remaining 3.6 million children lifted from poverty would come thanks to the absence of phase-ins.
JFI’s report goes into more detail about the relative contributions of each possible tweak to the CTC. It compares not only the anti-poverty implications of eliminating phase-ins and raising benefit levels relative to the original CTC, but also the costs of each.
The JFI report found that if you were to keep the bigger check and bring back the phase-ins, child poverty would only drop by 7 percent, and deep child poverty by just 2 percent — all for an extra cost of $45 billion per year.
If you flip it, though — if you get rid of the phase-ins but let the max benefit drop back to $2,000 — you still get a 19 percent drop in overall child poverty and a 32 percent drop in deep child poverty, all for a comparatively modest $17 billion.
In other words, cutting phase-ins is more than twice as effective at reducing poverty compared to increasing the benefit amount, and costs less than half as much.
Another 2021 JFI report estimated that if you were to keep the benefit at $3,600 but let the phase-ins return, child poverty would increase by 53 percent, driven by all the recipients who would no longer be eligible because they don’t earn enough to qualify. When the Census Bureau released its poverty statistics for 2022, the first full year without the expanded CTC, the JFI estimate looked, if anything, modest. After policymakers let the expanded CTC expire, bringing back phase-ins and lowering the max payment, child poverty rose by 139 percent, the sharpest increase ever recorded.
Landry, a co-author on both JFI reports, explained that cutting phase-ins is so much more effective because the poverty rate is held down by precisely those who phase-ins exclude.
“And it’s not just about parents who aren’t in the workforce. It’s also about parents who have some earnings, but don’t have enough earnings to qualify for that full CTC,” he said. “Increasing the benefit amount doesn’t help them because they’re still on the phase-in.”
So why do some analysts still argue for phase-ins?
In late 2021, when the extended CTC was up for renewal, 448 economists signed an open letter supporting the program. But a small, vocal group of experts is still concerned that an expanded CTC and similar programs could discourage work, a narrative that continues to have significant influence in Washington.
A few weeks before the expanded CTC was set to expire, amid calls to make the program permanent, Scott Winship, director of poverty studies at the American Enterprise Institute, made the case against removing phase-ins in the New York Times. The crux: that short-term benefits would be overshadowed by long-term consequences. “Giving the same amount to parents regardless of whether they work will cause some parents to stop working,” Winship argued, resulting in a long-term drop in employment that would ultimately counteract the short-term poverty reduction.
Winship was unsurprised that his fears of parents choosing to work less didn’t show up during the expanded CTC. It only lasted for one year and was recognized all the while as a temporary program. “These kinds of behavioral effects take time to set in,” he writes. In the long-term, after a decade or a generation of the program being in place, that’s when he would expect to see, as Oren Cass, executive director of the conservative think-tank American Compass, put it, “communities in which labor-force dropout is widespread and widely accepted.”
Advocates tend to neglect this point: Some behavioral changes that might not show up in response to a temporary program would arise in response to a permanent one. An extra $300 a month for one year may be nothing to quit your job over, but over a decade, or a generation, we might see hidden effects arise. This is part of the challenge guaranteed income pilots currently face: There is a limit to what small-scale, finite experiments can tell us about a permanent national policy.
Long-term speculation, however, can go both ways. The generational impacts of unconditional transfers could just as well lead to long-term investments in education and skills training, support entrepreneurship, and actually raise productivity and economic activity in the long run, all of which would boost, instead of wipe out, poverty reduction.
In 2018, researchers from Washington University in St. Louis estimated that childhood poverty costs the US $1.03 trillion per year, or 5.4 percent of the GDP. They found that every dollar spent on reducing child poverty would save the public 7 dollars from the economic costs of poverty.
Results from basic income pilots across the US also stand in contrast to Winship’s concern. “Our moms get the guaranteed income and not only do they continue to work, they level up their work,” Nyandoro, who runs the nation’s longest-running guaranteed income program, told me. “They’re able to move from jobs to careers. They’re able to go back to school. They’re able to get out of debt.”
The most recent evidence in favor of phase-ins Winship cites is a 2021 paper by a group of economists from the University of Chicago, led by Kevin Corinth and Bruce Meyer. It predicted that making the CTC expansion permanent would spark a 1.5-million-person exodus from the labor force. As analysts were quick to point out, however, the paper is based on a model that already assumes unconditional cash reduces work. Predicting work disincentives using a model that already assumes them tells us nothing about whether the assumption itself is tethered to reality.
Corinth and Meyer have since responded to criticism of their work disincentive assumptions, arguing that they fall well within the range used in other studies. These academic debates will continue, but in the meantime, where should the burden of proof lie?
Eliminating phase-ins from the CTC was a massive anti-poverty success and had no short-term negative employment effects. Recipients spent the extra few hundred bucks on necessities, from food and clothing to shelter and utilities. Even small businesses voiced their support on the grounds that it would boost spending and entrepreneurship.
On the other hand, a minority of skeptics retain speculative concerns that a few generations down the line, newfound consequences might overshadow these benefits.
According to Halah Ahmad, JFI’s former lead researcher for policy, these policy debates won’t resolve on the basis of evidence alone. “That’s something that a lot of research organizations are engaging with now,” Ahmad told me, “this question of how much further we can get with evidence, when we know that narrative eats evidence for lunch.”
She also raised the idea of policy feedback loops, where the assumptions baked into existing government programs shape our expectations, like self-fulfilling prophecies. Phase-ins convey that only parents with jobs deserve to receive the benefit for their children. “But in Europe, where [unconditional] child allowances have been around for a lot longer,” she said, “there’s a different assumption. Why would you put children in a worse-off position because of the labor market outcomes of their parents?”
The CTC worked better without phase-ins; the EITC would too
The expanded CTC’s failure to generate sufficient political momentum has left advocates wondering what’s next. “There was this incomparable policy moment when you had this abundance of evidence but somehow no political will,” Ahmad said.
One option is to go bigger. Policy feedback theory suggests that the more people who benefit from a government program, the larger the base of support it generates. Eliminating phase-ins from the CTC expanded the base of recipients, but evidently not enough to build sufficient political support. So why stop there? Every social policy that uses a phase-in is an opportunity to lift more Americans from poverty by removing it. Which brings us back to the EITC, the low-income wage supplement, where phase-ins began, and where their elimination could do a lot of good.
“Many Democrats spoke eloquently about the injustices of phasing in the CTC, but then decided to go ahead and continue phasing in the EITC, despite the fact that EITC and CTC are basically the exact same benefit,” wrote Bruenig, founder of the People’s Policy Project.
In April, Rep. Rashida Tlaib (D-MI) reintroduced a bill that extends the success of the expanded CTC to the EITC: the End Child Poverty Act (ECPA), which replaces the entire CTC and the child provisions of the EITC with a universal child benefit of $393 per month. No phase-ins. People’s Policy Project estimates that ECPA would cut child poverty by 64 percent and deep child poverty by 70 percent if signed into law.
That would leave the non-child provisions of the EITC (a modest $600 or so per year, at maximum) in place, and still subject to phase-ins. But something interesting happens if you remove phase-ins from the whole EITC: It becomes a guaranteed income. Then, you could adjust the payout to set the income floor across the entire economy, with the universal child benefit layered on top for the extra expenses of having children.
Unconditional anti-poverty policies would mark a significant shift from the safety net of the past few decades. But the year-long experiment with eliminating phase-ins was the largest signal yet that they work, at least in the short term. And in the long term, tenuous concerns over what might happen generations down the line do not justify leaving millions of children in avoidable poverty today.