Photo: Getty Images/Brendan Smialowski
Reform Conservatives Just Proposed a Smart Anti-Poverty Plan. Will Paul Ryan Embrace It?
Economics

Reform Conservatives Just Proposed a Smart Anti-Poverty Plan. Will Paul Ryan Embrace It?

By Photo: Getty Images/Brendan Smialowski

A group of conservative reformers on Thursday unveiled a new, 121-page conservative agenda, titled “Room to Grow,” with 10 proposals for improving the federal government. The chapter on the social safety net, written by Manhattan Institute senior fellow Scott Winship, includes a promising idea that Paul Ryan could incorporate into his forthcoming antipoverty agenda, but there's a catch: It would require the government to spend more money.

Ryan has been tight-lipped about the reforms in his plan, but Winship, whom Ryan has consulted with extensively, may have just provided a hint. “In the House, Congressman Paul Ryan, who chairs the Budget Committee, has spoken favorably of the United Kingdom's 'universal credit,'" Winship writes. "Under this approach, various means-tested programs would again be consolidated, and benefits would be distributed to families as a single amount rather than through separate programs with their own application procedures.”

Ryan praised the credit in a January article in the Wall Street Journal, noting that although “it’s going through a rough patch” in Britain, “the basic concept is sound.” Ryan has yet to say when he will release his new antipoverty agenda, but given Winship’s proximity to Ryan, there is a chance that his new agenda will include some kind of universal credit.

While the right often overstates the inefficiencies in government, a universal credit, if structured properly, would make the U.S.’s social safety net more effective. A growing body of research finds that the best way to help low-income people is to give them money. They know how they can use it best to improve their living standards. For instance, at times, the poor trade their food stamps at a discount for cash, in order to eliminate the arbitrary limitations imposed by the government. A straight cash transfer, such as a universal credit, would eliminate the need for these transactions and deploy the government’s resources more effectively.

These credits come in various forms. Switzerland, for instance, will hold a referendum later this year on a guaranteed basic income: the Swiss government would send each Swiss citizen an equal check each month, no strings attached. But based on his Journal op-ed, Ryan wants to retain the work requirement of the Earned Income Tax Credit. “[T]he payment isn't a giveaway,” Ryan wrote approvingly of the British universal credit. “Every recipient, except the disabled, must either have a job or be actively looking for one.”

Conservatives heralded welfare reform in the late 1990s as an example for future efforts to fight poverty. In particular, they want to tie more safety-net programs, like food stamps, to work requirements. If Ryan proposes doing so with a universal credit, he will also have to create a separate program for those unable to work. This isn’t lost on Winship: “It will also be important to ensure that a safety net of some sort remains available to those who confront barriers to work and in times of weak demand.”

As Winship suggests, work requirements exacerbate pain during recessions. For instance, when a low-income worker loses their job, they also lose their EITC benefits. When the economy is at full employment, that newly unemployed worker is generally able to find new employment quickly. But during recessions, millions of people will be out of work for long periods at a time. Six years after the Great Recession, there are still 3.5 million long-term unemployed people. If the entire social safety net were structured with work requirements, those unlucky Americans wouldn't collect benefits. A January paper from the National Bureau of Economic Research found that for single mothers with children, the largest recipients of the Earned Income Tax Credit, "There is no evidence that the EITC stabilizes income for this group.” If Ryan proposes adding a work-requirement to a universal credit, he will need to ensure that those who lose their job during recessions receive support as well.

There are practical concerns with a universal credit. According to a 2012 Congressional Research Service report, the federal government spent more than $700 billion on means-tested programs in 2011. That number will increase this year with the advent of the Medicaid expansion and Obamacare subsidies. Conservatives like Milton Friedman support consolidating those programs, eliminating bureaucracy and leaving government only the tasks of determining eligibility and mailing checks. (Friedman called it a negative income tax.) It’s easy to talk about combining a host of federal programs, but harder to do in practice. Medicaid makes up nearly 40 percent of welfare spending. Another 15 percent goes to housing and education programs that benefit a limited number of people. Turning those into cash grants would make it much harder, if not impossible, for low-income Americans to afford health care, housing or college. Ryan could leave those programs in place while combining the remaining federal programs to provide a smaller universal credit.

But the biggest hurdle for a universal credit is funding: To fill the holes in the safety net, the government will have to spend more money. There is no way around this. Winship notes this as a possibility his chapter, writing, “Welfare reform along these lines might end up costing rather than saving money in the short- to medium-run.” (Winship adds on Twitter that he can see the reforms not increasing the deficit.) 

Congressional Republicans have shown no willingness to increase spending on antipoverty programs, even if such spending is offset by eliminating tax expenditures and thus not increasing the size of government. Quite the opposite, the Ryan budget would require $3.3 trillion in cuts from low-income programs, including $135 billion from food stamps over the next decade. It’s almost impossible to integrate the cuts in the Ryan budget with an adequately funded universal credit. That returns to the ultimate challenge for reform conservatives: convincing the Republican Party to increase federal spending on antipoverty programs.

Updated with Scott Winship's response on Twitter.

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