But surely, creating a vast arsenal of means-tested children's programs would reintroduce the harmful incentives we have been trying to eradicate. The best evidence we have suggests that the chief impediment to pushing hard-core welfare recipients into the workforce is that the value of benefits still remains very generous, relative to the economic return from working. The perverse behavioral incentives erected by the welfare state remain much more of an obstacle to work than most analysts acknowledge. Our latest analysis finds that the higher the value of welfare in a state, the lower the declines in welfare caseloads. Fortunately, welfare-reform measures enacted at the federal and state levels have made work more financially rewarding.
Work is the key.
For all its faults, the one income-support program that has the fewest perverse effects is the Earned Income Tax Credit. The EITC provides working families with a livable income, by supplementing wages with a government subsidy. The EITC is designed roughly along the lines of Milton Friedman's negative income tax. Republicans suffered a bout of temporary insanity last year in trying to scale back the EITC to save money. But the ideal welfare reform would dismantle all welfare programs except the EITC, and devote the cost savings to making the EITC somewhat more generous.