The encyclopedia · Strategy & Leadership · Strategic decision · 1975
Long built a benefit that grew as you earned more, the opposite of every welfare check.
Senator Russell Long replaced welfare's shrinking benefit with the Earned Income Tax Credit, which grew with earnings to reward work.
US Congress (Senator Russell Long)
the move
By the early 1970s, Aid to Families with Dependent Children (AFDC) enrollment had nearly tripled, from 3.1 million recipients in 1960 to 9 million by 1970, and traditional cash welfare carried a structural flaw: benefits were reduced as a recipient's earned income rose, so a poor parent taking a low-wage job could see take-home resources barely change, or even fall, once the lost benefit was netted against the new wage — a disincentive to work that critics called the welfare trap.
President Nixon's proposed Family Assistance Plan, a guaranteed-income scheme, would have given its largest benefits to people with no earnings at all. Senator Russell Long, chairman of the Senate Finance Committee, opposed it on exactly that ground, arguing it would discourage work, and proposed an alternative "work bonus" plan instead — passed by the Senate in 1972, 1973, and 1974 before the House finally passed it in 1975 as part of the Tax Reduction Act.
why it works
- Traditional welfare reduced benefits as income rose, creating an implicit tax on work.
- The EITC's phase-in structure made each additional dollar earned increase the credit, rewarding work.
- This flipped the incentive from punishing work to encouraging it, boosting labor force participation.
what transfers
When designing incentives, ensure the reward increases with the desired behavior, not decreases, to avoid penalizing progress.
what came after
The 1986 EITC expansion raised single mothers' labor-force participation by 2.8 percentage points off a 74.2% base. The EITC grew from a one-year temporary measure into one of the largest anti-poverty programs in the US tax code, expanded repeatedly through the 1990s and 2000s, and its earnings-based design became a template economists and policymakers cite when arguing for work-incentivized benefit structures over traditional means-tested welfare.
references
- The Earned Income Tax Credit (EITC): A Brief Legislative History
- Lessons from the EITC and Labor Supply
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