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This chapter considers the arguments behind the expansion in welfare-to-work programmes that occurred over the last decade, and reviews the effectiveness of alternative approaches to enhancing labour-market attachment and earnings among the low skilled. It concerns the ‘iron triangle’ of welfare reform — that is the three, often conflicting, goals: raising the living standards of those on low incomes; encouraging work and economic self-sufficiency; and keeping government costs low. Section 2 considers the labour-market trends that stimulated the New Deal and Working Families Tax Credit (WFTC) reforms in the UK. Section 3 considers a number of central design features, focusing on time limits, means testing and implicit tax rates, minimum hours requirements, welfare receipt eligibility, and wage progression. This is done in the context of the design of the New Deal and of the WFTC. Section 4 moves on to evaluate specific aspects of the New Deal and WFTC reforms. Section 5 concludes with an overview of these schemes and their effectiveness, and an assessment of the appropriate design of welfare-to-work and make-work-pay programmes.

Low-wage jobs are a prominent feature of the U.S. economy. To the surprise of many observers, the same can now be said of Germany. Changes in economic pressures, institutions, and policies make it likely that other countries will follow Germany’s lead. But citizens and policy makers should worry far less about low wages for individuals than about low incomes for households. Policy—in particular, an employment-conditional earnings subsidy—can help to ensure that low wages do not result in low incomes.

We review research on the Earned Income Tax Credit (EITC), focusing on work appearing since the Hotz and Scholz (2003) review. Recent work has confirmed earlier findings that labor supply effects are positive for single mothers, smaller and negative for married mothers, and essentially nonexistent for men. Where earlier estimates indicated that all responses were on the extensive margin, some recent studies find evidence of non-zero, but small, intensive margin effects. We also review research on the incidence of the credit, suggesting that employers capture some of the program benefits through lower wages; on the large impact of the program on poverty rates and on children’s outcomes; and on families’ apparent preferences for lump-sum refunds over smaller payments distributed throughout the year. We present new evidence regarding the accuracy of EITC imputations in the Current Population Survey. We discuss proposals for reform, including a more generous childless credit, and argue that the EITC may be complementary to the minimum wage, rather than an alternative.

This chapter examines the distribution and impact of the Hope Learning Credit (HLC) and Lifetime Learning Tax Credit (LLTC) on taxpayers, students, and institutions. By reviewing the literature and analyzing several data sets on tax returns, individual behavior, and institutional activities, the chapter examines three major questions. First, how have the tax credits been distributed by income? Although no program is likely to reach all eligible students, the higher education tax credits provide a new opportunity to test how effective it is to deliver college aid through the tax system. Second, how have the credits affected the college decisions of individuals? Have they prompted individuals to attend college who would not have otherwise? Have the credits encouraged students to choose more expensive colleges? The chapter also looks at how postsecondary institutions responded to the tax credits.

Chapter 7 reviews the most prominent provision of the federal income tax code that targets low-income tax filers, the Earned Income Tax Credit (EITC), as well as the structurally similar Child Tax Credit (CTC). The chapter is framed around what it sees as the programs’ goals: distributional, promoting work, and limiting administrative and compliance costs. It reviews what is known about program impacts and distributional consequences under current law, drawing on simulations from the Tax Policy Center. It concludes that the EITC is quite successful in meeting its three goals. In contrast, most of the benefits of the CTC go to higher-income households. In addition to analyzing current law, the chapter assesses possible reforms that would reach groups—for the EITC, those without children; for the CTC, those with very low earnings—who are largely missed under current policy.

In Chapter One, author Paul Spicker interrogates the government's introduction of Universal Credit, a controversial scheme designed to unify various means-tested benefits for people of working age. The scheme brings together six existing benefits: income-related Jobseeker's Allowance and Employment and Support Allowance, Working Tax Credit and Child Tax Credit, Housing Benefit and Income Support. Spicker argues that analysts of Universal Credit must drill down to the detail of the scheme and the benefits that it covers. He sees defects in ‘the concept and design’ of the Universal Credit agenda, as there were in previous grand schemes in social policy history. He also sees potential for the benefit system to break down if it cannot prove to be practically viable. Governments, Spicker contends, cannot easily meet the multiple objectives that must be typically met in ‘simple’ and ‘unified’ benefit programmes.

Welfare policy toward low-income families in the United Kingdom experienced a significant shift toward “in-work” benefits in the late 1980s and 1990s. Although a work requirement for some forms of benefit receipt has existed in the United Kingdom since the late 1970s, the shift in policy began in earnest with the introduction of the Family Credit (FC) in 1988—a minimum-working-hours-based credit for families with children. After a number of reforms during the early 1990s, FC was replaced by the Working Families Tax Credit (WFTC) in 1999. This chapter focuses on the impact of “in-work” benefit reform on the British labor market. It first describes the underlying labor market trends and then considers the reforms in the United Kingdom and their impact on work incentives. It also draws a direct comparison with the impact of the Earned Income Tax Credit (EITC) reforms in the United States. The chapter concludes by evaluating the recent WFTC reform in the United Kingdom.

Chapter 5 examines how in the UK the Blair government’s promise to end child poverty translated into the introduction of the Working Families Tax Credit in 1998, which was subsequently split into the Working Tax Credit and the Child Tax Credit in 2001. The UK follows the Canadian case in terms of tracing the dominant logic of income supplementation to the cultural legacy of family allowances and ends up with the same combination of refundable tax credits. When the Labour government reached the limits of income-testing, the Treasury quietly turned to fiscalization as the solution to expand benefits in the face of pressures for austerity. The Family Income Supplement was simply converted into the Working Families Tax Credit. While its predecessor had been classified as spending, the Working Families Tax Credit was classified as revenues not collected. The limits of fiscalization were soon tested, as the Office of National Statistics called the government’s reclassification into question.

This chapter discusses the past and current state of the debate on the Citizen's Basic Income. It begins with the Poor Law of 1601 to the era of means-tested benefits. In particular, it cites William Beveridge's 1942 report which proposed a comprehensive system of National Insurance Benefits and centrally administered National Assistance. It then traces the origins of universal benefits in the UK, from Family Allowance to Child Benefit, and considers other failed proposals to reform the tax and benefits systems, including Tax Credits and attempts at a Citizen's Basic Income. It also explains why proposals such as ‘Universal Credit’ were and have been implemented, but not the proposal for a Citizen's Basic Income. Finally, it describes the National Health Service's (NHS) provision of universal, unconditional and nonwithdrawable healthcare and the global debate over the Citizen's Basic Income, and especially with respect to its feasibility and implementation.

One of the questions raised by the competition state thesis is what the consequences are for citizens of governments who are shifting social policies closer towards the needs of employers and the wider economy. Phyllis Jeroslow's chapter deals with related questions in examining the impact of in-work tax credits on poverty in the US. Jeroslow focuses specifically on the Earned Income Tax Credit (EITC) in the US, but many of the lessons she highlights could apply anywhere. She illustrates the failings of the EITC as an anti-poverty strategy, indicating that, as a policy, its benefits are just as valuable to employers as they are to the poor. Indeed, the EITC appears just as likely to lock the poor into low-wage jobs and long-term poverty as it is to alleviate poverty, a fact brought home to the reader by Jeroslow's reminder of the 35-year pedigree of such policies in the US.

The thirteen years of Labour government between 1997 and 2010 may come to be seen by future historians as the zenith of the British transfer state, when—in contrast to other western countries—the increase in fiscal redistribution which took place during the 1980s and early 1990s was sustained and deepened. Inspired by the Earned Income Tax Credit in the United States, Gordon Brown created a complex system of income-related tax credits, which formed a central part of New Labour’s strategy for ‘making work pay’ and eliminating child poverty. For the first time, the Treasury came to see itself as a social welfare agency, using tax credits and other instruments to achieve explicit distributional objectives. This chapter provides a detailed account of the development of tax credits, and shows how administrative difficulties and tensions between rhetoric and reality hampered Brown’s efforts to build public support for the system.

This chapter considers some of the issues surrounding the effectiveness of in-work benefit reforms, which are designed to reduce poverty and promote employment among low-income families. It argues that careful design of these programs can significantly increase family incomes while providing reasonable incentives for parents to work. It appears that any offsetting negative effects on hours worked by those already in employment are not strong enough to counter this overall positive increase in labour supplied. However, since these programs are generally based on family income, there is evidence of a negative offsetting effect on the labour supply of married women in households with young children. For the Working Families Tax Credit (WFTC) in the UK, the overall impact on employment is expected to be modest, although, focusing on workerless households alone, the impact is likely to be more substantial.

This chapter examines ways to improve economic well-being and tax policies targeted to working families, particularly the Earned Income Tax Credit (EITC) and child care tax policies. The EITC is successful at lifting families out of poverty but is less effective at enabling the near-poor to move forward. The phasing out of credits reduces the income gains to these families when their income grows, especially if near-poor families are gaining benefits from other means-tested programs such as public housing and food stamps. The chapter also illustrates how child care tax policies are particularly important for near-poor families who have incomes too high to receive substantial subsidies from government-funded programs, in addition to exploring ways to improve the coordination between federal and state programs to further aid them.

This chapter examines the contemporary history of the policy debate between integration and community development. The chapter describes how the debate has been expanded to new policy arenas, including the implementation of urban sustainability and transportation policy, and how it is affected by recent demographic changes in American metropolitan areas. Recent advocacy efforts to bend the Low Income Housing Tax Credit program, the largest program of subsidized housing production in the country, to the goals of integration are described. The chapter assesses the current state of the debate in light of the 2015 Supreme Court decision in ICP v. Texas Department of Housing and Community Affairs and the fair housing initiatives of the Obama Administration.

This chapter addresses policies directed towards low labour market attachment and low wages among certain groups of parents with children. It aims to evaluate the impact and the optimality of Earned Income Tax Credit policies specifically for lone parents. These policies have been at the centre of welfare-to-work reforms in the UK, US, and increasingly in continental Europe. They are in the class of ‘make work pay’ reforms that highlight a ‘work condition’ in welfare policy, aimed at balancing poverty reduction in families with children and employment incentives. Using estimates of structural models of labour supply responses at the extensive and intensive margin, and a comparison between UK and US reforms, the chapter poses the question, ‘can the existing tax credit systems we observe be considered optimal for reasonable social welfare weights?’

examine whether some of the place-based investment strategies, like the Community Reinvestment Act and the Low Income Housing Tax Credit—which have unlocked billions of dollars in private capital for real estate, affordable housing and enterprise development—lend themselves to more people-centric services. We look at innovations in financial inclusion and asset building, approaches intended to create wealth for the poor, often by simply connecting them to resources they are already eligible for, like the Earned Income Tax Credit. We also investigate the U.S. experience with social impact bonds (SIBs), pay-for-success contracts between local government, nonprofit service providers, and private investors whose capital underwrites preventive services. The idea is that if the interventions succeed, the investors will be repaid out of the social savings. The SIB industry is still new in the US and the track record is mixed. However, the larger lessons about good governance, evidence-based policy-making, and blended capital are relevant for innovative finance in U.S. communities for a growing set of capital investments that fuse the place and people lenses. Like development projects that link affordable housing with community health centers. In this paradigm, mobility is critical to economic opportunity, and investments in physical and social infrastructure are mutually reinforcing.

This chapter presents a case study that analyses government policies to provide information on social security benefits that are designed to supplement low wages. This is either for those who are already in work, or that act as an incentive for the unemployed to take up employment. It presents a chronological study of the ‘modern’ benefits, namely Family Income Supplement (FIS), Family Credit (FC), and Working Families Tax Credit (WFTC). It concludes that the information policies for unemployed people and low wage earners were generally research based and clear in their objectives.

Chapter 6 looks at how the National Commission on Children brought attention to the problem of child poverty in the US, leading to the expansion of the Earned Income Tax Credit in 1993 and the introduction of the nonrefundable Child Tax Credit in 1997. In contrast to the cases of Canada and the UK, the growth of these tax credits, tracing their legacy to the dependent exemption in the tax system, was premised on the logic of tax relief rather than the logic of income supplementation. Originally, the National Commission on Children released recommendations for a fully refundable Child Tax Credit as the best way to tackle child poverty. This served as a successful springboard in Canada and the UK. This was not the case in the US, where the logic of tax relief remained dominant. Initial attempts to introduce a fully refundable Child Tax Credit quickly failed. Policymakers and the public deemed poor children undeserving of tax credits because their parents were not technically taxpayers.

This chapter analyses the impact of the Working Families Tax Credit (WFTC) on working hours and employment. In 1998, the UK Chancellor, Gordon Brown introduced the Working Families Tax Credit (WFTC) as a replacement for Family Credit (FC), the UK’s main in-work benefit. The structure of WFTC was modelled closely on the FC system, with the exception that WFTC was to be packaged as a refundable tax credit rather than as a welfare benefit. The government claimed that WFTC ‘would improve work incentives, encouraging people without work to seek employment.’ This was to be achieved by boosting the in-work incomes available to families in low-wage jobs with children. The WFTC effectively targets two groups: single parents and married couples with children. The chapter simulates labour supply responses using a discrete behavioural model of household labour supply with controls for fixed and childcare costs, and unobserved heterogeneity.

This chapter examines the government policy on poverty and unemployment during the administration of George W. Bush. It shows that private markets and a policy that favored the affluent were ineffective in alleviating poverty. The chapter begins by discussing the Bush administration's response to the economic recession that began in March 2001, especially in dealing with unemployment. After assessing the impact of Bush's policies on poverty, it proposes reforms that would address poverty in the United States by drawing on the experience of Western European nations. These reforms range from stimulating job creation and increasing the federal minimum wage to providing more support to the unemployed, strengthening Social Security, and expanding the Earned Income Tax Credit.