If there was something liberals used to hate most about welfare reform, it was policies that promoted more work and smaller welfare caseloads. For example, during debate about 1996 reforms, Sen. Carol Moseley-Braun (D-IL) asked what would happen to families if they didn’t meet proposed work requirements: “Do we put them on trains and send them out West?” Sen. Ted Kennedy (D-MA) said those reforms “can only encourage a race to the bottom, in which states compete to have the harshest climate for low income families.” That history makes it all the more ironic that during recent welfare debates liberals defended states’ success in shrinking welfare caseloads. 

Instead of Sen. Kennedy’s “harshest climate,” the 1996 law resulted in record increases in work among low-income parents—and steep declines in Temporary Assistance for Needy Families (TANF) caseloads, depicted below.

Rebecca Blank, then Dean of the University of Michigan School of Public Policy, in 2001 noted that the changes in work and welfare caseloads in the wake of the 1996 law were “amazingly large.” Specifically, “Public assistance caseloads have declined by half since their peak in 1994. . . . Labor market participation among single mothers with young children—the group historically most likely to rely on welfare—soared during this time period.” Blank and other reviewers typically divided credit for improvements between welfare reform, expansions in the Earned Income Tax Credit, and the strong US economy. 

Rapidly plunging caseloads following the 1996 reforms spotlighted a little-noticed provision called the “caseload reduction credit,” which gives states credit for net caseload declines when calculating the share of current TANF recipients required to participate in work or other activities. The original 1996 policy meant that “the required participation rate is adjusted down one percentage point for each percentage point that the state’s welfare caseload is below fiscal year 1995 levels.” In effect, the caseload reduction credit rewards states just as much for helping families leave or stay off welfare (typically due to work) as for engaging families on welfare in work and other activities.

The TANF program’s main 50 percent work participation requirement, coupled with the more than 50 percent national caseload decline following the 1996 reforms, meant that within a few years the average state had effectively no work requirement. So lawmakers included a simple update to the caseload reduction credit in the 2006 Deficit Reduction Act that reauthorized TANF. Instead of giving states credit for the huge past caseload declines since 1995, going forward states’ current caseloads would be compared with their level in 2005, ensuring they get credit only for future declines.

This change effectively rebooted the original 1996 policy. As the figure above shows, welfare caseloads continued to drift downward, falling by another 55 percent between 2005 and 2021. Meanwhile, Congress failed to update the TANF program. As a result, by 2022, 30 states again had effectively no work participation requirement, as their caseload declines since 2005 exceeded 50 percent.

House Republicans’ 2023 debt limit bill proposed updating the baseline year for the caseload reduction credit to 2022, fully rebooting the policy once again—and thus expecting significantly more work or more caseload declines in the future. This proposed update was not well received by analysts at the left-leaning Center on Budget and Policy Priorities (CBPP), who suggested it could have “devastating results.” They opposed the “recalibration of the caseload reduction credit,” and instead supported retaining the large caseload reduction credits available under current law. They suggested that updating the baseline year would “reset the credit close to zero for every state, nearly eliminating it as a strategy for meeting” work requirements. 

Ultimately, the bipartisan Fiscal Responsibility Act that President Biden signed into law updated the caseload reduction credit’s baseline year to 2015, continuing to credit states with their share of the around 42 percent national caseload decline since then. Thus, absent further caseload change, when the update becomes effective in 2026 states will have to engage an average of just 8 percent of current recipients in work-related activities. 

Perhaps that satisfies President Biden’s pledge to support only changes without “any consequence.” Nonetheless, this episode revealed that Democrats and their progressive friends are willing to support policies like the caseload reduction credit they once despised—if the result is reduced future work requirements. Since work is the only sure path out of poverty, that ultimately shortchanges those most in need of help. But it also shows how even liberals now nominally agree that caseload reduction is a worthy “strategy” to meet welfare-to-work goals—which could prove useful during reauthorization debates to come.