There’s more to be done. But the recently passed mega-bill is the largest welfare reform in human history.
There’s more to be done. But the recently passed mega-bill is the largest welfare reform in human history.
T he signing of the One Big Beautiful Bill Act (OBBBA) is a milestone moment in U.S. domestic policy. While the most significant aspect of the package is achieving permanence for prosperity-enhancing components of the tax code, it is simultaneously the largest welfare reform in human history.
Perspective is necessary to understand the scale of the achievement.
Congressional Republicans passed a series of welfare-reform measures in 1995 and 1996 because of concerns about a system that incentivized single motherhood and dependency. While President Clinton vetoed the first two bills, he signed the third on August 22, 1996. The Congressional Budget Office (CBO) estimated that the welfare reform would save $54.6 billion, or roughly $100 billion in today’s dollars, over a six-year period.
Welfare reform was a massive success. The rolls shrank and workforce participation grew. Unfortunately, the 1996 reforms were undermined by a series of benefit expansions in other entitlement programs.
Currently, the cost of federal welfare programs is more than $1.2 trillion per year, which is nearly double what it would cost to provide every impoverished person an above-poverty-level benefit.
Dependency has also returned: One in eight Americans receive food stamps, and more than one in four are on Medicaid. These numbers are not a positive reflection of government support; they are indicative of a culture of dependency that runs counter to human dignity and opportunity.
The welfare status quo is riddled with dysfunction. Because of insufficient checks on welfare eligibility, improper payments probably cost taxpayers more than $100 billion per year. State governments misuse Medicaid to bilk the federal government, with California utilizing the program as a back door to fund benefits for illegal immigrants.
This makes reforming welfare benefits both necessary and judicious. The OBBBA includes many such changes, and the CBO estimates more than $1 trillion in welfare savings over ten years as a result. On average and adjusted for inflation, the OBBBA is projected to save more than six times as much on welfare programs per year as the 1996 reforms.
More important than the budgetary savings is the positive human impact these changes will have, promoting economic opportunity and preserving benefits for the truly vulnerable.
Implementing and strengthening work requirements for able-bodied adults is the biggest reform, and one that ought to be common sense. These requirements are exceedingly generous, allowing education and community service to count toward the 80-hour-per-month threshold.
Addressing Medicaid malfeasance by state governments will also save hundreds of billions of dollars. A combination of directed payments to medical providers and the convoluted “provider tax” scheme mean that many state governments prioritize maximizing federal payments above all else — backed by legions of health care lobbyists.
State governments heavily lobby Congress for handouts that the country can no longer afford. The new bill strengthens federalism by incentivizing states to reduce improper payments and by rebalancing welfare costs between the states and Uncle Sam.
Perhaps the most momentous aspect of this welfare reform is that it breaks a decades-long streak of Congress allowing federal benefit spending to grow with almost no restraint. The dramatic expansion of Medicaid eligibility through the Affordable Care Act and the further loosening of welfare benefits under the Biden administration have driven welfare spending through the roof and also added millions of families to the rolls.
Even after the passage of the OBBBA, Medicaid spending will continue to increase at roughly 3 percent per year, which makes complaints about the program having been “slashed” or “gutted” utterly absurd. Only in Washington is continued growth considered a “cut.”
While the reforms in the OBBBA are a strong first step, they are just that — a first step. Despite an impressive $1 trillion in net outlay savings from the bill, federal spending will still grow faster than both tax revenue and the economy, meaning that $2 trillion annual deficits could soon become the norm.
Congress must pass additional legislation to rein in unsustainable spending and overly generous benefits. Additional welfare reforms can bring millions of people into the workforce, spurring more productivity and wealth creation.
A focus on deficit reduction would also reduce the problem of government borrowing that crowds out job-creating private investment; this would unlock the full potential of the OBBBA’s tax cuts.
While it will require hard work and political courage, finishing the job on welfare reform would enable unprecedented levels of American greatness and build on the OBBBA’s visionary reforms.