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Essay on Welfare Reform in the State of Minnesota
Minnesota's experience with coordinating tax credits and transfers intended to assist low-income people shows that integration of tax and welfare policy is necessary to provide efficient allocation of state and federal resources and to maximize incentives to work. An integrated system ensures that marginal tax rates and benefit reduction rates do not deter increased participation in labor markets. The Minnesota system provides strong tax credit incentives at very low income levels, but the marginal tax rate during the phase-out income range is quite high.
A major goal of welfare reform is the provision of greater incentives to move from welfare to self-sufficiency. A common reform strategy is to increase work incentives by raising the amount that a low-income family can gain by working. There are three distinct ways to do this: reform AFDC itself; provide low-income workers with guaranteed access to low-cost health insurance; and/or provide targeted tax credits to low-income working families through the federal and state tax systems. Recent incremental reforms have used each of these three approaches, with changes in the tax system having the most powerful impact. (Gainsborough, Juliet F)Changes in individual programs have been made with little understanding of how they interact and affect the entire system. The Minnesota approach, which rewarded welfare families with wage supplements, child-care subsidies and other work supports as they moved into the job market, landed The North Star State a prominent place in the national research literature and won plaudits from President Bill Clinton. It also triggered a new conversation among economists about solving an old dilemma in welfare policy: How to wean families from public assistance and raise them out of poverty. (Gainsborough, Juliet F) "Early findings [from these projects] provide encouraging evidence.................
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