The Temporary Assistance for Needy Families Program

The Temporary Assistance for Needy Families (TANF) program was created in 1996 from what was previously named the Aid to Families with Dependent Children (AFDC) program. The TANF program is intended to serve low-income families, primarily those with only a single parent present, as did the AFDC program. The TANF program is distinguished from AFDC by strong work requirements, time limits on receipt, options for the provision of noncash assistance, and by a block grant financing structure. This paper reviews the rules of the TANF program and the research that has been conducted on it and on the AFDC program. The Temporary Assistance for Needy Families (TANF) program was created by legislation passed by the U.S. Congress and signed by the President in 1996. The Personal Responsibility and Work Reconciliation Act (PRWORA) created the TANF program out of the preexisting Aid to Families with Dependent Children (AFDC) program, which itself was created by Congress in 1935 as part of the Social Security Act. The PRWORA legislation represented the most fundamental restructuring of the AFDC program since its inception. The most important restructured elements are (1) the devolution of major program design elements, and financing through block grants, to the individual states; (2) the imposition of strict work requirements in order to qualify for federal aid; and (3) lifetime limits on the number of years of benefit receipt which could be paid out of federal funds. This paper reviews the rules and structure of the TANF program and compares them with the historical AFDC program. In addition, it reviews the caseloads, costs, and participation rates of the TANF and AFDC programs. Finally, it reviews the research that has been conducted on both programs. Given the relative youth of the former, relatively little scholarly research has been conducted on it to date. Consequently, the bulk of the research will be reviewed for the AFDC program. Some discussion will also be provided of the extent to which the results of the AFDC research can be expected to apply to the TANF program. The first section reviews the rules and history of the programs. The second section reviews the trends in caseloads and expenditures and other program characteristics, followed by a section on the research results. A final section discusses reforms of the financial incentives in the program. 1 A short, but more detailed, history of the major developments in the AFDC program can be found in Garfinkel and McLanahan (1986, Chapter 4). That discussion also includes an account of the history of income support programs prior to AFDC. 2 I. History, Rules, and Goals History and Rules of the AFDC Program. Table 1 shows the major pieces of legislation creating and altering the AFDC program over its history, 1935-1996. The program was created by the Social Security Act of 1935 along with the Old-Age Social Security and Unemployment Insurance programs. AFDC provided cash financial support to families with “dependent” children, defined as those who were deprived of the support or care of one natural (i.e., biological) parent by reason of death, disability, or absence from the home, and were under the care of the other parent or another relative. Although the language of the legislation was genderneutral, in practice the vast majority of families of this type consisted of a mother and her children, or what are today called single-mother families. Although the presence of the father was possible if he was the single parent or if he was disabled, the overwhelming majority of participating families were initially, and have continued to be, those where the father is not present. In 1935 the primary reason for the absence of the father was death, but this was to change in later years as that absence was more a result of divorce or out-of-wedlock childbearing. Eligibility also required that families have income and assets below specified levels. The AFDC program was created as shared federal-state responsibility. The states had a large role in the program for they were responsible for not only creating and administering their own AFDC programs but also in setting the level of basic benefits. States subsequently picked very different benefit levels, with benefits ranging sixfold from the most generous to the least 2 Additional complexities were present because the states actually had the right to manipulate the benefit formula in ways that altered even the tax rate. For example, states could impose maximums on the benefit paid to a family, which creates a range of a zero tax rate; could reduce the difference between the guarantee and net income (defined as income less deductions) by a defined fraction (called the “ratable reduction”) which effectively reduces the tax rate by that fraction; and could impose gross income ceilings for eligibility which create a notch in the budget constraint. They also had discretion in setting allowable deductions, which alters the effective tax rate as well. See U.S. Congress (1996), Keane and Moffitt (1998, Appendix), and Meyer and Rosenbaum (2001, Appendix 1) for more details on the formula in different states. States are allowed even more discretion over the benefit formula under the new TANF program (see below). 3 generous. The federal role was both financial and regulatory. Financially, the federal government was responsible for providing open-ended matching grants to the states, with declining match rates at higher state benefit levels. On the regulatory side, the federal government put many restrictions on the definition of eligibility and allowable resources but also on the benefit formula. In terms of eligibility, for example, the federal government defined what family structures were eligible and put restrictions on who could and could not be counted as part of the assistance unit, and also put restrictions on what income and assets could be counted for eligibility determination. Regarding the benefit formula, the federal government put restrictions on allowable deductions for earned income and also for child care and work-related expenses, effectively constraining the state's ability to set the benefit reduction rate in the program. Thus the states ended up being primarily responsible for the level of benefits, or what economists call the “guarantee,” while the federal government effectively set the benefitreduction rate, which economists sometimes call simply the “tax rate.” The nominal benefit reduction rate in the program in 1935 was 100 percent, for benefits were determined by a straightforward subtraction of income from "needs" (i.e., the guarantee), and there were few deductions for income allowed.