13.1 Domestic Policy: Welfare Reform and Balanced Budget

The 1990s saw major changes in welfare and economic policies under President Clinton. Welfare reform replaced AFDC with TANF, introducing time limits and work requirements. This aimed to reduce dependence but left some families struggling.

Clinton's economic policies focused on balancing the budget through tax increases, spending cuts, and economic growth. The "New Democrats" and "Third Way" approach influenced these centrist policies, blending market solutions with government intervention to address social and economic issues.

Welfare Reform and the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA)

Provisions of PRWORA welfare reform

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• Replaced Aid to Families with Dependent Children (AFDC) program with Temporary Assistance for Needy Families (TANF)
  • Provided block grants to states enabling more control over welfare programs (flexibility in design and implementation)
  • Introduced time limits on welfare benefits typically capping at five years to encourage self-sufficiency
• Established work requirements for welfare recipients to promote employment
  • Required recipients to find employment within two years of receiving benefits to reduce long-term dependence
  • Mandated states to meet specific targets for moving welfare recipients into the workforce (participation rates)
• Restricted benefits for certain groups to focus resources on U.S. citizens and long-term residents
  • Denied benefits to legal immigrants who had been in the country for less than five years
  • Placed stricter eligibility requirements on food stamps and Supplemental Security Income (SSI)
• Significantly decreased the number of welfare recipients but increased poverty and hardship for some families
  • Increased employment among single mothers as more entered the workforce
  • Left some families unable to find stable employment facing greater financial difficulties

Economic Policies and the Balanced Budget

Factors for balanced federal budget

• Combination of tax increases and spending cuts helped reduce budget deficits
  • Omnibus Budget Reconciliation Act of 1993 raised income taxes on the wealthiest Americans (top marginal rate)
  • Reduced government spending in various areas including defense and domestic programs
• Strong economic growth during the 1990s increased government revenues
  • Dot-com boom and low unemployment rates boosted tax revenues (capital gains, income taxes)
  • Reduced demand for government assistance programs (welfare, unemployment insurance)
• Bipartisan cooperation on deficit reduction facilitated balanced budget efforts
  • Clinton worked with Republican-controlled Congress to pass Balanced Budget Act of 1997
  • Act aimed to balance federal budget by 2002 through spending cuts and tax changes

Clinton's economic policies and impacts

• Policies aimed at promoting economic growth and job creation
  • Invested in education and job training programs to build human capital
  • Supported North American Free Trade Agreement (NAFTA) to increase trade and economic opportunities
• Expanded Earned Income Tax Credit (EITC) to support low-income working families
  • Provided tax relief for low-income working families (refundable credit)
  • Encouraged work and helped reduce poverty by supplementing wages
• Raised federal minimum wage to improve living standards
  • Signed legislation raising federal minimum wage from $4.25 to$5.15 per hour
  • Aimed to boost incomes for low-wage workers and reduce income inequality
• Uneven distribution of economic gains despite overall growth and low unemployment
  • Wealthy experienced greater benefits than middle and lower classes (widening income gap)
  • Critics argued policies favored high-income earners over working class

New Democrats and Third Way approach

• New Democrats emerged as centrist faction within Democratic Party in late 1980s and early 1990s
  • Emphasized fiscal responsibility, free trade, and market-based solutions to social problems
  • Sought to distance party from perceived excesses of liberal policies (welfare state, high taxes)
• Third Way approach sought to reconcile left-wing and right-wing politics
  • Advocated mix of market-based solutions and government intervention to address social and economic issues
  • Promoted policies balancing economic growth, social justice, and individual responsibility
• New Democrats and Third Way influenced Clinton's domestic agenda
  • Welfare reform (PRWORA) reflected emphasis on personal responsibility and reducing government dependence
  • Balanced budget efforts used mix of tax increases and spending cuts in line with Third Way
  • Support for free trade agreements (NAFTA) aligned with New Democrats' pro-market stance