Benefits Cliffs: Policy Shouldn’t Punish Promotion.

 

What Exactly Is a Benefits Cliff?

People face a benefits cliff when they receive public benefits from the government, earn a raise, and then discover that they make too much money to receive the benefits. But they are not making enough money to sustain themselves and their household.

 
 

Here’s a chart that shows how and where a benefits cliff can occur, reflecting the difference between take home pay and earnings overall (including take home pay AND public benefits).

The big challenge is that no one knows where the cliff begins, or when it will end, because it is individualized for each person, and based on a variety of factors.

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Why is it hard to know when a cliff will occur?

For the people actually facing a cliff, they are scared of losing their benefits and being worse off, and since it’s not clear when and why they might lose them, they are forced to make decisions that hold them back.

And for experts and people working in the system, even they can’t fully see how benefits and income work together. From case workers to government agencies, to think tanks and policy makers, each expert has a deep, but silo’d view of the problem. And deep knowledge is needed, because the benefits system itself is a complicated maze of different thresholds, limitations and unclear rules, varying state by state, county by county, and city by city.

Working people deserve a full picture of their financial landscape, and for many people receiving benefits this is simply out of reach. Low-income workers are often forced to make conservative decisions for their lives, finances, and families because of the threat and fear of hitting a benefits cliff. This means people receiving benefits are making decisions that include not taking pay raises, not taking on more hours at work, and not advancing in their careers, regardless of whether they’re actually going to hit a cliff or not. The lack of transparency drives fear, which drives decision-making, which holds people back.

Benefits Cliff Studies & Research

While the exact number of people facing this issue has not been fully documented, it is a nationwide problem and multiple studies have been done to warn of the consequences. Some of the most compelling reports include Benefit Cliffs and Plateaus: When Higher Wages Don’t Always Result in Higher Incomes (PHI: New York, 2017); When Work Supports Don’t Support Work (NCCP: Missouri, 2011); The Cliff Effect: One Step Forward, Two Steps Back (Indiana Institute for Working Families: Indiana, 2012).

More recently (July 2019), The Ohio State Chamber of Commerce Research Foundation has found that 20% of Ohio businesses have workers facing (or fear facing) a benefits cliff.

The U.S. Department of Health and Human Service is thinking about benefits cliffs as tied to marginal tax rate (which, while it doesn’t encompass the entirety of the problem, is an interesting perspective), and extensive research has been done by folks over at UMass Boston’s Center for Social Policy (particularly this brief that details what benefits cliffs look like for different family types and benefits combinations, as well as which benefits see a cliff and when, on pg 56).

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Policy Solutions That Have Made Impact.

We take inspiration from the ABLE program of accounts (from the Achieving a Better Life Experience Act of 2014), the FSS program (Family Self-Sufficiency), and IDAs (Individual Development Accounts). Here in NYC, Scott Stringer’s childcare plan is yet another example of a city program aimed at improving benefits (in this case: childcare subsidies) as well.

An Incomplete List of Proposed & Recently Passed Legislation Dealing With Benefits Cliffs.

 
  • New York State: Directs a study on the impact of increased minimum wage on eligibility for income based services, programs and subsidies. [PASSED].

  • New York State: Relates to eliminating asset limits in calculating the amount of benefits for any household under any public assistance program.

  • New York State: Relates to resource exemptions for applicants for public assistance programs; amends the Welfare Reform Act in relation to the effectiveness thereof.

  • Nebraska: Change provisions relating to the Supplemental Nutrition Assistance Program (increasing gross income limits).

  • Texas: Making Work Pay Act (to solve benefit cliffs for SNAP and TANF) [PASSED].

  • Federal: Working Families Tax Relief Act (expanding EITC and modifies child tax credit).

Policy That Exacerbates Cliffs.

 

RE: The July 2019 Trump Administration’s Food Stamp Proposal, Which Aims to Kick 3.6 million People Off of SNAP

“One in every twelve people who receives food stamps nationwide will lose them under the policy — some 3.6 million people, according to new analysis by Mathematica, the private policy analysis firm the Department of Agriculture (USDA) has relied upon for the past 40 years.”

-SOURCE: Alan Pyke, ThinkProgress, September 5, 2019

“The administration’s proposed rule change is the latest in a series of attacks on the food stamp program, which have included trying to impose stricter work requirements on beneficiaries and restricting eligibility. Sometimes that attack is straightforward, just trying to cut the program. But at other times it employs a favorite Republican tactic: weaponizing bureaucracy against poor people.

That’s what’s happening here. As it stands now, in 43 states if you’re poor enough to be eligible and enroll in other anti-poverty programs, you can be automatically enrolled in food stamps, too. So what the administration wants to do is forbid states from doing that automatic enrollment so people would have to go through a separate application process for food stamps, including asset tests to make sure they don’t own their home or have a bank account with enough money in it to afford a car repair.

In addition — and this is a particularly cruel side effect — by gutting this “broad-based categorical eligibility,” it will also make it harder for states to help people avoid what’s known as the ‘benefit cliff,’ where you can get a small raise at work and suddenly lose all your food stamp benefits, leaving you worse off.

- SOURCE: Paul Waldman, Washington Post, July 24, 2019

FROM OREGON: "The rule change would really implement what we consider a benefit cliff," explained Jeff Kleen, a public policy advocate for the Oregon Food Bank.

FROM COLORADO: “These are people who are just at the poverty line,” [Kate Kasper, Hunger Free Colorado] said. “With our high cost of housing, childcare, even utilities, (it’s) impossible for them to put food on their table.” This flexibility in income eligibility also allows low-income people to build modest savings. And Kasper said it prevents what she calls the “benefits cliff.” Instead of cutting a family off from food aid the moment their gross income exceeds the limit, they can be slowly phased out of the program.

RE: September 2018 Proposed Update to “Public Charge“ Rule

“On September 22, 2018, the Department of Homeland Security (DHS) proposed an update to the “public charge” rule, which determines whether certain immigrants are eligible for green cards or admission into the country. The expanded rule would penalize immigrants who legally receive Supplemental Nutrition Assistance Program (SNAP, commonly known as food stamps), parts of Medicaid, housing assistance and other public benefits…We estimate that between 400,000 and 700,000 New Yorkers would see their family incomes drop as a result of this policy change. Furthermore, between 65,000 and 115,000 New Yorkers, including between 25,000 and 45,000 children, would fall into poverty.

- SOURCE: Policy Tracker Policy Brief (Columbia University)

What You Can Do About Benefits Cliffs

  • Support legislation to increase income thresholds, and remove asset limitations, for public benefits.

  • Be aware, and get curious about WHY a worker might turn down a raise or additional hours.

  • Check out Leap Fund to learn more about what we’re doing to combat benefits cliffs.

Becoming poor is not an event. It is a process. Like a plane crash, poverty is rarely caused by one thing going wrong. Usually, it is a series of misfortunes—a job loss, then a car accident, then an eviction—that interact and compound...We often think of poverty in America as a pool, a fixed portion of the population that remains destitute for years. In fact...poverty is more like a lake, with streams flowing steadily in and out all the time. “The number of people in danger of becoming poor is far larger than the number of people who are actually poor.

—Duke University professor Anirudh Krishna, [from Poor Millennials, by Michael Hobbes, HuffPost]