Work support programs are designed to sustain low-income earners and encourage work. In this they have been successful, as SNAP alone lifted an estimated 3.9 million Americans out of poverty in 2009. And according to the Center on Budget and Policy Priorities’ blog “public programs lifted 40 million people out of poverty in 2011, including almost 9 million children.”
Most of us know families must fall below certain income limits in order to qualify for government benefits. In many cases, individual states administer federally funded safety net programs and often set certain eligibility requirements for benefits such as SNAP or child care subsidies. For some benefits, the state or federal government also sets asset limits, meaning in some states even a modest savings account can disqualify families from receiving assistance.
Yet another harsh side effect of eligibility guidelines is called the “Cliff Effect.” It refers to situations where a small increase in income leads to an abrupt end to a critical benefit. Two work support benefits often associated with income limits are child care assistance, which makes daycare affordable for working parents, and food assistance, which often includes work requirements.
The dilemma posed by cliff effects is that it penalizes people who are slowly working their way out of poverty and into higher income brackets. As income increases, benefits do not gradually taper off in most cases. Instead, earning as little as ten cents above the income limit can cost families hundreds, if not thousands, of dollars in benefits.
The chart below shows one dramatic example of how cliff effects can have a negative impact on overall household income. For a single parent with two young children in Denver, Colorado a raise from $10 to $11 an hour leads to the loss of thousands of dollars annually as SNAP benefits are cut off. Another dramatic loss of income occurs after wages rise above $19 an hour. This time, the child care subsidy is lost, and along with it a critical support for working parents. Losing these benefits can cause someone to have less income at $20 an hour than he or she had at $10 an hour.
This reality leads many to make the difficult decision to give up a pay raise because they can’t afford to earn more money. Back in May, NBC’s Rock Center with Brian Williams told the story of a single father in Colorado who had to ask for a pay cut in order to keep his child care subsidy. And he’s not the only parent in Colorado facing this problem either.
Earlier this year, Rocky Mountain PBS provided other examples of families being held back by income restrictions in their report called Losing Ground: The Cliff Effect. Their coverage also addressed how local control over income limits in Colorado leads to wide disparities in eligibility depending on a person’s county of residence.
These stories are not unique to Colorado, either. The Crittenton Women’s Union, based in Boston, conducted a qualitative survey to examine the issue in their service area. Their study, published in 2010, found that due to cliff effects the “participants with the highest average income ($34,000/year) were doing worse in terms of their wellbeing than those with lower incomes.”
Obviously, having a program that limits upward financial mobility is not ideal. Many experts recommend a measured reduction in benefits to match how most workers advance to higher income levels, through regular pay raises or steady promotions. Gradually phasing out benefits as income rises would make accepting a pay raise more affordable, and remove a barrier that keeps many families from following a smooth path to self sufficiency.
However, the political will to improve the system may be lacking, as allowing for benefits to be slowly phased out would require an increase in funding. And in Colorado at least, the PBS documentary demonstrated how local county governments are often reluctance to give up their authority to set eligibility requirements.
Included in the Crittenton report, however, are two recommendations anti-poverty agencies can implement themselves. First, the writers suggest “cliff effect training” for social service providers. If social workers are aware of when and how work support cut-offs occur, they can prepare clients in order to avoid or mitigate a dramatic drop in overall income. The second suggestion is to improve access to higher education. The hope is that after graduation, a low-wage worker can obtain such a high paying job it enables him or here to clear the income hurdle created by the cliff effect.
To read more about the unintended consequences of cliff effects, check out:
- The Cliff Effect: One Step Forward, Two Steps Back, produced by the Indiana Institute for Working Families in 2012;
- The Cliff Effect, a two minute video also by the Indiana Institute for Working Families.
- Traps, Pitfalls, and Unexpected Cliffs on the Path Out of Poverty, written by Mary A. Prenovost, of Boston College and Deborah C. Youngblood, of Crittenton Women’s Union; or
- Self-sufficiency: An Illusive Vision, written by Burt Hubbard as part of an ongoing coverage of cliff effects by Rocky Mountain PBS.