Everything about Delores’s new job is a big upgrade. She’s gone from making $8 an hour to $10.50. She now has benefits like health care and paid time off. And she has a schedule she can count on that fits well with her eight-year-old daughter’s needs.
This should have been made her life a lot easier, except for one thing: the lapse in her food stamps benefits. When she reported the new income from her job to her case manager, she was told that it was too high to qualify for food stamps for a family of two, and her case had been closed. That means that instead of being able to attend the computer classes she was taking, a requirement if she wants to be promoted to supervisor at work, she’s working a second job and can’t sleep.
“I cannot do it because I’m getting sick, have a headache,” she said. “Because I cannot sleep.” But do it she has to in order to have enough income to provide for her daughter.
Delores, a 40-year-old single mom from suburban Virginia who requested her name be changed so she could discuss her employment openly, is going through what is referred to as the “benefits cliff” or a “marginal tax rate”: some public assistance programs – most notably food stamps, child care, and Medicaid – have cutoff limits based on income. If a recipient gets a new job that suddenly puts her earnings above that limit, she can face a sharp reduction in benefits. What should be an improvement in finances ends up costing more.
It’s a problem that has caught the eye of Rep. Paul Ryan (R-WI). In his recently released poverty reform proposal, he describes the phenomenon in which low-income people get raises but see little of the extra money because the benefits they had been relying on get phased out. Ryan claims that poor people, therefore, have an incentive to stay poorer, because “as families earn more money, they get less aid.”
Yet he can’t seem to find a solution. “[F]ixing these incentives is no easy task,” he writes. Phasing benefits out more slowly, to smooth out the cliff, in his mind is “prohibitively expensive,” but he acknowledges that solving it by just giving less in benefits to begin with “would mean deep cuts for the most vulnerable.”
Delores would have suffered from a fix that simply creates a stingier safety net. Before her new job at Sodexo, where she now works as a cashier, she worked at a Rite Aid, before that a gas station, and before that at TJ Maxx and DSW, always making around $8 or $9 an hour. “It wasn’t enough,” she said, so she and her daughter have relied on food stamps since 2007. The benefits “helped a lot,” allowing her to get “everything I needed for my daughter.”
But she was always on the hunt for something better. “I was looking for anyone that would pay more and have benefits,” she said.
And even though it may have cut into her benefits, Delores will tell you, “I’m happy that I got the new job.”
It’s clear that she takes pride and solace in the new position. “The thing was over [at Rite Aid], the hours changed every week,” she pointed out. “The new job has a fixed schedule. I work from six to two every day, Monday through Friday.”
She also has vacation benefits for the first time in a long time, a paid week off, so she and her daughter just took a trip to Florida. “This was the first vacation in seven years,” she said. And there are more benefits: paid holidays, paid sick days, and help covering health insurance premiums.
Evidence shows that her desire for a new and better job, regardless of the impact on her food stamps, is emblematic of how people approach the benefits cliff. “[R]esearch suggests that, in practice, families do little to reduce their work hours or wages in response to the marginal tax rates that benefit phase-downs create,” Arloc Sherman writes at the Center on Budget and Policy Priorities.
It also doesn’t make a lot of sense for many recipients to factor the loss of benefits into their decision to seek new work, says Melissa Boteach, vice president of Half in Ten and the poverty and prosperity program at the Center for American Progress. “I don’t think the average low-income person who desperately wants to work and wants to get pay raises is doing calculations about what this means for each and every benefit,” she pointed out. Delores didn’t even know her benefits would be reduced until after she got the better job.
“The cliffs are not a problem because they’re a work disincentive…the problem is the hardship,” Boteach added.
And Delores is certainly experiencing hardship as she struggles to make it all work. “If I’m working seven days a week, school, plus my daughter, I cannot do it,” she said. “Right now I’m supposed to go [to computer classes] four days a week but I cannot do it because I need to work.” She doesn’t have time for her own homework, let alone find the time to help her daughter with her homework.
While there are certainly other families like Delores’s that have hit a benefits cliff, Ryan also may overstate the problem. Not all poor families encounter it, and in fact it seems to only impact a small portion of families.
But if there is bipartisan agreement that this drop-off is painful for the families that do experience it, there are few options other than spending more money to make it more gradual. “Basically the two ways you can get rid of the cliff are to either eliminate the program or cut it for the most vulnerable people,” said Boteach, “or to make further investments so the service tapers down more slowly with each dollar of earned income.”
That’s how the Medicaid cliff, which she said “was one of the strongest cliffs,” is being eased in states that have expanded the program as part of the Affordable Care Act: at a certain level above the poverty line, someone doesn’t get his health insurance automatically cut off as before, but instead gets a tax credit to help cover the cost that declines gradually as income increases. “Unfortunately the states that have failed to take up the expansion are preserving this cliff,” she added.
One way to fix the sharp cutoff for child care subsidies or food stamps would be to have “bands,” Boteach said, dictating how much in benefits a family gets between, say, 100 and 150 percent of the poverty line, allowing them to earn income that fluctuates within the band while keeping their benefits steady.
Others have suggested keeping people eligible for 12-month periods, no matter what happens to their income. If a parent’s earnings increase with a new job during that time, she could still keep her child care subsidies, allowing her to continue working and giving her kid a stable and continuous care setting.
And of course making programs universal would end the cliffs completely. Universal preschool and single-payer health care wouldn’t have these problems.
In the meantime, Delores will keep wavering between highs and lows. Given her newly stable hours, “I’m happy,” she said. But on the other hand, her schedule with a part-time job is wreaking havoc on her. “Sometimes I’m feeling like I’m getting sick because I don’t sleep well,” she said, without an idea for how to make it better.