Updated 09/14/2023
In recent years, there has been considerable interest among both progressives and conservatives (including from state legislatures) on strategies for reducing “benefit cliffs” – the loss of public benefits due to increased earnings – also referred to as “marginal tax rates”. As the piece from CBPP below lays out, policymakers often overstate benefit cliffs and gloss over the tough tradeoffs in reducing them. Effective marginal tax rates are a natural and inevitable consequence of benefits that target households with low but not middle incomes. Program benefits that cover basic needs are designed to decline as earnings increase. The reality is that most public benefits end gradually so workers actually face a slope rather than a cliff. (The exception is child care which does end abruptly in some states.) Recipients’ experience with and perspectives on benefit cliffs provide important insights into developing effective strategies for minimizing the impact of benefit cliffs.
In addition to the CBPP resources that provide an overview of the benefit cliff, there are lots of other resources available on this topic. In addition to the CBPP resources we provide below, we have also included links to reports that lift up participant voices, an example of a DC initiative explicitly designed to address the benefit cliff, a series of reports produced by ASPE that include estimates of the benefit cliff for various programs and program combinations, state reports produced in response to legislation, and calculators to estimate the impact of earnings increases.
CBPP Overview of Benefit Cliff (i.e., marginal tax rate issues)
(The CBPP presentation under Additional Files at the right provides a quick overview of Benefit Cliff issues.)
Individual perspectives
Balancing at the Edge of the Cliff | Urban Institute
Strategies to address the benefit cliff – DC’s Career MAP Demonstration Project
One of the main goals is of DC’s Career MAP project is to offset the loss of TANF and SNAP benefits as earnings rise, to limit benefit phaseouts and cliffs for families participating in the city’s rapid rehousing program. A family with zero earnings gets no benefits from Career MAP, but as earnings rise, Career MAP pays them an amount equal to loss of TANF and SNAP, any increase in childcare copays, and health insurance if they lose Medicaid. The value is capped at $833/month or $10,000 per year. Another novel element is that the payment is not made in cash but is used to reduce someone’s rent. This is done so that the payment doesn’t trigger further declines in SNAP and TANF, etc.
ASPE Marginal Tax Rate series
ASPE’s Marginal Tax Rate series examines the range of effective marginal tax rates for low-income households and common benefit program “bundles.” One of the reports focuses on TANF families and another focuses on families families receiving child care subsidies (CCDF) which is one public benefit program where benefits end abruptly in some states.
Marginal Tax Rate Series | ASPE (hhs.gov)
State Policy Analyses
Kentucky Benefit Cliffs Task Force Recommendations.09.22.2022
Montana (from the MY Budget and Policy Center)
Benefit Calculators
Kentucky: Family Resource Simulator – Get Started (ky.gov)
Update: A new tool to help Kentuckians understand benefits cliffs — KentuckianaWorks
Family Resource Simulator, National Center for Children in Poverty: Family Resource Simulator – NCCP
Atlanta Federal Reserve: Visual representation of state policies for select family configurations. (The Atlanta Federal Reserve also has developed a benefits cliff tool that can be customized for states or localities.)