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)

Policymakers Often Overstate Marginal Tax Rates for Lower-Income Workers and Gloss Over Tough Trade-Offs in Reducing Them | Center on Budget and Policy Priorities (cbpp.org)

(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

Career MAP | dhs (dc.gov)

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.)

States have the option to provide monthly cash payments to families through a Separate State Program (SSP) which is funded only with state dollars that can be counted towards a state’s maintenance of effort (MOE) requirement. (Separate State Programs are not the same as Solely State Funded programs that are funded with state funds that do not count towards a state’s MOE requirement.) There are both advantages and disadvantages to providing monthly cash benefits through an SSP which we highlight below.  

Background: States can provide cash assistance to families in several ways — they can provide them with federal TANF-funded assistance, assistance that is partially funded with TANF or MOE funds, assistance that is MOE-funded but provided within a TANF-funded program, or MOE-funded assistance in a program that receives no federal TANF funds – the latter is what is called an SSP or “Separate State Program.” Historically, HHS has considered everyone receiving assistance (TANF or MOE-funded) part of the cash assistance caseload, but they provide data separately for the TANF and the SSP caseload. That is because SSP technically are not considered part of the TANF caseload and requirements that apply to the TANF caseload do not always apply to SSP cases. This Guide to Use of TANF and MOE Funds | CLASP by CLASP provides a very useful table that shows which TANF provisions do not apply to SSP cases.

States have established SSPs primarily for three reasons: (1) to provide assistance to immigrant families who are subject to the five-year bar; (2) to provide assistance to families who have reached or are close to reaching the five-year time limit and (3) to provide cash payments to SNAP recipients. SSP programs appear to be underutilized, possibly because states prefer to pay for cash payments to families using at least some federal funds.

Key things to know about what TANF requirements do and do not apply to SSP cases:

• SSP recipients are subject to work requirements and are counted in calculation of the state’s work participation rate.
• Immigrant status restrictions (i.e., the five-year bar) does not apply.
• The five-year time limit does not apply.
• The teen parent residency and school requirements do not apply.
• The felony ban does not apply.
• Recipients are not required to meet child support cooperation or assignment requirements.
• States are not required to screen SSP recipients using the Income and Eligibility Verification System (IEVS).
• Funds use to provide cash payments count towards a states’ MOE requirement, but they are not counted when determining a state’s eligibility for the Contingency Fund.
• References in the statute or regs to “the State program funded under this part” does not include separate state programs.
• Administrative costs count towards a state’s overall administrative cost limitations.
• Families participating in separate state programs are considered “former” or “never” TANF families (depending on their history of TANF receipt) under the IV-D child support distribution statute. You can find more at this link: at_07_02a.pdf (hhs.gov)

Last Updated: 09/13/2023

Research shows that TANF work requirements led to increases in deep poverty. You can find data and a discussion in these reports produced by CBPP staff. (Some of these reports are older and were done before the Income Security staff stopped using the word “welfare” to describe the 1996 law that created TANF.)

Boost TANF to Reduce Deep Poverty Among Children | Center on Budget and Policy Priorities (cbpp.org)

Deep Poverty Among Children Rose in TANF’s First Decade, Then Fell as Other Programs Strengthened | Center on Budget and Policy Priorities (cbpp.org)

Work Requirements for Cash Assistance Fueled Rise in Deep Poverty | Center on Budget and Policy Priorities (cbpp.org)

Poorest Children in Single-Mother Families Got Poorer Under Welfare Reform | Center on Budget and Policy Priorities (cbpp.org)

Doubling of Extreme Poverty Belies Welfare Reform Success Claims | Center on Budget and Policy Priorities (cbpp.org)

Deep Poverty Among Children Worsened in Welfare Law’s First Decade | Center on Budget and Policy Priorities (cbpp.org)

Fewer Poor Children Under Welfare Law, But More Very Poor Children | Center on Budget and Policy Priorities (cbpp.org)

After Welfare Reform, the Poorest Families Had More Trouble Paying Bills | Center on Budget and Policy Priorities (cbpp.org)

Poorest Children in Single-Mother Families Got Poorer Under Welfare Reform | Center on Budget and Policy Priorities (cbpp.org)