This is a story about how a person can get a raise, yet still earn less.
A multitude of support programs offered by federal, state, and local governments exist to help those who are economically struggling. Each program has a specific goal to help provide necessities like food, health care, childcare and education. The truth is, everyone benefits from government programs in some fashion- a person who has taken a child tax credit, a charitable deduction, written off mortgage interest, or put money into a 401k plan (amongst a host of other examples)- has directly benefited from government programs- I won’t even get into indirect benefits, so let’s get back to the story. The focus here is on those who receive public support programs who then get penalized when offered a raise at work.
It seems counterintuitive, but the reduction in income (or increased expense) that some families absorb after getting a raise act as a DISINCENTIVE to take a promotion at work. The result is many families who would otherwise be climbing the economic ladder to out earn the need for benefit programs, end up remaining on them. This phenomenon- when someone on public assistance earns a raise and then discovers they make too much to receive benefits and therefore brings home less resources- is referred to as a Benefits Cliff. And it effects real people from across the country.
How can this be?
My take is that it wasn’t designed this way, but at the same time there has been little effort to coordinate the benefit programs- each conceived with best intents- to solve for the problem. A quick note about payment errors and fraud in the benefit programs- the amount of Improper and Unknown Payment Rates totaled $281 million in FY 2021, a significant amount, but representing just over 7% of total outlays of $3.9 trillion. The improper and unknown payment rate has averaged less than 5% over the last ten fiscal years.
It should be a priority to align benefit programs with the economic realities of the benefits cliff, no matter the party or political leanings. Any person working to climb the economic ladder should not be kept down by the very programs designed to provide a safety net for those facing economic distress. I’ve included below a link to a program designed by the Federal Reserve Bank of Atlanta designed to provide the research and tools to help understand and navigate the benefits cliff.
I have presented on the benefits cliff with Dave Altig, executive vice president and director of research at the Atlanta Fed to help raise awareness of the issue. Enjoy the link and let me know what you think!
~ Brian Kasal- The Leadership Matrix
Click here- Federal Reserve Bank of Atlanta- CLIFF Program
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