The Broken Bridge Out of Poverty: The Cliff Effect

Emma Dewhurst is a staff writer for Brief Policy Perspectives and a first-year MPP student.

Across America, some 40% of families struggle financially to meet their basic needs such as housing, utilities, food, and healthcare. Participation in government assistance programs (i.e., SNAP, TANF, and Medicaid) continues to increase with over one in five individuals depending on at least one of these programs. While such programs are designed to build a bridge out of poverty, their design unintentionally creates a “cliff effect” which stifles economic mobility and ultimately negates the goal of such efforts. With over 8 million Americans slipping below the Federal Poverty Line (FPL) since the beginning of the Pandemic, policymakers must recognize and address the cliff effect if we hope to ever fully recover from the devastating economic impact of the virus. 

 What Is The Benefits Cliff?

Some believe that the working poor should be ecstatic to receive a wage increase or a promotion, but what if it turned out that the harder they worked, the poorer they became? This is exactly what happens in the cliff effect, which illustrates why good intentions are often not enough to address issues that affect poverty. It is a phenomenon where individuals lose eligibility for public assistance resulting from an increase in wages, even if the increase is not sufficient to cover basic needs. Oftentimes, a ten-cent wage increase leads to the loss of thousands of dollars’ worth of assistance. 

The cliff effect is a central reason low-income communities become stagnant in their professional development. By disincentivizing economic growth, public benefits programs fail to create a bridge for Americans out of poverty. Instead, they create a vicious cycle where families work their way out of poverty, only to find they have been abandoned right before they take their final step into self-sufficiency. This cycle all but destroys the argument that low-income families should just “get a job,” when getting that job could potentially put them in further financial turmoil.

Impact

The impact of the cliff effect is both economic and emotional, and can discourage individuals from advancing in their careers or dissuade them from seeking employment at all. In some cases, individuals offered a promotion will seek to accept the promotion minus the attendant increased wage.It discourages job retention, which in turn hurts employers with costs associated with high employee turnover. As with most inequities in America, the effects of the benefits cliff are felt more by minority populations.  Communities as a whole are also negatively impacted since they lose the economic growth possible with high participation in the workforce. Families suffer the resultant  emotional toll of having to choose between professional growth or keeping their family financially stable, which is no choice at all.

Policy Implications

What is the goal of public benefits? Is it truly to help elevate families out of poverty, or is it simply to get them off of public benefits as quickly as possible? If it is the latter, then what is the goal of workforce development programs if individuals are penalized for career advancement? More importantly, what can be done to mitigate the effects of the benefits cliff? 

Both state and federal policies have been introduced to address this issue. While they differ in specificities, most policies share a common approach. They provide for a gradual decrease in benefits rather than an immediate cutoff and include developing tools for individuals to see when and where they may experience a benefits cliff. They advocate for raising the FPL and using pilot programs to determine which policies work best. Specific policy approaches include The ASSET Act. Introduced to the Senate in February of 2020, this legislation would eliminate asset limits for TANF benefits and allow individuals to establish savings without pushing them above their benefits eligibility income. Currently, this legislation remains in the Committee on Finance. States have also followed suit, with Colorado passing SB 22 which requires that each county “shall continue to provide childcare assistance for… up to two years [for those] whose income exceeds the…eligibility limit.” This legislation created the Colorado Cliff Effect Program, which has shown to help families achieve greater economic mobility

Government benefits programs can no longer assert that their goal is to help individuals out of poverty until they take a proactive approach to addressing the benefits cliff. Even recently, individuals set to receive the COVID stimulus bill feared that the infusion of cash would render them ineligible for their benefits. While stimulus bills and increasing the minimum wage are important ways to support working-class families, the benefits cliff will not be resolved unless assistance programs change how eligibility is determined. Community members can also help by supporting legislation aimed to mitigate the effects of the cliff and helping to make their peers aware of the issue.

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