When welfare policy pushes low-income Americans off a cliff

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Fixing the broken incentives in the U.S. welfare system: The highest marginal tax rates in America are not faced by millionaires or billionaires, but by people leaving welfare for work. The combination of lost benefits, payroll taxes, and new job-related expenses is known as a “benefit cliff,” and it discourages work and can leave families trapped in dependency. In a new study, FREOPP Senior Fellow Michael Tanner critiques the typical strategies states use to address the benefit cliff problem and proposes a better solution: transitional benefits. This approach would offset the loss in benefits that occurs as a recipient earns non-welfare income, reducing the disincentives to work embedded in the current system. Policymakers should adopt these “stepped down” benefits to ensure that social welfare programs provide temporary assistance while encouraging long-term self-sufficiency.

A compassionate monetary policy requires a commitment to targeting low inflation: Although candidates from both parties pledge to tackle the most pressing problems facing our country, many of them lack strong, specific policy proposals. FREOPP is here to help, with a series of papers offering solutions designed to generate opportunity for Americans at or below the median of wealth and income. 

This week, FREOPP Visiting Fellows Jon Hartley and Jackson Mejia tackled inflation. They note that, although low-income jobs are more likely to keep up with inflation because of flexible wages and short-term contracts, higher costs also hit lower-income households harder and more easily overwhelm their budgets, forcing difficult choices between essential goods like fuel and food. In their paper, Jon and Jackson offer three specific recommendations for incoming policymakers who want to relieve the pain for American households: Appointees to the Federal Reserve should commit to a low-inflation policy, the White House and Congress should resist overstimulating the economy, and policymakers should be more transparent with data. 

→ Want more FREOPP takes on the economy and the election? Check out Visiting Fellow Michael Toth on the Federal Reserve’s rate cuts—and their timing—in the Wall Street Journal, and listen to FREOPP President Avik Roy discuss the power of the growing Bitcoin voter base on the “What Bitcoin Did” podcast.https://open.spotify.com/embed/episode/6XL7YiUupOor6bmGNyLcQh

Reforming federal K-12 education programs to expand equal opportunity: Thirty-three states, plus the District of Columbia and Puerto Rico, now operate 74 programs offering educational choice to American families, with new and expanded programs coming online in just the past few years. In another paper in FREOPP’s series of recommendations for incoming regulators and lawmakers, Senior Fellow Dan Lips developed policy proposals that would allow the White House and Congress to use existing authorities to expand parental choice, reduce regulatory burdens on charter schools, and make the country’s education dollars go further. From improving transparency in public school spending and performance to expanding choice for military families, Dan provides specific congressional and executive actions that will help the federal government work with states to ensure more American children receive a high-quality education.

Medicare’s open formulary for drugs is a problem: For years, Medicare has reimbursed nearly every FDA-approved drug administered through its Part B program. This helps beneficiaries access treatments, but that coverage comes at a cost of more than $900 billion annually. FREOPP Visiting Fellow Grant Rigney observes that the Centers for Medicare and Medicaid Services (CMS) has the power to implement a curated formulary, which would give it the authority to refuse to reimburse drugs that are overpriced or that provide minimal clinical benefit compared to drugs already on the market. Implementing—and acting on—this simple change would incentivize pharmaceutical companies to offer more reasonable pricing, improving costs for patients and taxpayers alike.

Get it while you can! Early bird registration for Freedom & Progress ends next week: In case you missed it, the registration price for FREOPP’s Freedom & Progress conference increases next week Monday, September 30. Don’t miss out on the discounts! Visit the conference page at FREOPP.org to view the latest agenda and to register. 

Thanks for keeping up with FREOPP, and have a great weekend! 

FREOPP’s work is made possible by people like you, who share our belief that equal opportunity is central to the American Dream. Please join them by making a donation today.

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