Imagine that you are offered a promotion and raise at work. There’s just one catch: if you take it, you will move into a higher tax bracket. The bracket is so high, in fact, that you will actually end up with less take home pay. What would you do?
That’s exactly the situation that many low-income Americans find themselves in. Someone trying to leave welfare for work is likely to run into a phenomenon known as a “welfare cliff.” That is, as they begin to earn more work income, they can face the sudden loss of benefits, potentially leaving them worse-off financially. As FREOPP has warned, this creates powerful disincentives to work, marriage, education, and other steps toward self-sufficiency. This is clearly a structural flaw in the approach to helping those in poverty.
A handful of states—including Missouri, Tennessee, and Utah—have begun to experiment with solutions to the welfare cliff. But so far, the byzantine structure of the U.S. welfare state and the need for waivers and approvals from the federal government has slowed the ability of states to experiment with reforms.
This week, however, Senator Jon Husted (R., Ohio) introduced the Upward Mobility Act. It is designed to empower and encourage states to reform their welfare programs in ways that can reduce or eliminate welfare cliffs. A companion bill will soon be introduced in the House by Rep. Blake Moore (R., Utah).
Under Sen. Husted’s bill, states could apply to the Department of Health and Human Services’ Administration for Children and Families (ACF) for an Upward Mobility block grant. In doing so, states must lay out their specific proposals for reducing or eliminating welfare cliffs in their state. Of particular importance, the plan would have to include detailed provisions for ongoing third-party evaluation of the state plan. Good intentions will not be enough; proof of success will be required. The ACF will ultimately choose up to five states for participation based on the likelihood that their proposal will encourage upward mobility.
Participating states will receive a single funding stream that combines funding for up to ten current social welfare programs, including Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), Section 8 housing assistance, and child care funding, among others. The amount of the grant will be based on current year funding for those programs plus an inflation adjustment.
By combining multiple programs, each with its own eligibility requirements, work mandates, and other overlapping and often contradictory regulations into a single funding source, Upward Mobility grants would empower states to truly operate as the“laboratories of democracy” Justice Brandeis coined. At the same time, protections have been built in to ensure that states do not use the program as an excuse to mindlessly slash benefits.
The Upward Mobility Act is exactly the sort of welfare reform that should, in less-polarizing times, draw broad bipartisan support. It protects both taxpayers and welfare recipients. It is built on the common sense idea that welfare programs should both meet the immediate needs of struggling families and to provide them with the tools necessary to climb out of poverty. At the very least, welfare programs should not penalize recipients for trying to get ahead.
Yet, as Sen. Husted points out, a working single mother raising two kids in his state of Ohio who earns $33,000 a year while receiving SNAP, Section 8 housing, and child care assistance, would lose $4,664 in benefits if she earned a $1,000 raise. Her attempt to improve her long-term prospects would actually leave her $3,664 worse off. That benefits neither taxpayers nor recipients.
Kudos to Sen. Husted and Rep. Moore for advancing an important reform that will help struggling American families escape poverty and dependence.