Imagine you’re a single mom or dad with two kids. You make $12 an hour. Times are tight but you have a strong work ethic. One day, your boss comes to you with some good news. Your diligence has paid off — you’re being offered a pay increase to $18 an hour. This would raise your annual wages to $37,440, up from $24,960.
Great news, right? Not so fast. Taking that pay hike could set your family back in unforeseen ways.
You could be walking of a cliff — a welfare cliff, to be precise. This is when another dollar earned leads to a significant drop in government “safety net” benefits, making it less enticing to earn more income.
That single parent going to $18 an hour from $12 an hour would lose access to so many government benefits that he or she would end up with potentially one-third less in household resources. Who would want to earn more if they actually took home less?
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Instead of cheering a return to self-sufficiency, the welfare system in Illinois punishes people for doing better. This is how the system traps families in poverty. Nothing could be more tragic or illogical.
A new study commissioned by the Illinois Policy Institute examined the most common welfare benefits available to households in St. Clair County, ranging from food stamps to housing vouchers to Obamacare subsidies and more.
The study found that welfare benefits can be quite generous. All combined, single-parent households with two children can receive up to $42,704 in welfare benefits in St. Clair County. Should a family member be pregnant or disabled, additional benefits become available.
The study also found that people can qualify for government assistance at surprisingly high levels of income. A local two-parent household with two children is still eligible for welfare while earning as much as $83,200. What was meant to be a safety net for the poorest of the poor has transitioned into middle-class entitlements.
But what really should make people sit up and notice is this: The study found that earning more money at work can mean losing even more money from the government. It turns out that a parent taking that $18 an hour pay raise would only fully make up the loss in welfare benefits upon finding a job paying $35 an hour. Who does that in the real world?
It shouldn’t be better to earn $12 an hour than $24 an hour, but it can be. A working parent in St. Clair County earning $24 per hour will make a net income-tax contribution, while someone earning half that will have $13,000 more in net household resources due to welfare benefits.
Let’s be clear: No one wants to live in poverty. No one wants to be on the government dole. A single parent working paycheck to paycheck is very difficult.
But it is even more terrible that people who want to move up the ladder are actually discouraged from doing so because of poorly designed public policies.
The blame for all of this lies squarely at the feet of government officials. They created the system — who can get what, when and under what scenarios — and they should fix it.
A fundamental principle for reforming the welfare system is that economic disincentives must be removed. Work should, in fact, pay. This should hold true whether one supports a more expansive welfare system or a smaller one. No household should have less in combined net earned income and welfare benefits than a household in the same situation that earns less.
We know that the programs causing the greatest cliffs are those that have benefits that are too generous or taper off too quickly. The most poorly designed programs are housing benefits, child-care assistance and health-care assistance. These should be the first areas of focus for reformers.
This can happen with committed reformers at the helm, but the federal government will need to give states more flexibility to design assistance programs in a more rational way, while state and local governments need to get to work crafting a system that favors earned success over learned dependency.
Kristina Rasmussen is executive vice president at Illinois Policy Institute, a nonpartisan government watchdog based in Springfield.