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Mitigating Benefits Cliffs for Low-Income Families: District of Columbia Career Mobility Action Plan as a Case Study

Author

Listed:
  • Elias Ilin
  • Alvaro Sanchez

Abstract

The structure of the United States social safety net features the phaseout of public assistance as household income increases, which functions as an effective marginal tax on wage gains and is commonly referred to as a "benefits cliff." This presents a disincentive for some low-income workers, especially those with children, to accept higher-paying jobs or promotions. Workforce development programs focused on helping low-income workers must contend with the challenges that benefits cliffs present to the career advancement of their clients. In this paper, we describe the overall structure of the public assistance benefits system in the District of Columbia (DC) and describe how benefits cliffs affect the financial resources of a single adult with one child. Afterward, we introduce the DC Career Mobility Action Plan (Career MAP), a five-year pilot program (2022–27), as a case study for implementing benefits cliff mitigation strategies for workers seeking to find employment and increase their earnings. Our findings suggest that Career MAP’s policies, which function as rental assistance and cash payments to offset benefits losses, reduce the effective marginal tax rates families experience below 100 percent, helping households to avoid experiencing benefits cliffs.

Suggested Citation

  • Elias Ilin & Alvaro Sanchez, 2023. "Mitigating Benefits Cliffs for Low-Income Families: District of Columbia Career Mobility Action Plan as a Case Study," FRB Atlanta Community and Economic Development Discussion Paper 2023-01, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedacd:97168
    DOI: 10.29338/dp2023-01
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    References listed on IDEAS

    as
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    3. Nada Eissa & Hilary W. Hoynes, 2006. "Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply," NBER Chapters, in: Tax Policy and the Economy, Volume 20, pages 73-110, National Bureau of Economic Research, Inc.
    4. East, Chloe N., 2018. "Immigrants’ labor supply response to Food Stamp access," Labour Economics, Elsevier, vol. 51(C), pages 202-226.
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    More about this item

    Keywords

    benefits cliffs; workforce development; public assistance; effective marginal tax rate;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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