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Abstract

The structure of the United States social safety net features phaseouts of public assistance as household income increases, which can function as an effective marginal tax on wage gains, commonly referred to as a "benefits cliff." These so-called benefits cliffs create a disincentive for low-income workers, especially those with children, to accept higher-paying jobs or promotions. This paper describes how benefits cliffs can affect the financial resources of a single adult, one child family living in the District of Columbia (DC) and introduces the DC Career Mobility Action Plan (Career MAP) pilot program, which serves as a benefits cliff mitigation strategy for participants. Key findings:• Due to the co-occurring phaseouts of multiple transfer programs, or benefits cliffs, a hypothetical single adult, one child (aged three) family living in DC would receive no financial gain from a wage increase between $11,000 and $65,000 of earned income. • Prior to program enrollment in DC's benefits cliff mitigation pilot (Career MAP), the financial disincentives presented by benefits cliffs and high effective marginal tax rates are most pronounced for families with incomes between 50-150 percent and 325-349 percent of the Federal Poverty Level. • When DC's pilot Career MAP's benefits cliff mitigation strategies are implemented, median effective marginal tax rates decrease for program participants across all income levels. Takeaways for practice:The analysis shows that a Hold Harmless Fund (HHF) provision for four major social safety net programs-Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), childcare subsidies, and public health care-considerably reduces effective marginal tax rates compared to the status quo, keeping them below 100 percent and helping families avoid experiencing benefits cliffs. While our analysis showsThe Federal Reserve Bank of Atlanta's Community & Economic Development (CED) Discussion Paper Series addresses emerging and critical issues in community development. Our goal is to provide information on topics that will be useful to the many actors involved in community development-governments, nonprofits, financial institutions, and beneficiaries. Find more research, use data tools, and sign up for email updates at atlantafed.org/commdev.