Op-Ed: Hidden costs of getting a raise for America’s working poor

by Eric Cochling | Oct 2, 2024

Georgia news, in the news, current events, Georgia happenings, GA happenings

Op-Ed: Hidden costs of getting a raise for America’s working poor

As Congress continues to debate the Farm Bill and the reauthorization of the Workforce Innovation and Opportunity Act, a critical flaw in the U.S. safety net system remains largely unaddressed: benefits cliffs.

Our research, alongside studies from the Atlanta Fed and others, highlights a troubling reality. Many vital safety net programs penalize participants for working and earning “too much” money. These benefits cliffs mean that working poor who receive even a modest raise can suddenly see important benefits like child care, food stamps, and Medicaid dramatically reduced or eliminated entirely.

The loss often far exceeds the raise that triggered it. Compounding the issue, each of these programs is typically administered by different agencies and caseworkers in most states, leaving recipients unable to get a comprehensive view of their financial situation.

Read the full opinion in The Black Chronicle.

How safety-net benefits discourage low-income workers from escaping poverty

by David Bass | Aug 8, 2024

The proven building blocks of child development can empower communities to get involved in helping parents raise highly capable kids.

How safety-net benefits discourage low-income workers from escaping poverty

Key Points

A new research paper from GCO shows the ways social safety-net programs like food stamps and Medicaid provide critical support but also discourage career advancement.
The “benefits cliff” is a significant barrier, where earning more can mean losing benefits, deterring workers from seeking higher-paying jobs.
Government benefits can blur the true income disparity between low-income and middle-income households.
Policy reforms are needed to remove these barriers and encourage upward mobility.

At a time when income inequality and lack of economic mobility are hot topics, a report from the Georgia Center for Opportunity (GCO) sheds light on how our social safety-net system could be contributing to these trends.

Entitled “Workforce Engagement: A Missing Link in Understanding Income Inequality,” the report explores how government support unintentionally discourages low-income workers from escaping poverty. The report also presents actionable policy solutions to avoid that trap.

What Are Safety-Net Benefits?

Safety-net systems include programs like food stamps, housing subsidies, and Medicaid, designed to provide financial assistance to those in need. While these programs are essential, they can inadvertently create barriers to long-term financial independence. This phenomenon is known as the “benefits cliff,” where individuals and families turn down career advancement opportunities to avoid losing government benefits.

The Source of Income Disparities

The GCO report reveals that government benefits often obscure the true income disparities between low-income and middle-income households.

When examining work-capable households, the unearned income from government benefits can paint a misleading picture of economic equality. Without these benefits, it’s clear that households in the lowest income quintile earn significantly less than their counterparts in higher income quintiles.

The report also highlights how these safety-net benefits can create disincentives for the lowest-paid workers to move up the economic ladder. For instance, after adjusting for taxes and transfer payments, the net income of households in the lowest quintile is almost equal to those in the second quintile, despite the latter earning nearly four times more.

This equalization is largely driven by government transfers, which provide significantly more support to the bottom quintile compared to the second quintile. This scenario leads to nearly identical average per capita net incomes between these groups.

The cover of the Worker Engagment report

Workforce Engagement

A Missing Link in Understanding Income Inequality

The compelling new report that examines the unintended consequences of our nation’s social safety-net system on low-wage workers.

Download the full report

Policy Recommendations

Understanding the dynamics of income inequality and the unintended consequences of social safety-net systems is crucial for fostering economic mobility and improving the quality of life for low-income workers.

To boost workforce engagement and reduce reliance on social safety nets, the report suggests several policy reforms:

Reducing Benefits Cliffs: Adjust thresholds for benefit eligibility to prevent sudden losses of support as income increases.
Work Incentives: Offer incentives for part-time workers to transition into full-time roles.
Education and Training: Provide better access to educational resources and vocational training programs.

GCO is dedicated to working within underserved communities to understand the realities of poverty and the public policies that perpetuate it. Our previous research, including on intergenerational poverty, underscores that America’s social safety net is designed to address situational poverty rather than systemic poverty.

U.S. Sen. Mitt Romney’s ‘One Door’ bill would allow states to integrate social safety net with workforce development

by David Bass | Feb 29, 2024

U.S. Sen. Mitt Romney’s ‘One Door’ bill would allow states to integrate social safety net with workforce development

PEACHTREE CORNERS, GA—U.S. Sen. Mitt Romney, R-Utah, has introduced a bill that would free up the 50 states to implement a “One Door” safety-net reform strategy similar to the very successful model created in Utah. As part of the Alliance for Opportunity, a coalition of groups seeking to drive state-level change in the safety-net system, the Georgia Center for Opportunity is in full support of the bill.

U.S. Rep. Burgess Owens, R-Utah, has previously introduced a “One Door” bill in the House, a version of which passed out of the House Committee on Education and the Workforce in December.

Despite a historically low unemployment rate across the country, states are still facing a workforce crisis with millions of able-bodied Americans on the economic sidelines. Our nation’s workforce participation rate has not fully recovered from the COVID-19 pandemic. By the end of 2023, 41 million Americans relied on food stamps to make ends meet and nearly 90 million Americans were enrolled in Medicaid.

Many of these Americans remain stuck in a safety-net system that simply doesn’t work. The One Door to Work Act, introduced by Sen. Romney on Feb. 28, would allow states the flexibility to implement Utah’s consolidation of federal workforce development and social safety-net programs into a single state entity. The end goal is to help work-capable recipients reintegrate more quickly into the workforce, empowering them to achieve the independence, stability, and purpose that are crucial to human well-being.

“Every state should have the flexibility to design an integrated workforce and safety-net model that enables people to succeed,” said Randy Hicks, president and CEO of the Georgia Center for Opportunity. “Every hour a safety-net recipient spends finding their way through the system is an hour they can’t spend working their way into opportunity. The One Door to Work Act allows states to create a system that works for people.”

The dozens of programs that make up the system have different and, at times, competing goals, inconsistent rules, and overlapping groups of recipients. Often, recipients must resubmit the same information multiple times for multiple programs with the aid of multiple caseworkers. This disconnect fosters despair and keeps recipients in a cycle of poverty—as every hour spent navigating the system is an hour not spent pursuing a path out of it.

What’s more, there is often a disconnect between safety-net programs and welfare-to-work initiatives. The end result is that people stay mired in generational poverty rather than receiving a helping hand to live a better life. The One Door to Work Act would free up state governments to explore ways to create a safety net that works for all citizens and doesn’t cause generational poverty.

“There are 8.7 million open jobs in this country, and the workforce participation rate has not fully recovered from the COVID-19 pandemic. States need the flexibility in the One Door to Work Act to use our workforce dollars to move our people off the sidelines,” said Greg Sindelar, executive director and chief operating officer of the Texas Public Policy Foundation, which is a member of the Alliance for Opportunity.

“A robust workforce is not only integral to a thriving state economy, but also to its social fabric,” added Daniel Erspamer, CEO of the Pelican Institute for Public Policy, also a member of the Alliance. “When a person is unemployed for longer than six months, it is associated with decreased well-being, even measurably affecting mortality. The One Door to Work Act gives workers, employers, and taxpayers the system that they deserve.”

Learn more about the “One Door” policy here.

###

Georgia Center for Opportunity (GCO) is independent, non-partisan, and solutions-focused. Our team is dedicated to creating opportunities for a quality education, fulfilling work, and a healthy family life for all Georgians. To achieve our mission, we research ways to help remove barriers to opportunity in each of these pathways, promote our solutions to policymakers and the public, and help effective and innovative social enterprises deliver results in their communities.

Schedule An Interview

Ask Dr. E: What should national leaders do to rescue America from an economic trainwreck?

by Eric Cochling | Dec 13, 2023

Ask Dr. E: What should national leaders do to rescue America from an economic trainwreck?

OPINION:

Dear Dr. E: The American economy is a mess. Few could argue otherwise, at least with a straight face. Inflation is out of control. Our national debt is unsustainable. Social Security is teetering on bankruptcy. Homeownership is out of the question for millions of young people. Credit card debt is unbelievable. The list could go on and on. Is there any one specific thing you believe our national leaders should do that would rescue America from the economic trainwreck that seems inevitable? — REALISTIC AND WORRIED WORKING MAN FROM ALABAMA

Many of our socioeconomic issues are directly linked to the health of the family structure. Suppose the family structure falls in any civilization. In that case, the number of married couples decreases, economic mobility decreases, median family income decreases, child poverty increases, racial tension increases, and educational tensions increase. The success of an economy is directly related to the stability of the family structure. You cannot have one without the other. Eric Cochling of the Georgia Center for Opportunity says, “To reinvigorate opportunity in America, we must start by restoring the health and vitality of the American family. Nothing less will do.” If the family falls, so does the economy.

Read the full article here

Are Food Stamp Benefits Too Little?

by Erik Randolph | Dec 8, 2023

Are Food Stamp Benefits Too Little?

Key Points

Research Indicating SNAP Benefits Are Too Low: Urban Institute tool suggests that the average cost of a meal exceeds the maximum SNAP benefit, emphasizing the potential inadequacy of the program.
Concerns About Research Methodology: Emphasizes that SNAP is meant to supplement, not replace, food purchases, and spending habits should be expected to exceed the lowest-cost food budget when households have income.
Drawbacks of Raising SNAP Maximum Benefits: Highlights the fiscal irresponsibility of increasing SNAP benefits amidst a large federal deficit and national debt, which could contribute to inflation and rising price levels.

Recent studies are raising concerns about whether the help provided by the Food Stamp program, now known as the Supplemental Nutrition Assistance Program (SNAP), is sufficient. This program, which served 41.2 million people in the Fiscal Year 2022, is the biggest food assistance initiative in the United States.

But before you call your congressperson, let’s take a closer look at the research that suggests SNAP benefits might be too low.

The Research Findings

The Urban Institute has developed a tool indicating the average cost of a “modestly-priced” meal often exceeds the maximum SNAP benefit allotted for a meal. For instance, in the last quarter of 2022, the average “modestly-priced” meal cost was $3.14, surpassing the calculated maximum SNAP benefit of $2.74 for a meal in the 48 contiguous states.

To make matters more complicated, food prices vary across the country. The tool allows users to see how the maximum food benefit falls short in different counties. According to the Urban Institute, the maximum SNAP benefit covered the cost of a modestly- priced meal in only 27 out of 3,143 counties, or just 1 percent of the total.

Other organizations, such as the Brookings Institute, share similar concerns about the adequacy of SNAP benefits, putting pressure on Congress to consider increasing the program’s maximum benefit.

Are We Comparing Apples and Oranges?

It’s essential to be cautious, though, as the research might be comparing different things. The maximum SNAP benefit is based on the Thrifty Food Plan, intended to be the lowest-cost food budget while still providing necessary nutrition for a family. In fact, it is the lowest cost budget produced by the U.S. Department of Agriculture, which begs the question of how the Urban Institute is defining a modestly priced meal.

The Urban Institute’s calculation of a “modestly priced meal” is based on the spending habits of households at or below 130 percent of the official poverty level, but who were also considered to be “food secure.”

It should be expected The Thrifty Food Plan is lower than the actual expenditures of this demographic group because, as the name suggests (the Supplemental Nutrition Assistance Program), SNAP is meant to supplement, not replace, food purchases. As households earn income, it’s expected they will spend more on food than what the minimum budget allows.

Why Is There Still Food Insecurity?

Food insecurity is determined by using answers to the Current Population Survey, but the determination doesn’t specifically address the adequacy of the SNAP maximum benefit. Other factors, like spending habits, diets, and dealing with the stress of poverty, also play a role. It’s important to note that the U.S. faces an obesity problem, even among SNAP participants, suggesting that the issue may not be too few calories but rather poor eating habits.

However, the obesity problem probably has more to do with more nutrition education, better eating habits, and improved financial literacy for participants rather than the program itself.

The Solution: Congress should reform the Supplemental Nutrition Assistance Program (SNAP) so that more households can easily overcome benefits cliffs through steady work and typical pay raises and achieve self-sufficiency faster.

Learn More

SNAP, TANF, welfare, benefits, benefits cliffs

The Solution: Congress should reform the Supplemental Nutrition Assistance Program (SNAP) so that more households can easily overcome benefits cliffs through steady work and typical pay raises and achieve self-sufficiency faster.

Learn More

Negatives of Increasing Benefits

While some might think increasing SNAP benefits is harmless, there are negative consequences to consider. It can affect upward economic mobility for participants ready to leave the program, making it more costly with unwanted economic side effects.

A recent study highlighted a benefit cliff problem in SNAP, where households lose more total income than gained from increased earnings. The study identifies the importance of controlling the maximum benefit to solve benefit cliffs and marriage penalties.

Benefit cliffs are a big problem for households trying to stop relying on safety-net assistance programs. They face an unfair choice between being worse off financially and giving up their long-term goals of moving up economically through steady work. After vulnerable people get help from the safety net, government assistance should help them move forward, not hold them back.

Considering the cost of the program is also important. In the fiscal year 2022, the federal government spent $120 billion on the Food Stamp program. However, the government had a $1.4 trillion deficit, increasing the national debt to over $32 trillion. This financial irresponsibility is a major reason for inflation and higher prices, which impact those on safety-net programs the most.

The Best Strategy Forward

Increasing the maximum SNAP benefit should be approached cautiously to balance adequate nutrition for families while controlling program costs. The Urban Institute’s definition of a reasonably priced meal falls short because they are measuring the wrong aspects when compared to the criteria set for the maximum allotment. There seems to be a methodology problem in their approach. It’s extremely important to get the number right to ensure adequate nutrition for families but in a way that is thrifty to keep program costs under control and to make it easier to fix benefit cliffs and mitigate marriage penalties.

Those concerned about low SNAP benefits should also consider that other assistance programs help participants, such as free school meals and food banks operated by non-profit organizations. Plus, state agencies that administer SNAP all have nutrition education programs to help participants know how to budget for nutritious food. The federal government also assists states in those efforts by providing tools, curricula, and a website. Ultimately, determining the adequacy of Food Stamp benefits should rely on nutrition science, consumer science, financial education, and thriftiness.

*Erik Randolph is the Director of Research for the Georgia Center for Opportunity.

*Monthly average for the fiscal year per program data tables of the Food and Nutrition Service, U.S. Department of Agriculture.

Food Stamps: New Report Outlines 5 Possible Ways To Combat SNAP ‘Benefits Cliffs’ at Federal Level — Would They Save Recipients Money?

by Erik Randolph | Nov 28, 2023

Food Stamps: New Report Outlines 5 Possible Ways To Combat SNAP ‘Benefits Cliffs’ at Federal Level — Would They Save Recipients Money?

A benefits cliff is when a household loses more in net income and benefits from governmental assistance programs — like SNAP — than it gains from additional earnings. According to a report by the Georgia Center for Opportunity, this net loss is a “perverse incentive” discouraging any desire to increase income.

“The very basic concept is that when you lose more in taxes and benefits than you receive from a gain in additional earnings, that’s how we’re defining a cliff,” Erik Randolph, GCO’s research director, told The Center Square. “Let’s say that you get a pay raise worth $2,000, but you actually lose $3,000, you’re $1,000 behind; you’re worse off financially than what you were.”

Read the full article here