American Enterprise Institute scholars led by Angela Rachidi explore a key problem tied to taxpayer-funded benefits.
The US safety net should help low-income families meet their immediate needs while supporting their long-term upward mobility. Yet certain program rules—especially those that create “benefit cliffs”—often do the opposite by discouraging work and trapping families in poverty. At its core, a benefit cliff occurs when government benefits decrease too abruptly as earnings rise, leaving some recipients worse off by working more. This discourages independence through work and jeopardizes upward mobility. …
… We propose a two-pronged strategy. First, we highlight immediate reforms that program administrators and policymakers can implement within the safety net’s existing structure to offer near-term relief to participating households. Second, we outline comprehensive reforms to reconfigure the entire system and better support work, increase efficiency, and encourage two-parent families. Together, these steps are necessary to not only reduce benefit cliffs but also create a more efficient and effective safety net. …
… A common proposal to address benefit cliffs is to extend program eligibility to higher-income households so that benefits can phase out more gradually. However, the trade-offs of such an approach—especially its substantial cost to taxpayers—outweigh the potential advantages. We believe that any reform to address benefit cliffs must consider the broader trade-offs associated with expanding eligibility for safety-net programs. Therefore, we identify three broad principles that should guide safety-net reform efforts, including those to address benefit cliffs:
- The safety net should prioritize policies that support work and marriage as a proven way to escape poverty and achieve upward mobility.1
- Assistance for those capable of work should be temporary and targeted, though the safety net should offer sustained support for those permanently unable to provide for themselves due to disability or age.
- Federal and state funding for the safety net must be grounded in fiscal responsibility, reflecting the government’s duty to be a good steward of public resources.
