Discussion Paper

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

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.

Keywords: benefits cliffs; workforce development; public assistance; effective marginal tax rate;

JEL Classification: D63; H75; I31; I38; O15;

https://doi.org/10.29338/dp2023-01

Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Community and Economic Development Discussion Paper

Publication Date: 2023-09-26

Number: 2023-01