This Op-Ed was originally published in cleveland.com.
Many of us who study public policy as it relates to poverty have long talked about eliminating or reducing the “benefit cliff.”
The benefit cliff refers to that moment when low-wage workers are offered a raise or a promotion and turn it down because they don’t want to lose their childcare, health or nutrition benefits.
These benefit cliffs can be so severe that low-income workers may be temporarily better off financially by not advancing to take a higher-paying job.
The Federal Reserve Bank of Atlanta found that “these benefit cliffs can be so severe that low-income workers may be temporarily better off financially by not advancing to take a higher-paying job.”
These questions have become more pressing in light of the continuing labor shortage.
Public benefits such as childcare, Medicaid health coverage, housing vouchers and food assistance continue to help low-income working families meet their basic needs. In many cases, they make it possible to enter and stay in the workforce.
Public benefits keep nearly half a million Ohioans from falling below the poverty line.
Public benefits keep nearly half a million Ohioans from falling below the poverty line. It’s also important to keep in mind that in Ohio, someone working 40 hours per week for 52 weeks per year at minimum wage would still earn less than the federal poverty level for a family of three.
While nearly all public benefit programs have to follow federal rules and requirements, states do have some flexibility. In fact, both “red” and “blue” states are increasingly making changes to benefit programs and tax policies with the explicit intention of reducing benefit cliffs facing families.
That’s because fixing the benefit cliff is an issue that attracts conservative, moderate and liberal support.
There are three main strategies for Ohio to pursue:
- The State of Ohio should consider expanding its Benefit Bridge Pilot program. This program began in Allen County to support low-wage workers with job-coaching assistance and financial incentives benchmarked to employment goals, as well as subsidized employment. Of course, any expansion should provide local communities with flexibility to design a program that meets local community needs.
- Childcare is another issue to address. The pandemic showed the challenges which arise for employees and employers when childcare is disrupted. Ohio’s childcare subsidy eligibility rate is too low and needs to be raised to 200 percent of the federal poverty level. The eligibility threshold for families returning to the childcare subsidy program is too low. Parents are reluctant to take the risk of a new job if it means they can’t get their childcare subsidy back if things don’t work out.
- Lastly, the Earned Income Tax Credit (EITC) is one of the most effective federal programs to reduce poverty and incentivize work. Refundable tax credits, including EITC, had the effect of pulling 5.3 million Americans out of poverty in 2020, most of whom were children and working-age adults.
Both “red” and “blue” states are increasingly making changes to benefit programs and tax policies with the explicit intention of reducing benefit cliffs facing families.
The good news is that Ohio has an EITC for state income taxes — but it’s one of a small minority of states that don’t make them refundable. Making Ohio’s EITC refundable would help bridge the gap between where benefits end and where family-sustaining wages begin.
It also requires no additional state spending to implement and is the simplest way to address the impact of the benefit cliff.
By implementing these policies, we can show hard-working Ohioans that we support their efforts to move up by offering them a hand up to a better life.