Elias Ilin
Former assistant policy adviser
Federal Reserve Bank of Atlanta
Alvaro Sanchez
Senior research analyst
Community and Economic Development
Federal Reserve Bank of Atlanta
Discussion Paper 2023-1
September 2023
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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.
JEL classification: D63, H75, I31, I38, O15
Key words: benefits cliffs, workforce development, public assistance, effective marginal tax rate
https://doi.org/10.29338/dp2023-01
Comments to the corresponding author are welcome at alvaro.sanchez@atl.frb.org. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.