A brief by the Center on Budget and Policy Priorities (CBPP) titled It Pays to Work: Work Incentives and the Safety Net refutes critics’ claims that safety net programs discourage work. The majority of adults in poverty have greater economic incentives to become employed, work more hours, or accept pay increases.
Critics contend that safety net programs, such as the Supplemental Nutrition Assistance Program (SNAP) (formerly called food stamps), discourage work because reductions in benefits and increases in taxes for every dollar earned create a higher marginal tax rate. The CBPP report, however, demonstrates that a single mother of two children receiving SNAP more than doubles her net income by taking a half-time job at the federal minimum wage. The benefit of working is even greater when taking into account the Earned Income Tax Credit (EITC) and Child Tax Credit, which are available only to workers (see “Fact of the Week” below). If that same mother works full time at the minimum wage, she can increase her family’s net income by over $20,000.
Safety net critics contend that marginal tax rates can be as high as 80%, meaning an assisted worker could lose 80 cents in higher taxes and reduced benefits for every additional dollar earned. These cases, however, are rare, especially for a single mother with two children. Marginal tax rate disincentives are limited to cases where a mother’s income is between 100% and 150% of poverty, and she receives EITC, SNAP, and housing assistance or Temporary Assistance to Needy Families (TANF). All three benefits would phase out simultaneously. It is unlikely that mothers in this income group would be TANF recipients, as these benefits typically phase out before a household reaches the poverty line. And housing assistance is received by only one in four eligible families.
The report contends that lack of access to quality, affordable childcare is a more significant obstacle to workforce participation for families in poverty than the loss of safety net benefits. Just one in six families that qualify for childcare assistance receives it. Another potential disincentive to work is the lack of an entitlement to housing assistance. A family receiving housing assistance may be hesitant to give it up because they likely would not get it back if their income declined in the future.
It Pays to Work: Work Incentives and the Safety Net is available at http://bit.ly/1P4ymHS.