Eliminate Asset-Stripping in Public Benefit
Program - Otherwise known as the "Cliff
Effect"
When families do receive public assistance and
attempt to transition to self-sufficiency, the
eligibility levels of many programs are set
so low that families are cut off the assistance
before families are able to rely on their income
alone. Just a small increase in earnings can
lead to the total elimination of a benefit upon
which a family depends (such as child care subsidies
or health insurance). The family falls off a
"cliff" and ends up financially worse,
despite earning more. In addition to benefit
loss, increased earnings may also lead to higher
income taxes. The combination of rising taxes
and the loss of programs intended to support
work means that extra earnings do not necessarily
translate into financial stability. Steps can
be taken to address the "cliff effect"
by increasing eligibility levels and gradually
reducing benefits so that when a family fully
transitions off public assistance, they are
able to afford comparable services with their
own income.
Similarly, many programs are designed in a
way that does not encourage asset-building to
help families attain self-sufficiency. Medicaid,
for example, limits eligibility to those with
few or no assets. However, personal savings
and assets are precisely the kind of resources
that allow families to move off of, and stay
off of, public benefit programs. To receive
what is intended to be short-term public assistance,
families must eliminate assets that are necessary
for long-term financial stability. The accumulation
of savings and assets are a critical step toward
self-sufficiency and when policies do not encourage
them, people will fall back on full assistance
time and time again. Opportunity@Work advocates
support the following improvements in program
and policy design:
- Eliminate asset limits or substantially increase
limits so recipients are not penalized for saving
- Exclude assets such as college savings accounts
or individual development accounts from asset
limits
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