Cliff Effect

What is the Cliff Effect?

The Cliff Effect occurs when a person or family becomes ineligible for public assistance programs like housing and childcare subsidies once their income surpasses the threshold set by the Federal Poverty Guidelines, leaving them financially worse off than they were before the income bump. It causes people to turn down raises and promotions and is a major factor in perpetuating multi-generational poverty.

Example: A head of household with two children under the age of eight, earns $13/hour = $27,040/year. Additional housing, childcare, and food assistance benefits worth $25,960, brings her net resources to $53,000.

If she takes a new job at $18/hour her salary is $37,440, but she loses $8000 in benefits, making her net resources now $45,000.

The proposed Cliff Effect legislation (S.119/H.208: An act concerning public assistance for working families and the creation of a pilot program to address the impacts of the Cliff Effect) would give her $8000 in Earned Income Tax Credit to make up the difference. She would be able to take the job and advance in her career.