Following the COVID-19 pandemic’s tremendous economic impact, this holiday season may witness more Oklahomans than ever before interacting with state and federal public assistance programs or tax benefits after losing jobs or wages. These Oklahomans will learn what many low-income Oklahomans have learned the hard way — even slight adjustments to their wages can mean the loss of hundreds or thousands of dollars of public assistance or tax breaks designed to support low-income families.
A new report from the Oklahoma Policy Institute — entitled “Plateaus and Cliff Effects in Oklahoma” — is among the first of its kind to examine how public supports and income interact to impact low-income Oklahomans. The report:
- Examines how public assistance programs interact to make resources available to families,
- Demonstrates how the path for Oklahoma families to move from assistance to self-sufficiency is both complicated and unpredictable,
- Uses a household-level simulator (specific to Oklahoma tax law and assistance programs) to demonstrate how even just $1 of extra income can cause disproportionate harm to recipients through benefit “cliff effects,” and
- Recommends next steps for Oklahoma elected officials and policymakers to help smooth out this path for Oklahomans.
LINKS TO: Full report | Executive Summary | Appendix
These are unprecedented times for many Oklahomans, including thousands who either lost jobs or wages during the pandemic. Many of these Oklahomans never had to avail themselves of public assistance programs — until now, said OK Policy Executive Director Ahniwake Rose.
“As a state-level policy issue, Oklahoma lawmakers have been able to kick the can down the road because federal support — limited as it was — filled benefit gaps for many Oklahomans,” Rose said. “As that federal support will likely expire during this holiday season without Congressional action, the upcoming legislative session will be an opportunity for Oklahoma to address and adequately fund vital, state-level assistance programs and tax benefits that allow low-income Oklahomans to take a job or increase hours without fear of losing key benefits that allow them to work in the first place.”
This report was produced with support from the Charles and Lynn Schusterman Family Foundation, a Tulsa-based philanthropic organization that seeks to improve lives, strengthen communities, and advance equity.
“Oklahoma’s public assistance programs provide critical support to hundreds of thousands of families across the state, and this analysis from the Oklahoma Policy Institute sheds light on where these programs can be expanded and improved so families don’t lose resources when their earned income rises,” said Michael DuPont, Senior Program Officer with the Charles and Lynn Schusterman Family Foundation. “Now more than ever, as families are financially strained because of the economic fallout of the COVID-19 pandemic, we need these assistance programs to function properly in facilitating upward mobility. The recommendations in this report chart the path forward to make that happen.”
What are public assistance programs?
The state and federal government provides a number of direct assistance programs and tax benefits designed to support households that live in and near poverty. These programs include cash assistance programs and non-cash assistance programs that meet specific needs such as food, housing, health care, and federal and state tax credits. Some of the most utilized or familiar programs include: health programs like Medicaid and Medicare; Social Security and Social Security Disability Insurance; unemployment; child care subsidies; Temporary Assistance for Needy Families (TANF); food programs such as Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), Supplemental Nutrition Assistance Program (SNAP), and the national school lunch program; housing assistance; the Earned Income Tax Credit (federal and state); and more.
Assistance programs, however, are not perfect. One particularly troubling feature is the “cliff effect,” which occurs when participants’ income increases enough that reduced benefits can offset much or all of the increased income, leaving the family little better off or even worse off. Even when programs are designed with a benefit “slope” rather than a cliff, families may experience a “plateau” where available resources vary little even with significant increases in earnings. Benefits are essential to supporting low-income Oklahoma families, both those who are able to move toward self-sufficiency and those who are not. Cliffs and plateaus must be understood as issues to be recognized and minimized, and not as reasons to reduce supports for families at any income level.
- About 1 in 6 Oklahomans live in poverty, with the poverty rate even higher for children, women, people with disabilities, and people of color.
- More than a million Oklahoma households receive public assistance from one or more of these essential programs. Individual programs serve as few as 24,000 households and as many as 1.3 million.
- The programs provide average benefits ranging from $40 to more than $15,000 per person per year.
Benefit drop-offs can discourage work
As an example of how income and supports interact, even 15 hours of work weekly will end TANF assistance and Medicaid coverage (until Medicaid is expanded in 2021) for the working adult in a very low-income family with only one part-time worker. This loss comes even though the after-tax income is only $677 monthly. Using OK Policy’s benefits calculator, the report found that families who participate in TANF and receive child support may lose assistance and be worse off with child support than without it.
The report found that benefit drop-offs can discourage people from working more hours. A single parent of one child who increases hours from 20 to 40 per week would earn an additional $833 monthly. However, overall resources available to the family — the additional income in combination with benefits — would increase by just $580 per month due to the loss of public assistance.
These plateaus and cliffs interact so that many families have fewer resources at higher wage rates than at low ones, for example:
- A single parent of one child, working full-time, would have fewer resources earning $16 per hour than earning $12 per hour.
- A single parent of two children, working full-time, would have fewer total resources earning $20 per hour than earning $11 per hour.
- A married couple with two children, both working full-time, would lose $541 in total resources if one received a $6 hourly pay raise.
Most families in OK Policy’s simulation saw little overall gain as they earned more. Effectively, low-income families saw a tax rate of 75 to 78 percent (in the form of reduced assistance and higher taxes) as their income grows and replaces assistance and tax credits.
What are next steps for Oklahoma?
The report outlines recommendations to address cliffs and plateaus, as well as steps our elected officials and policy makers can take to better support working families in Oklahoma. Key among the report’s recommendations for Oklahoma elected officials and policymakers are:
- Implement Medicaid expansion for adults
- Increase the maximum income level for Medicaid for children
- Increase the earned income disregard for Temporary Assistance for Needy Families (TANF)
- Disregard and pass through child support to TANF families
- Apply for a Summer Electronic Benefits Transfer for Children (Summer EBT) demonstration program, which would provide additional resources for families to purchase food during the summer months for those children certified to receive free or reduced-price school meals during the school year.
- Advocate to maintain categorical eligibility for Supplemental Nutrition Assistance Program (SNAP)
- Encourage broader adoption of Community Eligibility for school nutrition programs
- Engage the Department of Human Services in an evaluation of opportunities to reduce the cliff effect in child care subsidy
- Restore refundability of the state Earned Income Tax Credit (EITC) and increase the amount of the credit
- Increase the state Sales Tax Relief Credit and add a gradual phase-down to eliminate a cliff
About the authors
The report authors are Paul Shinn, Budget and Tax Senior Policy Analyst with the Oklahoma Policy Institute, and Kenneth Kickham, Professor of Political Science with the University of Central Oklahoma. This work is based on a benefits model originally developed by Mickey Hefner of Austin Peay State University.