Ryan's Wrong: Safety Net Doesn't Punish Work
Some critics of various low-income assistance programs — including, frequently, House Speaker Paul Ryan — argue that the safety net discourages work. In particular, they contend that participants in these programs can receive more than, or nearly as much as, they would from working if they instead stay home and receive government aid. Critics also argue that low-paid workers have little incentive to work more hours or seek higher wages because losses in government aid will cancel out the earnings gains.
Our comprehensive new analysis of the data and research shows these charges to be incorrect. In the overwhelming majority of cases, adults in poverty are significantly better off if they get a job, work more hours, or receive a wage hike.
Consider a hypothetical unemployed single mother with two children. This family gains enormously if she gets a job. After taking into account state and federal taxes, including federal tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit, plus Supplemental Nutrition Assistance Program (SNAP, or food stamps) benefits, this mother would gain over $10,000 in annual income by taking a job working 20 hours a week at the federal minimum wage, compared with not working. If she secured a full-time minimum-wage job, she'd do even better, making $20,000 more a year.
Even considering unlikely scenarios, such as families receiving both Temporary Assistance for Needy Families and housing assistance — neither of which is available to most poor families that meet the eligibility criteria due to funding limitations — incomes typically are still substantially higher if a family member works than if they do not.
The safety net encourages so many people to work in part due to changes that have been made over the past few decades to boost work incentives. In particular, the EITC and the low-income provisions of the Child Tax Credit have both been expanded significantly; these refundable credits initially grow with each additional dollar earned, encouraging parents and other adults to find a job or work more hours. Since these credits increase as earnings increase, they offset much of, or often all of, the effects of other benefits' declining as earnings increase.
The research is striking on another point: Workers in poverty typically have a greater incentive to work than people who are better off. According to a recent study by the non-partisan Congressional Budget Office, workers with earnings below half of the poverty line typically lose 14 cents in higher taxes and/or lower benefits for each additional dollar earned. Those earning between 50 and 100 percent of the poverty line (about $19,300 for a family of three) typically lose about 24 cents of each additional dollar they earn. Groups with higher incomes typically lose about 33 cents of each additional dollar.
So how do some policymakers argue that the safety net discourages work? To make his case, Speaker Ryan cites a hypothetical example of a single mother with one child working at the minimum wage who would lose 80 or 90 cents for each additional dollar she earns. But this example is the exception, not the rule. Our research shows that Speaker Ryan's and similar examples assume the receipt of unusual combinations of benefits over narrow income ranges. We estimate that only about 3 percent of single mothers with children with earnings less than 150 percent of the poverty line find themselves in the situation that Speaker Ryan has outlined.
While our research indicates that most people in poverty, or with earnings just above it, already have a strong incentive to work, policies to improve work incentives for those who do not are worth considering. Such consideration, however, should recognize the tough policy tradeoffs involved.
There are only two options to remedy those situations where the returns to working are modest for the poor and near-poor. One is to phase out any government benefits they may receive more slowly as earnings rise. This approach, however, would substantially increase costs for the government. The other option would be to provide smaller benefits for people in poverty to begin with, so they lose less in benefits as their earnings increase. This, too, has a major shortcoming: It would worsen poverty and hardship immediately, and would also reduce the proven long-term gains in health, education, and later earnings for children who benefit from government aid.
Speaker Ryan's proposed "solution" — block grants with extensive state flexibility — doesn't address these tradeoffs. State policymakers would be confronted with the same difficult choices. That approach is also a response to a problem that exists more in theory than in practice. After all, for the vast majority of poor Americans, it pays to work.
Isaac Shapiro is a senior fellow at the Center on Budget and Policy Priorities.