The benefits cliff, although a hazard, is not an indictment on the social safety net. The social safety net provides people with support above what they would otherwise have, regardless of the benefits cliff.
The first chart below highlights this fact. It compares a household's pre-tax income to its after-tax income plus benefits. It reveals how the various benefits provide households with support beyond what their wages alone supply. But, the chart also shows the dangers of the benefits cliff and pinpoints the additional worry that households often only see small gains in after-tax income plus benefits when their pre-tax income increases.
This additional worry is best illustrated by choosing a family size of one adult and three children and selecting the benefits of food stamps, childcare subsidy, and housing choice voucher. Users will see on the top chart that at many income levels after-tax income plus benefits fails to increase significantly as pre-tax income increases.
The bottom chart zeroes in on this phenomenon. It highlights how much a household’s after-tax income plus benefits increases for each dollar increase in pre-tax income. For example, an after-tax income plus benefits increase of $0.50 means that at the given income level, the household will see its after-tax income plus benefits increase by 50 cents for each dollar increase in pre-tax income.
The application includes federal and state income taxes, and payroll taxes in its tax calculations. Users can also include the earned income tax credit (EITC) in tax calculations. The EITC is a yearly tax credit aimed at low-income working households and our application prorates the amount monthly.
Note: The impact on net pay application may not work in Internet Explorer.