The Welfare Cliff

The Welfare Cliff Effect

Childcare subsidies exist to bridge the gap between income and expenses for working families. Workers relying on childcare assistance reach a “cliff” where a slight increase in income disqualifies them for services worth substantially more than their pay raise.

Individuals trying to work their way out of poverty struggle because benefits are reduced faster than their wages increase. This is particularly true for single parents relying on government assistance for childcare costs. Trapping people in a cycle of poverty is unfair for individuals trying to work their way out of their situation and off public assistance. It’s also costly for taxpayers, as individuals who could become net tax contributors are stuck in a cycle of being net recipients of tax dollars.

Creating a stair-step system to help people work their way out of poverty would help address the shortfalls in current public assistance programs. People should ultimately be financially better off by working and earning more money. Putting workers in a position where a raise could mean losing the ability to afford a rent payment is not a situation anyone should have to face. Creating a path for people to work their way out of poverty should ultimately reduce public assistance costs as more individuals become financially independent and no longer need government assistance.

Pennsylvania's Solution:

Require child care subsidy co-payments to be calculated based on a percentage of the adjusted gross income (AGI) of a family, taking into account federal poverty levels (FPL).

Co-payments for child care start at a minimum of $5 per week and don’t exceed: