Institute for Working Families wants to extend subsidies

October 20, 2012

The Indiana Institute for Working Families is calling for the state to smooth out the path to self-sufficiency.

The institute’s latest report, “The Cliff Effect,” shows how relatively small pay increases can lead to big losses in benefits, including food stamps and child care vouchers. Report author Derek Thomas says that low-income workers are quite aware of the “cliff effect,” and it discourages them from continuing to climb up the pay scale to become self-sufficient.

With federally funded food stamps and child care vouchers, a single mother with two children who works full time for $8 an hour can break even on her expenses, according to the report.

She can earn as much as $11.50 per hour and keep those benefits, but if she hits $12 per hour, she loses food stamps, a net loss in annual resources of $2,651.

Going from $15 per hour to $15.50, she loses the child care vouchers, a net loss of $8,454. With that, she falls below the break-even point, and it takes a big jump in pay to stay afloat on one’s own, the report shows.

In Marion County, a single parent with two kids needs to make $19.95 per hour to cover basic expenses, according to the report.

The institute wants Indiana to enact more gradual benefit reductions; raise the eligibility limits for food stamps and child care vouchers; and use all the federal funds available for child care vouchers to reduce the current wait list. Thomas thinks those changes could be made without new legislation.

The institute lacked the manpower to calculate the cost of carrying out those recommendations, Thomas said.

“We recognize that, in the end, additional resources will need to be invested to provide quality care and design programs that allow for economic mobility,” Thomas said. “But we are interested in working with lawmakers to identify solutions.”•
 

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