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August 14, 2018

Editor's Page

Ramps instead of cliffs

| 9/28/2016

Florida is one of several states where the Social Security Administration is testing an approach that encourages people who receive benefits under the Social Security Disability Insurance (SSDI) program to return to work.

The experiment is noteworthy because it’s structured around principles that could be applied more broadly in addressing both income inequality issues and the weight of entitlements, which now consume nearly 80% of federal revenue.

SSDI recipients have worked in the past — and contributed to the Social Security system — but have developed a condition that prevents them from doing the kind of work they did before. Most SSDI recipients have either muscular-skeletal conditions or psychological problems like bipolar disorder.

In general, it’s time-consuming and difficult to qualify for SSDI benefits. And the payments aren’t huge, ranging from $1,000 to $1,600 a month depending on the medical condition. But unlike traditional welfare benefits, SSDI benefits have no time limits. So despite the modest payout, recipients are typically not eager to lose them — particularly those who live in areas of high unemployment. From the worker’s standpoint, even $1,000 a month may seem better than diving into an uncertain labor market, particularly given the structure of the SSDI benefits, which creates disincentives to returning to work. SSDI recipients are allowed to work, but if they earn more than about $13,560 a year (for non-blind individuals), that monthly check disappears.

In 2011, the SSA began testing a program called the Benefit Offset National Demonstration (BOND). In 10 areas around the country, some SSDI recipients were assigned to the program, and others were invited to participate. Those in the BOND program don’t lose their benefits all at once if they earn more than the $13,560 annual threshold. Instead, they only lose $1 in benefits for each $2 they earn over the threshold and also get enhanced employment counseling along the way.

The idea is that people are more likely to return to work if they can proceed on a “ramp” back into the labor force rather than facing a “cliff” at the $13,560 income threshold.

The BOND program is ongoing, and final results won’t be known until 2022 — reflecting in part how complicated the rules governing SSDI are.

But the principle of ramps vs. cliffs in structuring benefits is one that’s coming into discussion more broadly, and from some unlikely sources. The Florida Chamber of Commerce, for example, has a presentation that captures just how complex our approach to helping low-income people has become, with a blizzard of federal programs, from food stamps to housing assistance to low-income energy assistance to school breakfast programs to subsidized job training and housing vouchers — altogether, 80-plus programs that cost taxpayers more than $1 trillion a year.

Like SSDI, many of those programs have “cliffs” built into them as well. A single mother with two children earning minimum wage, for example, loses eligibility for Head Start for her children once she hits $9.66 an hour. The loss of that benefit represents a net loss of more than $12,000 in income. At $12.56 an hour, there’s another cliff – the loss of SNAP (food stamp) benefits. At $13.58, she loses Medicaid, representing at least $6,000 in income. At $14.54, low-income energy assistance. At $17.94, WIC benefits (a nutrition assistance program).

Collectively, the various benefits cliffs mean that the single parent making minimum wage doesn’t break even until she hits $21 an hour — she ends up being better off with a gross income of $29,000 (with $57,327 in net income and government benefits) than with a gross income of $69,000 (leaving her with net income and benefits of $57,045).

That structure creates powerful disincentives for people to try to move up in the world. Part of the answer to income inequality, the chamber argues, is to allow low-income people who move up the economic ladder to retain some of their benefits — or at least lose them gradually — as they earn more.

Such an approach doesn’t sit well with hard heads who see anyone who gets any kind of government help as a freeloader — as long as you’re not talking about Medicare or Social Security retirement, to which they feel they’re quite entitled.

And it doesn’t sit well with all the bureaucrats and non-profits that administer those myriad programs, since restructuring the benefits system in a simpler, fairer way will mean many fewer programs and many fewer bureaucrats.

Already, some on both the left and right have broached the idea of a guaranteed national income — a grant, distributed monthly, that would go to every American over age 21 and replace all other transfer payments and their bureaucracies. Conservative thinker Charles Murray’s notion of a universal basic income includes a ramp — every American over 21 would receive an annual stipend that would diminish, on a graduated basis, only after the recipient earns, say, $30,000 a year. In Murray’s scheme, recipients would never lose their entire grants no matter how much they earned.

Given the constituencies involved, it’s very hard to imagine how something like that would ever come about in the U.S. But change of some sort has to come. By 2026, mandatory spending (entitlements plus net interest) will consume basically every dollar the government receives in tax revenue.

And if we can’t find some ramps out of the entitlements morass, there will be a cliff, for all of us.

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