Niskanen Study Finds ‘Patchwork’ Family Benefits System

A new study by the Niskanen Center finds a “patchwork” of family benefits across the United States, creating a challenge for policymakers looking to reform existing programs or add new ones.

The study, Family Benefits in America—2023 Report Card, explores how families in ten states benefit from two sets of social policies: traditional social assistance programs, including Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP), and refundable tax credits, including Earned Income Tax Credits (EITC) and Child Tax Credits (CTC).

Of particular note, the study found that families face higher implicit marginal tax rates when they move from a minimum to a median wage job than when they transition from welfare to a minimum wage job.

“We’ve made a lot of great strides since the 90s,” said Josh McCabe, Niskanen’s director of social policy, during a webinar about the study on Tuesday. “But the way we’ve done this is that we’ve pushed the higher implicit marginal tax rates to families just above the minimum wage level. The poverty trap has become the just-above poverty trap.”

The study evaluates total benefits and implicit marginal tax rates that families with young children face when they increase their earnings. The analysis focuses on 10 states: California, Colorado, Massachusetts, Maryland, Minnesota, New Jersey, New Mexico, New York, Oregon, and Vermont.

For families with no earnings, total benefits from social assistance and refundable tax credits ranged from $12,288 in New Mexico to $18,661 in California for a single parent with one child and $20,832 to $29,737 for married parents with two children. These incomes put them between about two-thirds and just short of the federal poverty threshold in 2023.

In most cases, families face higher implicit marginal tax rates when they move from a minimum to a median wage job than when they transition from welfare to a minimum wage job.

Implicit marginal tax rates are the taxes and lost benefits that result from increasing income for people with low incomes. These rates can be high because means-tested programs, like welfare, Medicaid, and food assistance, are designed to phase out as income increases. This means that when someone with a low income increases their income, they may lose more in benefits than they gain in income.

Keith Barnes, Senior Director of Beyond the Cliff at the Martha O’Bryan Center, said the study will help state policymakers look at the totality of benefit programs and make needed adjustments to the tax code.

“We have a patchwork system which adds to the barriers that families have to navigate,” Barnes said. “When you have to go to multiple agencies and show the same paperwork and tell your story again, these are barriers that are keeping families from focusing on opportunity.”

The study is to repeated annually, said Lean Sargent, a senior policy analyst at Niskanen.