Shown below are welfare examples of three families. Each of the families represents a married couple with two children. The only difference in the families is their outside income from wages. One family makes zero wages yearly, one makes $15,000 a year, and one makes $35,000 a year. The poverty threshold for a family of four is $27,740. Therefore, Families 1 and 2 are “in poverty.” This page shows what each family could receive in welfare benefits from the top three welfare programs: EITC, SNAP, and Housing Assistance.
Conclusions from the Welfare Examples
Three conclusions stem from the welfare examples:
- The poorest families don’t always get the most benefits. As shown above, the family making $15,000 annually gets slightly higher benefits than the family with no income. The family with no income is left in poverty, whereas the family with $15,000 income ends up $9,528 above the poverty line. Therefore, the focus of the welfare system is poor.
- Families above the poverty threshold get welfare benefits. Normally, welfare is thought of as paid to people in poverty, but as shown in the example, the family making $35,000 in income is above the poverty threshold but still receives $9,158 in welfare.
- The welfare system discourages work for families and individuals with modest income levels. This occurs because the loss in benefits is disproportionate to the gain from working. As shown in the example, if the breadwinner in the family making $15,000 can add $20,000 in wages from working, they will lose $15,320 in welfare benefits. The net increase of $4,680 equals working all year for $2.25 an hour [iv]. The family could also lose other benefits such as Child Nutrition, Head Start, LIHEAP, Lifeline, and state-level welfare. The dramatic loss in benefits is a disincentive to work. More.
Welfare Benefits to Three Families
The following table presents the welfare payments the three families would receive from the three most extensive welfare programs – EITC, SNAP, and Housing Assistance.
Family 1, with zero income from wages, would receive benefits from SNAP, EITC, and Housing Assistance totaling $23,676. Family 2, with $15,000 in income from wages, would receive benefits of $24,478, slightly higher than Family 1 due to the impact of EITC. Family 3, with an income of $35,000, still receives benefits of $9,158 from Snap and EITC. Their income is high enough that they do not qualify for Housing Assistance.
Work Penalty
The welfare examples above show the poor economics resulting from low-income families obtaining additional wages. Their benefits drop significantly as income rises modestly. These “benefit cliffs” can be very dramatic. It is simply not worth it for an individual to go to work full-time for a marginal increase in income. Therefore, the welfare system does not “make work pay.”
Marriage Penalty
The welfare examples above demonstrate why our welfare system discourages marriage. If a single parent marries an individual with a job that takes the couple to an income level above the Poverty Threshold, they will lose most of the welfare benefits. By remaining single, they can come out ahead economically. Many critics argue that this contributes to the high incidence of unmarried mothers on welfare.
Footnotes
[i] Calculated using the State of Illinois SNAP screening tool [Internet]. Data retrieved May 10, 2024. Data for a family living in Illinois, wages as stated above, a married couple with two dependent children, $1,000 in monthly rent, and no assets and no other sources of income or expense. Available here.
[ii] Calculated using the IRS EITC Assistant for the tax year 2023. [Internet]. Data retrieved May 10, 2024. Data for a married couple filing a joint return with two dependent children, wages as stated above, and no other items of income, expenses, or assets. Available here.
[iii] We assumed Families 1 and 2 qualified for a Rent Voucher, and Family 3 did not. The Voucher equaled a rental expense of $1,000 per month, less 30% of the family’s income from wages. The $1,000 monthly rent expense approximates the average HUD rent expense for a family of four in the U.S. (see Housing Assistance Program).
[iv] Assumes the spouse worked a standard work year of 2,080 hours to earn $20,000 in wages for the year.