Rather than providing a hand up, Illinois’ welfare system can become a trap.
For single-and two-parent households in Illinois, there is a significant welfare “cliff” where the household may become worse off financially as they work more hours or as their wages increase. That is because the available welfare benefits decline by a greater amount than the increase in earned income.
This study analyzed a potential welfare benefits package for single- and two-parent households, both with two young children, in Cook, Lake and St. Clair counties. The potential means-tested benefits included tax credits, cash assistance, food assistance, housing assistance, child-care subsidies and health care.
The study’s findings for Cook County include:
- A wide range of benefits provides a large magnitude of support. The potential sum of welfare benefits can reach $47,894 annually for single-parent households and $41,237 for two-parent households. Welfare benefits will be available to some households earning as much as $74,880 annually.
- Welfare cliffs are significant and can trap families. A single mom has the most resources available to her family when she works full time at a wage of $8.25 to $12 an hour. Disturbingly, taking a pay increase to $18 an hour can leave her with about one-third fewer total resources (net income and government benefits). In order to make work “pay” again, she would need an hourly wage of $38 to mitigate the impact of lost benefits and higher taxes.
- The system is inequitable. A minimum wage increase to $10 an hour would push a household where both parents work for minimum wage over the welfare cliff. They would suffer a net loss in household resources of about $9,000 as reduced government benefits more than cancel out the higher wages.
Welfare does not afford its recipients a lavish lifestyle by any means, but the system does create additional and unnecessary barriers to self-sufficiency. This is unfair to taxpayers and the families trapped in this dysfunctional system.
Reducing the economic disincentives of the welfare system will require more flexibility from the federal level and a commitment from state officials to ensure that moving up the income ladder doesn’t make families financially worse off.
Illinois will need to seek opportunities to streamline duplicative and overlapping programs, re-examine the eligibility limits of each program and ensure that benefits taper off in a more reasonable manner as earned income rises. In particular, the steep cutoff points for housing benefits, child-care assistance and health-care assistance will need to be addressed.