Cliff Effect

What is the biggest barrier to getting out of poverty? The Cliff Effect.

The Cliff Effect is the unfortunate situation where a person who is headed toward economic stability earns a wage increase, but the raise triggers the loss of benefits that are worth more than the raise. It’s a huge setback that often keeps people in poverty.

There are people who could work and want to work but won’t work because they can’t afford to lose benefits, such as Medicaid, childcare, SNAP (food stamps), and housing assistance. Because government assistance programs use complex and varying formulas to qualify for benefits, it’s virtually impossible for a low-income family, a community volunteer, or even most human service employees to determine in advance the specific point where each benefit will be lost.

“When we have this discussion about moving people out of poverty, it’s really important to understand what we mean by that. Are we moving them above the federal poverty line, or are we really moving them to a self-sufficient life?”
— Meghan Cummings, executive director of Women’s Fund at Greater Cincinnati Foundation

Circles USA is advocating for the current system to be replaced with prorated schedules that provide smooth exits from assistance programs. In the meantime, Circles USA is supporting communities to develop a Cliff Effect Planning Tool. A Cliff Effect Planning Tool could predict losses in five major assistance programs for different levels of income. This calculator examines subsidies in a specific community as people move between their current income and expected income of up to 200% of the federal poverty level. Circles USA wants to take the mystery out of the equation so people can plan for the loss of benefits as they generate more earned income and build a bridge to long-term economic stability.

Cliff Effect planning tools predict losses in five major assistance programs for 18 different levels of income.