Benefits Cliffs, Disincentive Deserts, and Economic Mobility

This paper highlights a bigger problem than benefits cliffs for people receiving government assistance, which we call “disincentive deserts.” These “deserts” are long ranges of work effort with 90–100% effective marginal tax rates (EMTRs). Using a tax/federal benefits simulator developed for Forsyth County, NC, we show that EMTRs for individuals receiving benefits range between 90% and 100% through a vast range of income. A rational individual would never work more than part-time, according to indifference curve theory. We discuss opportunities for the private sector to reconsider rewards for employees, since wage increases may harm some low-income workers because of cuts in their government benefits.