On August 16, 2017

Working parents affected most by minimum wage ‘benefits cliff’

By Cyrus Ready-Campbell, VTDigger

Vermonters with incomes near the federal poverty line stand to lose more in benefits than they would gain from an increased minimum wage if they have young children, experts told the Minimum Wage Study Committee on Thursday, Aug. 10.

The Legislature created the committee in June to explore how a minimum wage hike, likely to $15 per hour, would affect Vermont’s economy. The committee was also charged with studying how to lessen the impact of the so-called benefits cliff.

Vermont’s minimum wage is now $10 per hour, and current legislation has it slated to bump up to $10.50 per hour Jan. 1. After that, it’s scheduled to increase annually with inflation.

Both the House and the Senate discussed raising the minimum wage earlier this year, and Senate President Pro Tem Tim Ashe, D/P-Chittenden, said he will prioritize raising the minimum wage in next year’s legislative session. A bill in the House introduced by Rep. Curt McCormack, D-Burlington, proposed a series of small increases which would bring the minimum wage to $15 per hour by 2022.

Paul Dragon, a director at the Agency of Human Services, said that Vermont’s “benefits cliff” — the phenomenon where increasing your income by $1 decreases the value of the state and federal benefits you receive by more than $1 — has been mostly smoothed out recently. Dragon said he doesn’t like to “use a euphemism for something that really affects low-income families,” but that the work his department has done over the past few years has turned it into “really more of a slope than a sharp cliff.”

But the “big driver” for the cliff’s continued existence, Dragon said, is working parents losing eligibility for child care financial assistance as they earn more.

“If there’s one thing that you could point to in terms of this slope and mitigating it, it’s the child care subsidy,” he said.

Deb Brighton, a consultant for the Joint Financial Office, said Vermont’s benefits system currently works as it’s supposed to for people without children. That is, if their annual income is near the poverty line and they earn more, that translates to a true increase in their total available resources (salary plus benefits).

In a report Brighton submitted to the House Committee on Commerce and Economic Development in February, she wrote that “the short-term drop in resources as earnings increase affects mainly families, with incomes between 100 percent and 300 percent of the federal poverty level, who have children younger than 13 needing child care.”

For some of these families, Brighton wrote, “the point at which work will begin to positively affect net income is so far off that it doesn’t seem like a realistic possibility.” And so, she continued, while “the household may be struggling to meet basic needs, any ambition to work harder is frustrated if foreseeable wage gains won’t make the household better off.”

Brighton told the committee Thursday that, for working Vermonters with young children, “it’s not a cliff per se, but it’s a pretty devastating decline.”

The loss of financial support for child care hits single parents especially hard, Brighton said. She told the committee that a single parent with two kids spends twice as much on child care as on food, for example.
Rep. Brian Keefe, R-Manchester, said this issue was “perhaps the biggest quandary that I had coming in here.”

“We’ll get to the businesses and employers and things like that,” he said, “but as far as families that get negatively impacted when the minimum wage goes up, it’s that family right there.”

Rep. Jean O’Sullivan, D-Burlington, told her fellow committee members another committee she sits on has been discussing the high cost of child care in Vermont more generally.

“In House Commerce,” Sullivan said, “another issue we’ve been dealing with is that child care costs are really inhibiting economic development for people who are not receiving benefits.”

“As we approach this, I hope we think about — let’s look at the macro of what all of child care is doing in the state,” Sullivan added, “because that is one of our biggest disincentives for bringing people in and keeping them in the state.”

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