Editor’s note: This commentary is by Tom Pelham, who was finance commissioner in the Dean administration and tax commissioner in the Douglas administration and served in the Vermont House as an independent. He is co-founder of Campaign for Vermont.
[T]he “benefits cliff” — it’s bad for beneficiaries, bad for taxpayers and bad for the economy.
What’s the benefits cliff? It can best be characterized as a benefits structure resulting in a beneficiary of multiple publicly funded benefits losing those benefits more rapidly than the rate of increased earnings. The benefits cliff creates a huge disincentive to work.
This 2014 legislative analysis on Page 15 profiles the benefits cliff. It shows that a single parent with one child is a net economic loser when accepting an hourly wage between $9.62 and $20.43.
The cliff thus provides a serious barrier for recipients of public benefits to advance their careers and productively engage in contributing to and climbing the economic ladder. This barrier also locks taxpayers into funding benefit programs that might otherwise be supplanted by employment income.
Further, here’s an excellent and honest article by a parent who’s done the math and considered the trade-offs, both economic and principled, relative to the benefits cliff.
This problem has been circled around for years. Here’s a 2010 report of recommendations from the then-secretary of the Agency of Human Services and the commissioner of the Department for Children and Families in the Douglas administration.
Unfortunately, the last six years have been consumed by a status quo strategy of pumping more and more taxpayer money into a dysfunctional AHS benefits delivery system.
Since then, if the entrapment of both beneficiaries and taxpayers by the benefits cliff had powerful leaders supporting its resolution, it would be solved by now. Unfortunately, the last six years have been consumed by a status quo strategy of pumping more and more taxpayer money into a dysfunctional AHS benefits delivery system. The compartmentalization of AHS programs into benefit silos has remained largely unchanged, and the archaic 1980s technological platform upon which these programs reside remains today.
Absent an integrated eligibility and benefits technological platform, resolving the benefits cliff problem is far more difficult. The administration’s fumbling with Vermont Health Connect and the failed focus on single-payer health care have sucked both staff and financial resources away from solving underlying and well-identified problems at AHS.
Consider these hard facts. Since fiscal 2010 and inclusive of the 2017 House-passed budget, the state-funded portion of the AHS budget has grown by 6.6 percent per year, from $715.3 million to nearly $1.12 billion. That is an increase of $401.6 million in state dollars pumped into the compartmentalized program infrastructure at AHS.
If only a quarter of this spending growth had been dedicated to eliminating the benefits cliff problem, which pervades the entire agency, the story today would be markedly different than it is. Sadly, there were no Statehouse leaders to champion this important reform.
Our Statehouse leaders are fully capable of turning benefit cliffs into benefit slopes. For 2016, using property tax dollars, the Legislature extended the benefit slope for income sensitivity from $109,000 in 2015 to $137,500 in 2016, a 26 percent increase. That slope, which once was a cliff at $90,000, now provides even upper-income Vermonters with a soft landing until $137,500.
Some argue that the culture of the Legislature keeps a growing portion of Vermonters dependent on public benefit programs. The theory goes that if Vermonters’ economic well-being, whether by benefit programs or corporate welfare, rests on the shoulders of politicians, then come election time, voters will do “the right thing” for the sponsoring politicians.
I hope this is a misguided assessment, as its only outcome is the implosion of economic opportunity for Vermonters. Yet, in recent years the control of Vermont’s $31 billion economy is more and more in the hands of Statehouse operatives. From aggressive state budget growth, to increased property taxes and the further empowerment of the education lobby via Act 46, to the management of hospital budgets by the Green Mountain Care Board and mandated health care insurance via Vermont Health Connect, to the leveraging of electric rates for energy efficiency and renewable energy subsidies, the entrepreneurial energy in the private sector is being sapped and supplanted by Statehouse political leaders and the growing army of special interest lobbyists who successfully plead their cause.
Yet, in the end the fundamental truth is that public-sector spending rests on the shoulders of the private-sector economy and its growth. With no population growth, an aging population, employment numbers still below those of 2007 and 2008 and income tax growth driven more by tax increases rather than higher incomes in a growing economy, the signs are flashing red that our Statehouse leaders have pushed the envelope too far.
Fixing the benefits cliff would be a large step in a more positive direction.