05.26.21

Introducing a Social Benefits Calculator for Forsyth County, NC

When workers who receive social benefits – like food stamps, childcare assistance, or housing vouchers – get a raise, how is their overall income impacted?

It’s not as clear-cut as may think. In many cases, when wages are raised very few workers are better off.

Scroll through the slideshow below to see how a wage increase would impact Jeremiah from Forsyth County, NC.

The Center for the Study of Economic Mobility (CSEM) has launched a new, mobile-friendly benefits calculator aimed at making these complexities understandable using an interactive and easy-to-use set of questions.

“In the past, benefits calculators have been very complicated and made for social scientists with complex bar graphs that were difficult to figure out,” says Dr. Richardson, distinguished professor of economics and founding director of CSEM at Winston Salem State University. “So I thought, why don’t we create something for the people who are actually in the system?”

Dr. Richardson worked on making the concept a reality, partnering with a team from Forsyth Futures to create a simple table from dozens of complex funding formulas. The calculator is for people living in Forsyth County, NC, with expansion likely down the road.

The purpose of the calculator is to better understand how a change in earned income might affect an individual’s or family’s overall income if they are receiving public benefits.”

For years federal and state welfare programs have supported those with low incomes with a variety of different programs ranging from childcare to food assistance. Those programs’ benefits scale back – or instantly stop — as a person’s income rises.

Confusing chart of the cliff effect Each program reduces benefits along a different downward path. Some are gentle slopes. Others flatten and then drop off like a cliff at certain income levels. Still others appear like jagged mountain trails. This makes it extremely difficult for ordinary people to predict what will happen when they get a raise, especially in combination with each other.

It’s also frustrating for those who want to work harder to get ahead.

“Almost everyone has focused on benefits cliffs, where programs suddenly end at a particular income level. I focus on a different aspect — when there are long periods of earning more income and the programs scale back at about the same rate — what I call disincentive deserts,” says Richardson. “There’s no return on your work. You’re never going to get there, no matter how hard you work. We’ve trapped them. You can’t climb up the economic ladder and the hope is gone.”

Various organizations have created benefits calculators that can be helpful for policy analysts, but these calculators can be very confusing for those without a background in statistics as seen in the nearby chart.

Social Benefits Calculator Screenshot CSEM’s user-friendly calculator has no graphs and no complex figures. A simple table compares two monthly wage scenarios and lets the user easily understand and predict what a wage increase might mean for them.

The calculator can also help employers who want to better understand challenges faced by some of their employees. Without delving into employees’ private lives, they can still develop menus of alternatives to a wage increases in order to lower turnover and increase productivity.

In addition, the calculator can help policy analysts, academics, government staff and elected politicians to better understand, on a practical level, how federal and state benefits policies combine to undermine American citizens’ incentives to work.

“The goal is to make this understandable,” says Richardson. “I think even for politicians and policy makers who are in the thick of it.”

The hope is that this calculator could change the conversation because it makes this problem easier to understand for more people.

Information submitted on the site will be kept private and won’t be shared with any outside group or entity for any purpose. Personally identifiable information is always voluntary and not needed to use the calculator.

How does it work?

A user answers several straightforward questions such as the benefits they’re currently enrolled in such as food stamps (SNAP), subsidized childcare assistance, housing choice vouchers and WIC benefits, if they receive wages or a salary, their earned income tax credit, number of kids, medical expenses. (Medicaid is excluded.)

The calculator then shows monthly income and all the benefits they’ll be getting, with a benefits comparison.

In one scenario, as seen in the below table, we see the impact of the minimum wage rising from its current $7.25 to $15; the impact is a 106% increase in monthly wages for full-time workers, from $1,160 to $2,400. But as the table shows, monthly benefits are severely impacted, with the worker losing $815.10 in benefits ($219.45 in food stamps, $124.00 in childcare, $334.80 in housing voucher, $136.85 income tax credit and taxes are $225.96.) So while income more than doubles, the worker is only $199 ahead, losing 84% of their wage (i.e. only keeping 16% of their wage increase.) That’s an 84% effective tax rate.

A monthly scenario with a single parent with two children in preschool receving social benefits and working full time: $7.25 vs. $15.00 per hour.

According to the calculator, raising the minimum wage from $7.25 to $15 (a $106% change) will result in only a 16% net change in wages and social benefits for those getting government assistance – across several scenarios.

“The calculator doesn’t change the welfare system,” says Richardson. “But what I’m trying to do is help people at the margin, giving them the hard truth up front so they can anticipate what’s going to happen and take control of their lives.”

“We need new ways of rewarding work,” says Richardson.

Hopefully the calculator can help people gain control over their lives and can help businesses help their employees move ahead.

“I think this calculator is a fresh start because I believe that someone with a high-school education can use it and quickly get answers. This will be empowering for employees, employers, legislators, and many other groups working on this problem.”

One idea is for companies to provide non-monetary benefits such as subsidized meals, free transportation, and other rewards for productivity besides wages.

“There’s a whole list of non-taxable benefits that we looked up from the IRS that are not going to penalize people by doing better by working harder,” explains Richardson. “What if workers plugged in their own information and said instead of you giving me that $4 an hour wage increase, I’d rather have 20 subsidized meals in your cafeteria or a voucher to take my kid to the doctor?”

“This would sidestep the pernicious effects of what we’ve created with this welfare system,” he said. “At the same time, worker privacy is high on our list, which is why we store all the data, not the employer.”

“Economists get way too wrapped up in measuring income and forget where the hope is snuffed out.”

“We talk about American Dream but these programs are killing the American Dream in the way they really penalize work at the lower end of the ladder,” says Richardson.

Hopefully the calculator can help people gain control over their lives and can help businesses help their employees move ahead.

“I think this calculator is a fresh start because I believe that someone with a high-school education can use it and quickly get answers. I think that’ll be empowering for employees, employers, legislators and many other groups working on this problem.”