Government Credits Make Working Pay Off
February 26, 2013 | By Kathleen Pender | SF Gate | Link to article
Does it pay to take a minimum-wage job?
That's the question Don Y. posed after reading my Feb. 14 column on President Obama's proposal to increase the federal minimum wage from $7.25 per hour to $9 by 2015. Nineteen states and some cities have already raised their minimum wage above the federal level. In California it's $8, and in San Francisco it's $10.55.
"The other day at a friend's home a few of us discussed the minimum wage," Don writes. "Someone said, 'With all the freebies available to unemployed people, they would not choose to opt out of those programs and work.' Another person said they could work at that wage level and NOT lose the benefits they now enjoy. I disagreed, and lots of debate followed. Was I wrong, or can they work and retain benefits?"
The answer is yes and no.
The government provides a broad array of safety-net programs to the poor and unemployed, each with its own set of elaborate rules that rival the tax code in their complexity.
Unemployment benefits typically end when you take a full-time job, but you must have worked recently to get them and their duration is limited. In California, the maximum is 73 weeks.
Other benefits that are available only to people with minimal income and assets - such as cash welfare payments, food stamps, Medicaid/Medi-Cal, and housing and child care subsidies - begin phasing out when income increases. How fast they disappear depends on household income, family size and composition, and place of residence.
But taking a job can qualify a person for two tax credits available only to low- and middle-income working people. The earned income tax credit and child tax credit can reduce a low-wage worker's taxes below zero, resulting in a payment from the government that can more than offset payroll taxes and the loss of safety-net benefits.
Before the mid-1990s, taking a minimum-wage job often would leave a person worse off after factoring in the loss of government aid and work expenses.
The welfare reform act of 1996 tried to change that in various ways, such as letting states disregard a higher level of earnings before people begin to lose welfare benefits.
Other changes around the same time had an even bigger impact, such as increasing the earned income tax credit and expanding Medicaid and child care subsidies, says Elizabeth Lower-Basch, a senior policy analyst with the Center for Law and Social Policy.
Today, "you are almost always better going from no work to work," she says.
How much better varies widely. In general, able-bodied adults younger than 65 with no children have little to lose from taking a low-wage job. That's because they receive few benefits (other than unemployment, if eligible).
They cannot receive the government's main welfare program, Temporary Assistance for Needy Families (called CalWORKS in California). They can get food stamps (now called Supplemental Nutrition Assistance Program, or Snap) and a small earned income tax credit. In some states, indigent single childless adults can get general assistance payments. In California, these vary by county. San Francisco has the highest - $342 a month, or $422 if the person participates in work-related activities.
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Families with children are eligible for more benefits.
In California, a family of four with two children younger than 17, no income and few assets could get $762 a month in CalWORKS (cash welfare) and $668 a month in CalFresh (food stamps), Rhorer says.
If Dad got a full-time job at California's minimum wage, he would earn $16,640 a year, or $1,387 a month. The family's welfare payment would be cut to $181 a month and its food stamps would be cut by one-third to one-half depending on its living expenses, Rhorer says. But it would still be ahead by $472 a month (assuming a 50 percent cut in food stamps).