▶ 0:14:59Chair Ernst: Over the past 50 years, the national poverty rate has barely moved, and iowa is no exception. For far too many small businesses and their employees, federal bureaucracy stands in the way of economic opportunity. Today, I am excited to convene this committee to discuss federal benefits cliffs and their impact on america's job creators.
▶ 0:15:25Chair Ernst: These clips occur when a small business increase in income leads to a significant decrease in federal welfare benefits. Benefits cliffs create a paradox where the federal government in effect penalizes workers and leaves them worse off for pursuing higher income. It is clear there is not a one-size-fits-all solution.
▶ 0:15:48Chair Ernst: The reality is, despite over 80 federal programs and a trillion taxpayer dollars spent annually, the federal government often fails to address the barriers to self-sufficiency faced by those living in poverty. To make matters worse, the complex interactions of dozens of different programs create unintended cliffs and inhibit upward mobility.
▶ 0:16:14Chair Ernst: As a result, for many iowans and americans across the country struggling to make ends meet, taking one step forward often means taking two steps back. With misguided incentives, workers are encouraged to put off promotions, turn down full-time work, and decline over time opportunities to maintain eligibility for federal welfare programs. Benefits cliffs also create significant workforce challenges for small businesses seeking to grow their operations.
▶ 0:16:45Chair Ernst: Small business employers hoping to reward top talent are instead faced with the reality that due to misguided federal policies, rewarding hard workers may actually harm their employees financially. A recent ohio chamber of commerce survey found that one in five businesses experienced personnel issues due to worker concerns about losing public assistance. I want to give you one brief example of the cliff effect.
▶ 0:17:16Chair Ernst: Years ago, while serving in the iowa state senate, I visited an assisted living center in my district at the time, in lenox, iowa. I had the opportunity to visit with a young woman and single mom, likely in her 20's, who was employed by the assisted living home. She began working at the facility as a certified nursing assistant and quickly excelled.
▶ 0:17:41Chair Ernst: She was a hard worker and it was clear that the residents all adored her, which led to a point where the assisted living home offered her a supervisory role with more responsibility. The promotion, the mother explained, would be a really tremendous opportunity.
▶ 0:18:00Chair Ernst: However, for those receiving government assistance and having an extra mouth to feed, as she did, the decision can be a bit trickier, since a high income level may put them over the threshold for certain government assistance. This young woman calculated what her pay increase would be, along with the government assistance that she would lose.
▶ 0:18:22Chair Ernst: And what she figured out -- if she took the promotion, she would lose about $200 she was already working with
▶ 0:18:54Chair Ernst: Challenging numbers. To her credit, and I really appreciate this young woman -- to her credit, she chose to take the promotion, knowing that she would lose that $200 a month. It was not an easy decision, but she knew if she did not take that promotion, she would never, ever get ahead of where she was at that time, for her and her child.
▶ 0:19:24Chair Ernst: However, for many, that decision might be much more costly and too risky. Today, I am -- the upward mobility act recognizes what most americans understand. The best solutions often don't come up washington.
▶ 0:19:49Chair Ernst: The legislation creates a pilot of authority for five states to combine funding from 10 federal antipoverty programs, including snap and 10th -- and tanf into a string to eliminate budget cliffs all remaining deficit neutral.
▶ 0:20:09Chair Ernst: This flexible funding will encourage states to create a smooth, gradual decrease in overall benefits as income increases, ensuring incentives remain for work and economic opportunity. Hard-working folks should not be punished for doing what is right for themselves and their families.
▶ 0:20:32Chair Ernst: By empowering states, the upward mobility act will reduce government-imposed barriers to financial independence, and streamline the administration of federal welfare programs, while taking measures to protect against fraud. I know that small business owners across our nation are committed to bettering the lives of future -- and future career prospects of their employees. The values of hard work and self-sufficiency have defined who we are as a nation.
▶ 0:21:02Chair Ernst: By ending benefits cliffs through common sense solutions, we can ensure that workers across america are rewarded with increased opportunity on the merits of their labor, and right on time, I will now recognize our ranking member markey for his comments.
▶ 0:21:19Sen. Markey: Thank you, madam chair. Just for everyone's notice here, the leadership does not recognize the significance of the small business committee and scheduled hearings on the floor of the senate, which requires our attendance and may be more today. But it helps me to get my 10,000 steps. [laughter] so there is a public health benefit that comes from it. Thank you, madam chair.
▶ 0:21:51Sen. Markey: Today's hearing is about public programs and how best to support economic mobility. But mango republicans have shown they are not interested in undressing benefit cliffs. In fact, they have been callously pushing people over a cliff.
▶ 0:22:06Sen. Markey: It has been a year since trump and republicans forced through their big ugly bill, and since then, not only has national medicaid coverage been put at risk for 8 million small business owners and workers, but it is likely that as many as 1.5 million hungry children have lost their supplemental nutrition assistance program, or snap, benefits.
▶ 0:22:33Sen. Markey: 1,500,000 children in less than one year. In massachusetts alone, if the thousand hungry children have lost their snap benefits because of harmful restrictions in the big ugly bill, amounting to 15% fewer children in massachusetts receiving nutrition assistance. That is in less than one year. That is food for children.
▶ 0:23:01Sen. Markey: In addition to taking food away from children, trump's bill is forcing rural hospitals to close around the country. It is forcing millions of people to lose their health care. It is stealing billions of nutrition benefits from children, all to pay for trump's billionaire tax cuts.
▶ 0:23:22Sen. Markey: Of the 22 million people on the affordable care act subsidies that go away -- 10 million of those people are either small business owners or people who work at small businesses. That is a dramatic spike in health care costs for those individuals and businesses. When the mango republicans talk about innovating our safety net programs, our ears should perk up.
▶ 0:23:51Sen. Markey: To them, innovation really means providing fewer resources at the federal level and forcing states that are already stretched thin to cover the cost. That is obliteration. Trump said it himself, saying it is not possible -- this is him a month ago. Trump said it is not possible for the federal government to fund medicaid, medicare, and child care, and the states should take it over.
▶ 0:24:19Sen. Markey: If the states had that money in the first place, they would have done it. That is why there is a program called medicare and medicaid and why we need childcare. Instead, he said the federal government should focus on one thing -- military spending. He wants to increase that budget to $1.5 trillion. He said it all out loud.
▶ 0:24:41Sen. Markey: And trump is putting his money -- our money -- where his mouth is, with that trillion and a half dollar military spending request. And rather than spending public benefits, reducing costs, they would choose to spend more than a trillion dollars to carry out illegal wars abroad and make it more expensive to live at home. Gas prices up. Food prices up. Health care costs up.
▶ 0:25:13Sen. Markey: Medicaid slashed. Education slashed. We can see what the formula looks like. 1.5 million american children going hungry because of snap cuts. 8 million small businesses and their workers losing out on health care coverage. It is clearly not the families at home whose pockets have a trump-sized hole in them.
▶ 0:25:38Sen. Markey: Republicans slashed public programs and americans are being crushed by tariff taxes, paying more of the pump, spending their hard earned money on skyrocketing health care, grocery, and electricity costs. Republicans led by the self dealer in chief, donald trump, are drifting the government for their billionaire buddies. The president and his manga loyalists are lining their pockets using preferential contracts, payouts for people who attacked the police.
▶ 0:26:09Sen. Markey: He wants a $1.8 billion fund, a cache for criminals program, so he can pay off the oath keepers, the proud boys, the insurrectionists. It is cash for criminals while he is slashing food stamps, slashing medicaid. It is absolutely -- it is just abominable. He is running the justice department like it is a 1920's gangster movie.
▶ 0:26:34Sen. Markey: He continues to bulldoze the law to secure money for his vanity project, his gilded white house ballroom, his mussolini-inspired arch next to the national cemetery. We are going to hear republicans claim they want to improve public health care programs. You see how the policies erode the social safety net so that their mega-donors have more money to buy another country estate.
▶ 0:27:02Sen. Markey: It is clear that trump and his loyalists have a different agenda, one that steals from the poor and gives to the rich, robin hood in reverse. I believe it becomes the number one priority that every american gets what they need for their family, and I look forward to hearing from her witnesses today. Thank you, madam chair.
▶ 0:27:20Chair Ernst: Thank you, ranking member markey. Again I want to extend a warm welcome to all of our witnesses today. I am thankful that you took time out of your busy schedules to join us here in the committee. We will now go ahead to witness introductions. First, we have Mr. jeremiah terhark from urbandale, iowa.
▶ 0:27:44Chair Ernst: He is the ceo and founder of webspec, a regional web software and marketing firm. He is a partner at the iowa sign company, president of the iowa fireworks company, and owner of terhark properties. He also serves as the affiliate share for the greater des moines partnership and sits on the board of trustees of the hoover presidential library foundation.
▶ 0:28:10Chair Ernst: He holds a bachelors degree from evangel university. Thank you for being here. It is good to have you in D.C. I would like to recognize senator husted from ohio to introduce our next witness. Senator, you are recognized.
▶ 0:28:27Sen. Sheehy: Stated -- Sen.
▶ 0:28:31Husted: I want to introduce Mr. jack schron, the president of a manufacturing firm. He represents a multigenerational leadership within the company, which produces work holding equipment and precision components used in industries such as aerospace, defense, and industrial manufacturing.
▶ 0:28:56Husted: Under his leadership, the company has become a driving force behind efforts to position northeast ohio as a national hub for advanced manufacturing, emphasizing that long-term growth, and on skills, training. A huge training for skills training, education, and an inclusive workforce.
▶ 0:29:17Husted: He has invested heavily in developing talent, from launching a widely used tooling trading platform to funding employee upskilling, apprenticeships, and programs for students, including those with special needs and individuals seeking second chance employment.
▶ 0:29:36Husted: The company also reflects these values in its operations, from redeveloping a major industrial site into a headquarters and maintaining a strong commitment to employee advancement and it combines manufacturing with a broader mission building a more inclusive pipeline into well-paying careers.
▶ 0:30:01Husted: He also has been active in local public service, elected to the cuyahoga county council, where he focused on economic development, workforce training, and job training issues, and has served as an army reserve lt. Col.. In both his business and civic roles, he has been a prominent advocate for strengthening skilled manufacturing and the workforce pipeline in ohio, and I am proud to have him here testifying on ways we can end the benefit cliff. Jack, great to have you here today.
▶ 0:30:30Chair Ernst: Thank you. Next, I will introduce Dr. angela rachidi. She is a senior fellow and rhodes scholar an opportunity and mobility studies at the american enterprise institute in washington, D.C. Dr.
▶ 0:30:49Chair Ernst: Rachidi studies poverty and the effects of federal safety net programs and has written extensively on the impact of federal benefits cliffs and snap, tanf, and other federal welfare programs. She earned her phd from the new school and mba from -- and a bachelor's degree from the university of wisconsin, whitewater. Thank you for being here today. I now recognize ranking member markey to introduce his witness.
▶ 0:31:18Sen. Markey: Nick gwyn is a senior fellow at the center for budget and policy priorities in washington, and focuses on crosscutting policy and budget issues and income security issues. He has over 25 years of experience working on capitol hill for the house ways and means committee.
▶ 0:31:37Sen. Markey: On that committee, he served as a staffer in the subcommittee that has jurisdiction over a variety of income security programs including the temporary assistance for needy families program. Thank you to all of our witnesses.
▶ 0:31:56Chair Ernst: Briefly I will take a moment to describe the lighting system to our witnesses. There are three lights in front of you. Green means go. Yellow means you are running out of time. The red light means wrap it up. Your five minutes has expired, so please conclude your remarks. I ask unanimous consent that the full statements be included in the record, and without objection, so ordered.
▶ 0:32:23Chair Ernst: As your written testimony has been made part of the record, the committee asks that you limit your oral remarks to five minutes. With that, Mr. terhark, you are recognized for five minutes for your testimony.
▶ 0:32:35Mr. Terhark: Chair ernst, ranking member markey, and members of the committee, thanks so much for having me here today. I am the founder and owner of webspec. We specialize in web design, software development, and services. We work with companies and organizations of all sizes. We work with clients in every county of our home state of iowa and across the country. My entrepreneurial journey began at five years old.
▶ 0:33:05Mr. Terhark: I am a fourth-generation iowa farm kid. I was looking for a way to earn money for nintendo. Grew up on the farm. I had some pumpkin seeds. I grew some pumpkins, sold them on the side of the road, and got that nintendo. In high school, I was very interested in going to college and did not have a way to pay for it. The first member of my family to go to a four-year school.
▶ 0:33:28Mr. Terhark: I was able to participate in a summer scholarship program from the herbert hoover presidential library and started webspec through that program. What began as a way to cover tuition eventually grew to a company that today employs nearly 50 people. Along the way, I started additional businesses including the iowa science company, fireworks company, and a property company. Over the last 25 years, I have had the privilege of hiring and promoting individuals at every stage of life.
▶ 0:33:59Mr. Terhark: Those experiences have really shown me there is great opportunity in this country, but also some barriers that can unintentionally stand in the way. In our own business over the years, I have directly seen employees advance in their career to suddenly experience and income cliff the results and the removal or disqualification of benefits. Employees trying to grow their families have left the workforce trying to navigate the high cost of childcare and increased health premiums.
▶ 0:34:27Mr. Terhark: I have worked with tenants who received food, utility, or housing assistance, but were eventually -- effectively penalized for working full-time. It creates a lose-lose situation that simply does not make common sense. I recently served as the chair of the urbandale chamber of commerce and serve as the affiliate chair for the greater des moines partnership. I work with 25 chambers and member businesses across our region.
▶ 0:34:57Mr. Terhark: Through those roles, they hear directly from employers and employees across central iowa. A local child care business should the story of an employee who received additional income that triggered the loss of food, housing, and her child care assistance, so instead of feeling rewarded for working harder, she found herself in a situation where she was trying to reverse the raise and reverse the benefits, because what she lost outweighed the increase in wages.
▶ 0:35:24Mr. Terhark: Another employee reduced work hours even though they were willing to work full-time because the additional income would have left them financially worse off. For employees, it creates fear and uncertainty. For employers, it creates frustration. One of our current employees -- previously, she worked as a direct service worker and focused on helping iowa residents apply for food, utility, and child care assistance.
▶ 0:35:51Mr. Terhark: She described that she would work with families and even an increase of a few dollars could trigger the loss or disqualify them from those critical benefits. These benefits are often a last resort to avoid homelessness, hunger, or financial crisis. There is a great sense of pride and purpose in being able to provide for oneself and one's family, so receiving assistance from the government can be a sensitive topic as an employee.
▶ 0:36:16Mr. Terhark: Many times, the employee does not directly sure what the problem is or the reason they declined the promotion or position. It is difficult to make a good long-term decision when it creates a short-term financial gap. When multiple programs are involved, each with different qualifications, the decision is even more complicated. When benefits end abruptly, the system is difficult to understand, people become fearful of advancement and distrustful of the system itself. Small business owners want to create jobs.
▶ 0:36:47Mr. Terhark: Workers want to advance. Our policies should promote both. No worker should be worse off because they accepted a raise, a promotion, additional hours, or a better opportunity. A system that provides oversight and the ability for states to streamline these multiple programs to transition citizens out of benefits as their income and careers progress will truly be an initiative that uplifts the american workforce.
▶ 0:37:11Mr. Terhark: One of the proudest moments in the life of a small business, including mine, is creating that first job. One of the proudest moments of an employee is to earn a promotion, a raise, or a new opportunity. Our policy should encourage both. Let's modernize the system. Let's make it better, not harder, for americans to advance and achieve their version of the american dream. Thank you for the opportunity to testify today. Look forward to any questions you might have.
▶ 0:37:40Chair Ernst: Thank you for your testimony.
▶ 0:37:43Mr. Gwyn: My name is nick gwyn. I'm a senior fellow at the center on and policy priorities. I appreciate this opportunity to highlight the importance of protecting people from benefit cliffs, which cause an abrupt loss of critical assistance. Is that better? I would like to raise five points.
▶ 0:38:09Mr. Gwyn: First, additional resources are needed to provide a more gradual down ramp in assistance rather than an abrupt drop. This is a good investment for working families. Replacing cliffs with gradual phase outs without providing these resources would instead mean cutting assistance from families whose earnings are lower than those near the cliff. Taking this approach means less help for things like food, housing, and health care.
▶ 0:38:37Mr. Gwyn: This is the basic math of benefit cuts. We should not pretend we can ease cliffs without providing more resources are accepting more hardship and poverty. Second, many basic needs programs already phase out benefits slowly.
▶ 0:38:57Mr. Gwyn: For example, snap disregards 20% of participants earned income, and then benefits gradually decline as income rises, although states can make choices impacting this phase out. Working families can face significant cliffs. We see this happening in childcare systems. Last year's exploration of the premium tax credit enhancements increased health care coverage for some workers, including those working for small businesses.
▶ 0:39:28Mr. Gwyn: Third, any effort to improve down ramps should start with a commitment to avoid policy changes that worsen benefit cliffs. One very concerning example -- the trump is considering eliminating state's long-standing flexibility to raise snap income and asset limits, so that households with a modest gain in savings don't lose substantial snap benefits.
▶ 0:39:54Mr. Gwyn: 36 states have adopted this policy, known as broad-based categorical eligibility. Eliminating it would take away food assistance from 6 million people, most of them in working families. Fourth, as we discussed people losing assistance to benefit cliffs, we must also recognize that millions of people are now losing essential food and health assistance because of the massive cuts in last year's budget reconciliation law.
▶ 0:40:25Mr. Gwyn: One example -- 3.5 million people have lost help affording the high cost of groceries, many of whom are children, as a result of the snap cuts in that law. Finally, policymakers should avoid undermining the very programs that struggling working families depend on in the name of addressing benefit cliffs.
▶ 0:40:45Mr. Gwyn: This is the reality of block grants, which are less accountable, less responsive, and less sustainable over time and entitlement programs like medicaid and snap, or even discretionary programs with specific purposes like rental assistance. The upward mobility act is limited to five states over five years that otherwise would act like a block grant for a variety of basic needs programs, including snap and housing assistance.
▶ 0:41:12Mr. Gwyn: Converting these programs into a single block grant would eliminate key protections that ensure people get the benefits for which they are eligible, including fair processes for determining eligibility and providing benefits on a timely basis, as well as broader safeguards related to the allocation and use of program funding.
▶ 0:41:33Mr. Gwyn: And while giving states flexibility to innovate can be valuable, block grants permit and sometimes encourage states to use that flexibility to redirect funding away from the core purposes for which it was approved. For example, states spend less than one fourth of their temporary assistance for needed -- needy families on basic cash assistance for families with children, a decline of 60 8% from the program's first year.
▶ 0:42:01Mr. Gwyn: Block grants also do not grow when the need for assistance increases during recessions or other circumstances. Historically, contrast entitlement programs like snap, which expand immediately to address rising need. Further, because block grants are often used in diffuse ways, it is difficult to assess their impact, taking them vulnerable to being cut.
▶ 0:42:24Mr. Gwyn: For example, tanf has lost half of its value since its creation, and the social services block grant has lost 8%. This dramatic erosion of funding means less assistance is going to people in need. In conclusion, efforts to minimize benefit cliffs can be beneficial but depend largely on increased investments and must not come at the cost of the assistance that working families depend on to help them meet their basic needs. Thank you.
▶ 0:42:50Chair Ernst: Thank you, Mr. gwyn. Now we will hear from Mr. schron. You are recognized for five minutes.
▶ 0:42:59Mr. Schron: Thank you. I appreciate the opportunity to speak today on behalf of the benefits cliff. My name is jack schron. I am the president of jurgens inc., located in ohio.
▶ 0:43:14Mr. Schron: I represent 84 years of manufacturing at jergens and represent the business as we move forward to manufacture things for various industries including aerospace, defense, entertainment, and the manufacture of electronic screwdrivers. The universal problem faced by most manufacturers today is the skilled labor shortage. We are facing the same exact problem. We cannot find a trained and experienced workforce.
▶ 0:43:43Mr. Schron: The alternative is to hire people with low or no skills, train them using our money to make sure they learn the skills, because the lack of skills in the workforce is something that we need to start as we develop new teammates. Sometimes they start with no training at lower salaries. It is our desire to accelerate the pay as quickly as the new teammate can learn these new skills.
▶ 0:44:11Mr. Schron: This is where the benefits cliff can impact the individual. As the individual learns and their pay increases through incremental steps, their public social benefits are being put in jeopardy. We can see this with our health care benefits as they cross over. Employees come in directly to our human resources and ask for a change to our very lucrative and positive health care because they switch over.
▶ 0:44:37Mr. Schron: However, human resources is not aware of the benefits like snap and childcare as it impacts their increases, unless they happen to mention it. We do know that some of our employees have said to human resources they wanted to examine what effect their pay increase was going to have on them with their benefits. We encourage growth. We push the increased pay based on skills learning, so people can know we are making them a career and a career direction.
▶ 0:45:09Mr. Schron: We want to eliminate somebody from being put in a position of having to neglect growth and pay increases, versus risking their social benefits. It would seem a better approach would be that pay transitions upward, that the social benefits should be transitioning. Instead of going downward, they should follow the same pattern is what happens with payroll. There should not be a cliff that causes this loss. The skills are learned. Pay does not go straight up.
▶ 0:45:40Mr. Schron: Pay goes incrementally in steps. For the individual, it would seem this benefit should be the same concept and not be a cliff. You should not be punished just to get a dollar or $.50 more increase in wage. In ohio, someone is actually better off being paid $15 an hour and receiving their full snap and childcare support then getting an increase in pay up to $18, when the cliff is at its worst impact in ohio.
▶ 0:46:09Mr. Schron: This problem continues in ohio until a breakeven of about $22 an hour. Focusing not on the benefits cliff, but looking at the bigger social picture, it would seem that we are better off to transition from receiving the social benefits and have someone stand on their own as they grow. This transition means the individual can now take pride in themselves as they engage in the community. Whatever they can do, whatever we can do to help this transition, should be beneficial to everyone.
▶ 0:46:40Mr. Schron: Jergens had a similar result as we have lead a program for second chance individuals, individuals who enter the manufacturing workforce following and return from society. In their self-worth, we have placed over 500,000 individuals working in manufacturing, with a recidivism of less than 1%. This similarity of self-worth, of individuals seeing that their pay is going up in incremental steps, I think is powerful.
▶ 0:47:08Mr. Schron: Like our changes in second chance, in manufacturing, we should change the benefit cliff to transitioning the social benefits, and someday, people will be fully able to support themselves without it. The individual and the family, we believe, will win. The community wins with our social benefits on the second chance. The business community wins. The society wins.
▶ 0:47:34Mr. Schron: In the social benefits will change with a transitional benefit program. Thank you.
▶ 0:47:41Chair Ernst: Next we will recognize Dr. rachidi for five minutes.
▶ 0:47:46Dr. Rachidi: Thank you, chairwoman, ranking member, other members, for the opportunity to testify this afternoon. I am a senior fellow in poverty studies at the american enterprise institute. Over the past two years I have led a working group of policy experts and researchers focused on identifying policy solutions to benefit cliffs.
▶ 0:48:11Dr. Rachidi: As we have already heard, benefit cliffs broadly refer to situations where households receive government benefits and even a small increase in hours, pay, or assets can trigger an abrupt loss of assistance. Because of these dynamics, some workers choose to work less. This limits their upward mobility and negatively affects the employers who rely on them. I want to cover three key points.
▶ 0:48:39Dr. Rachidi: First, benefit cliffs still exist despite individual program rules that appear to phase out benefits as participant income rises, such as snap. Second, the problem of benefit cliffs compound when families receive multiple benefits, which is the most common situation among low income families. And third, research shows that the potential of hitting a benefit cliff affects people's behavior, including an unwillingness to accept higher paid jobs for fear of losing benefits.
▶ 0:49:10Dr. Rachidi: The question really is why does this happen. Safety net programs in the U.S. are generally designed to phase out assistance as income rises. However, when the rules do not properly aligned, this creates a cliff, discouraging work and affecting upward mobility. Ideally, benefits should phase out slowly and to zero as income rises, while still targeting those most in need.
▶ 0:49:39Dr. Rachidi: However, in reality, most programs do not align their rules. This dynamic does encourage participants to reduce their work effort, and this is a fixable problem. Importantly, even when individual program phaseout rates are aligned with income exit points, receiving multiple benefits creates a stacking effect and increases the employment disincentive.
▶ 0:50:05Dr. Rachidi: Researchers have reviewed program rules in various states and simulated what happens to benefit amounts and actual scenarios as income rises. In many situations, participants can stand to lose 60 -- 60% to 100% of earnings due to a loss of benefits. In some states, a single mother with two kids would need to increase her earnings from $30,000 a year to $60,000 a year in order to completely overcome her loss when she receives a typical package of benefits.
▶ 0:50:37Dr. Rachidi: Research shows that these benefit cliffs do change behavior. The department of health and human services conducted a survey of low-wage workers in 2024. They found that more than one third of respondents said that they would not accept a higher paying job if they faced a 69% marginal tax rate or higher. That is, if they lost 69% of their additional earnings to benefit losses, they would turn down a pay raise.
▶ 0:51:06Dr. Rachidi: The sutherland institute in utah conducted a representative survey and found similar results. Nearly 30% of past safety net participants that they surveyed said that they had previously decided not to look for a new job, not to accept a raise or a promotion, because they believed it would make their family financially worse off. There are several possible administrative and legislative reforms to address benefit cliffs.
▶ 0:51:34Dr. Rachidi: States can use discretion they already have to alter program rules, or congress can legislate program changes. Cross program administrative reforms are also possible with authority from congress to coordinate rules across programs. Additionally, in the spirit of allowing states to be laboratories of reform, congress can legislate pilot programs that allow flexibility at the state level to address benefit cliffs.
▶ 0:52:02Dr. Rachidi: Your colleague from ohio has introduced the upward mobility act, which offers an innovative way to pilot test the consolidation of federal safety net programs to address benefit cliffs. Low income working individuals deserve a safety net that helps them escape poverty, rather than traps them in government dependency and stagnation. Employers across the country also deserve a flexible labor market free from government disincentives to work.
▶ 0:52:31Dr. Rachidi: To achieve these ideals, our safety net programs need reform to eliminate benefit cliffs. Thank you, and I look forward to answering any questions.
▶ 0:52:40Chair Ernst: Thank you again to all of our witnesses. I now recognize myself for five minutes for questions. Mr. terhark, we will start with you.
▶ 0:52:53Chair Ernst: Small businesses across iowa tell me that they are struggling to fill various jobs within their organizations, yet many workers worry about taking additional hours, whether they accept a promotion, or even getting a raise that cause them to lose benefits. What challenges to these cliffs pose for employees, and what types of opportunities do they often forgo because of those types of cliffs?
▶ 0:53:21Mr. Terhark: Thank you for the question. As an employee, you are trying to evaluate something that might be good for your long-term career. But if you are trying to make rent or buy food or your child support did not come in or whatever issue -- it is really difficult if you are being put in that position where you are just trying to get to the next day.
▶ 0:53:44Mr. Terhark: I can even think of stories that at times they are waiting for -- it might be their paycheck or benefits, or over the course of time something got held up or delayed or something did not come through, them trying to figure out how they are going to buy food to feed themselves for the family, to make rent, to make utility payments.
▶ 0:54:04Mr. Terhark: I think this is really difficult to think about what things could be in the future if you are just trying to get to that next day, and if you have experienced or heard from other people who have experienced issues before. You don't really know what all the acronyms of all these programs need. Maybe you did get some benefits and you don't want to lose them so you don't want to put yourself in a position where you have no time to submit a new paystub to make sure that you still qualify for the benefit.
▶ 0:54:33Mr. Terhark: I think it puts the employees in a difficult spot. The employers don't necessarily know all the acronyms or different programs either. We are just trying to do the best job we can for the employees.
▶ 0:54:42Chair Ernst: And I think Mr. sean -- schron mentioned as well that in hr they may not know the programs employees are on. Thank you for that. Dr. rachidi, testimony describes how the impact of benefits cliffs often compounds for households that receive multiple federal benefits.
▶ 0:55:07Chair Ernst: What impact would streamlining multiple benefit programs into a single funding stream have on creating pathways to other economic opportunity?
▶ 0:55:18Dr. Rachidi: If you think about major safety net credits like the earned income tax credit and child tax credit alone -- they phase out at a regional rate and it would not create a cliff effect. When you start adding separate programs like snap and child care assistance that might phase out or phaseout at higher rates, it starts compounding. Rather than a 20% phaseout, it becomes a 40% phaseout. With multiple benefits, it could go up to 80%.
▶ 0:55:49Dr. Rachidi: What needs to happen is rather than running separate programs with separate rules, we need to combine those programs and have a very predictable and if it schedule that can phase out at a reasonable rate and phase out to zero so these families are facing reasonable act -- reasonable effective marginal tax rates and not facing cliffs.
▶ 0:56:08Chair Ernst: Thank you for that. I really do share your concerns that benefits cliffs create those short-term setbacks for motivated workers who are seeking to improve their economic conditions. What is the impact for you as an entrepreneur and as an employee or workers are second-guessing their promotion or their additional overtime because of the benefits cliffs?
▶ 0:56:40Mr. Schron: One of the problems is you don't really know what is going on in the mind of the individual. That sometimes is behind-the-scenes. It can affect morale. It can affect things you don't really anticipate because it is not a discussion that human resources has with the individual. They keep it kind of quiet. They keep it secretive if that is going to affect them. They don't bring it forward. The only time we see it is when they bring in the health insurance because they know they are making an actual transition.
▶ 0:57:11Mr. Schron: It is really disappointing. I really think that we need to get this fixed with a solution so that the invisible aspect of the business is not hampering the individual from going forward, or the business from wanting to promote somebody. We should do whatever we can to make that so it is not something that is worrying them and bothering them to bring forward.
▶ 0:57:41Chair Ernst: I think you very much for that. I will turn to ranking member merkley for his five minutes of questions.
▶ 0:57:49Sen. Markey: Thank you so much. Mr. graham, during the state of the union and many times since, president trump has bragged that he lifted millions of americans off of snap. The secretary of agriculture said recently that families losing snap benefits are closer to realizing the american dreaming.
▶ 0:58:12Sen. Markey: Meanwhile, a survey last month by the new york federal reserve found that a remarkable increase in food insecurity has unfolded. The cost of food is rising sharply because of the president's illegal war in iran. The cost of groceries last month rose faster than any other time in the last four years. Personal savings last month reached a 44-year low.
▶ 0:58:41Sen. Markey: People are paying in cash for those higher prices. The truth is people are not being lifted up the economic ladder. They are being kicked down the economic ladder, and they are going hungry on those steps down the economic ladder. Mr. graham, -- Mr. gwyn, did the bill do anything to lift people up the economic ladder?
▶ 0:59:07Mr. Gwyn: Thank you, senator markey. As I think you know, the cuts in hr one to food assistance under snap and health care coverage under medicaid and the aca where the largest in history. And when we think about those cuts, we think about the people who need that assistance, and obviously, there are people who are disabled.
▶ 0:59:37Mr. Gwyn: There are people who are elderly. There are people who have lost jobs who are looking for new employment. There is a big group of people who are working who depend on both medicaid and snap. We have roughly 15 million workers who live in a household where some receives snap. One third of all people enrolled in medicaid are connected to small businesses.
▶ 1:00:00Mr. Gwyn: Half the adults under age 65 are enrolled in the aca marketplace and are employed by a small business or small business owner. These are critical works that were cut significantly in hr one. And we have already begun to see the effects. We have seen three and a half million people lose their snap benefits. This was during the period in which unemployment did not go down. Certainly, prices for food have not gone down.
▶ 1:00:29Mr. Gwyn: These are people who are losing benefits because of the changes occurring under hr one. As you say, that is not a recipe for helping people up the economic ladder. It is reducing critical supports for many people, including working families.
▶ 1:00:47Sen. Markey: As you know, this is not the first time republicans have proposed trimming -- turning safety net programs like snap into block grants. Block granting benefits is unfortunately a code word for slowly killing federal benefits programs. It is avoiding congressional responsibility, for making sure federal dollars are used for their intended purposes.
▶ 1:01:10Sen. Markey: In the case of snap, block granting could mean money intended for food might be used for other purposes. You described what the impact would be on recipients of public benefit programs if the programs are turned into block grants.
▶ 1:01:27Mr. Gwyn: Thank you. I think the effects would grow over time but would be basically twofold. Fewer people would get assistance, and for those who do get assistance, they would get less. The thing about block grants -- there is basically a built in incentive for states to reduce assistance. If they increase assistance, they have to worry they are going to go past their federal allotment of funds, and may have to make it up with state dollars.
▶ 1:01:57Mr. Gwyn: If they reduce assistance, they might have additional dollars they can use in different places, to cover other shortfalls in the state budget. At the same time, as my written testimony highlighted, the federal history of funding block grants is not good. Over time, block grants lose money in real terms across the board. There are very few exceptions.
▶ 1:02:21Mr. Gwyn: If you have a combined effect of states having an incentive to move money out of the block grant and have the federal government providing less, it brings less funding, less resources for low income people.
▶ 1:02:35Sen. Markey: So the federal government says we will block grant the money to you. We will cut the amount of money we are giving you, and we will give it to you in a block grant. And you as a state, you can loot the money if you want to for purposes other than that for which it had historically been intended, for food or for health care, especially for poor children in our country.
▶ 1:02:59Sen. Markey: It is a formula we have seen over and over again, and they are asking us to believe that that history is not going to be repeated. Thank you.
▶ 1:03:07Chair Ernst: I will recognize senator husted for five minutes of questions.
▶ 1:03:15Sen. Sheehy: Stated -- Sen.
▶ 1:03:17Husted: I appreciate the passion about this particular topic. In ohio, this is probably the most bipartisan issue I know, because over my time in public service, I have heard social security -- social services agents telling me please eliminate the benefit cliff.
▶ 1:03:43Husted: I have heard them say please do something to eliminate the benefit cliff. I go back to welfare reform under bill clinton when we were trying to do something on the local level and kept running into if somebody wants to get ahead and work more hours, get a bigger raise, they lose more benefits than they gain in earnings, and so they fall off the benefit cliff and they don't want to work more and they cannot work more.
▶ 1:04:12Husted: And I get to the state level and we want to improve our workforce, and we want to help people get ahead, and we want literally upward mobility for people, and they say we can't do that because the federal programs don't give us the flexibility to solve this problem for the individual who would like to work more but literally cannot afford to work more because they lose more in benefits than they gain in pay. And finally with employers.
▶ 1:04:40Husted: Many employers say I wanted to hire somebody full-time, or I wanted to give them a raise, but they would not take it because of the benefit cliff. So that is what inspired me to take the appointment to the U.S. senate, so that I could work on this issue.
▶ 1:04:59Husted: At the state level and the local level, across this country, people who want to solve the problem cannot, because the federal government for 50 years has created a trap for people who would like to have upward mobility. I will say that americans are the most generous people on earth.
▶ 1:05:18Husted: Our public assistance programs are failing them by trapping them in this generational cycle of poverty, and the benefits cliff is a decades-old problem I have seen firsthand that would give people a path to financial stability and a chance to join the middle class. I will give you an example of how it works. My team. Something for every individual, to show how the benefit cliff works in their particular state.
▶ 1:05:50Husted: In dayton, ohio, where I spent a good portion of my life, if you are a single parent with two children, you are and 33,000 dollars a year, you may be receiving assistance for food, housing, childcare costs. If that individual accepted a $1000 raise, they would lose over $4600 by earning more. They would receive essentially a $4000 pay cut by earning a thousand dollars more.
▶ 1:06:19Husted: A single parent who is living at the edge can't afford to take that risk because they don't have the stability that they need to take the risk of trying to move forward. They make a logical choice. They make a logical economic choice by foregoing that opportunity.
▶ 1:06:44Husted: I also feel compelled to share another example that I found so insidious when I was at a career center. You know how we say we want more students to get skills in welding or construction trades, because there is a lot of jobs out there and they don't have to go to college? They could earn these skills in high school, working and learning at the same time. But a principal told me that the students at their high school -- it was in a poor rural area.
▶ 1:07:15Husted: They said they cannot take jobs while they are in high school because their younger brother and sister might lose their benefits. And so this individual who we want to graduate from high school career-ready can't do that and can't burn while they are in high school because we created this trap with the benefits cliff for their family.
▶ 1:07:34Husted: That is why I introduced the upward mobility act to try to solve that problem, to give people a shot at the american dreaming by not being trapped in this generational cycle of poverty. So I greatly appreciate the opportunity to have this conversation today, and for all the witnesses coming here. I have some questions, if you would permit me just a moment. I know we have our colleague coming in.
▶ 1:08:06Husted: Let me just start with Mr. shron. -- schron. You talk to businesses all the time. How many businesses tell you the story about the fact that they have somebody that won't take a raise, won't take full-time pay, because of the benefits cliff?
▶ 1:08:23Mr. Schron: All of the small businesses have this struggle. It is a balancing of investing in that training and they start at a level at which the person is learning their skills, and as they move up, all of a sudden, they got cut off because of that.
▶ 1:08:42Mr. Schron: It is a real shame because what a disincentive for you to learn and to grow if you all of a sudden have learned and grown and get on that upward mobility track of getting more pay, only to find out you crossed over a benefits cliff. We threw out a rhetorical question. Please, fix the benefits cliff.
▶ 1:09:11Chair Ernst: Thank you. Senator hirono, you are recognized for five minutes.
▶ 1:09:18Sen. Hirono: Just in time. Mr. glenn -- gwe Mr. glenn -- gwyn,, when calculating significant changes to federal programs that provide families with access to things like affordable health care, child care subsidies, and nutrition assistance, it is important that we look at the context in which these proposals are being considered, and we should acknowledge that within the last year, republicans have passed a law that reduced
▶ 1:09:49Sen. Hirono: Funding for medicaid by nearly one trillion dollars and four nutrition assistance by almost 190 billion dollars. They also diverted funding that could have otherwise been used for our public schools to create a nationwide voucher system that basically just supports private schools. The costs are estimated at about $500 billion in taxpayer money.
▶ 1:10:19Sen. Hirono: In addition, they have alleged widespread fraud from childcare programs despite little evidence. And they have found this kind of fraud only happens in blue states.
▶ 1:10:34Sen. Hirono: So they are now alleging widespread fraud in medicaid programs using inaccurate and cherry picked numbers to justify additional cuts in blue states, and republicans do not believe in the programs and will do whatever they can to undermine them. So we should be skeptical as far as their motives in proposals like this.
▶ 1:11:00Sen. Hirono: Can you tell us how the one big beautiful bill, which I call the big ugly bill, and the failure to extend the aca premium tax cut, has worsened benefit cliff's for families? In your view, does this failure to extend tax credits help families?
▶ 1:11:26Mr. Gwyn: Thank you for the question. As you mentioned, the cuts we saw in medicaid and aca -- the largest in history. Over a trillion dollars from those programs. The legislation also, as you mentioned, failed to extend expect -- expiring enhancements to the premium tax credits.
▶ 1:11:49Mr. Gwyn: Both of those are having significant effects and will have significant -- significant effect on people's access to affordable health coverage. Just one example -- because the expiration of the enhanced premium tax credits -- the premiums people are now paying in the aca marketplace are more than double on average what they were a year ago. We have seen huge spikes because there is less assistance there for them to be able to pay those premiums.
▶ 1:12:18Mr. Gwyn: As a result, people are either paying more or some people are dropping out. The numbers are still coming in but we know people are losing coverage. And the medicaid cuts are on a kind of rolling basis. We just saw a rule the other day related to the work requirements for medicaid.
▶ 1:12:39Mr. Gwyn: Overall, the congressional budget office estimated that when we look at the changes in medicaid, the changes in the aca, the failure to extend the premium tax credit -- 15 million people are going to lose coverage, so yes, a very dramatic effect.
▶ 1:12:54Sen. Hirono: One of the suggestions is that all of these programs be combined into big block grants. Do you have concerns on how that is going to impact families who rely on these kinds of programs if they are block granted?
▶ 1:13:08Mr. Gwyn: Certainly. We were reviewing this a little bit earlier. The history of block grants is not a good one in terms of what happens to federal funding that goes to block grants. Over time, it declines in real terms either because it is cut or because it is essentially left to wither on the buy it -- the vine, not increased with inflation. So we see federal resources to block grants go down over time.
▶ 1:13:34Mr. Gwyn: We also see states using block grants for a variety of purposes not necessarily connected to the purpose of the block grant when it was originally established. The effect of these two outcomes is that ultimately you have less resources going to people who need it.
▶ 1:13:52Sen. Hirono: With the federal government cutting back on the resources -- either major cuts like what happened with medicare, medicaid, and the block grant -- that is going to put a lot of the onus on local governments trying to support their communities. What is happening with the states? Do they have the kind of resources to fill in the gaps with the federal government pulling back?
▶ 1:14:16Mr. Gwyn: No, and we are seeing a real problem with the cost shift to states under snap. For the first time in history, states are going to have to pay significant dollars for snap benefits, and that is one of the reasons they are starting to cut back on eligibility, his fear of those new provisions.
▶ 1:14:36Sen. Hirono: I have other questions I can submit for the record. Thank you, madam chair.
▶ 1:14:40Chair Ernst: Thank you, senator hirono. As a refresher, the enhanced subsidies for aca were passed as part of the american rescue plan. C1 that was important. The expiration dates were also set entirely by democrats in congress. So they were set to expire according to a time plan that was set forward by congressional democrats.
▶ 1:15:11Chair Ernst: Those had been allowed to expire at this point. We will go to a second round of questions. We will continue. I will go ahead and ask a few more questions. And then if we have more members, they can go ahead nearly a billion dollars goes out the door because of sloppy estate administration.
▶ 1:15:41Chair Ernst: It is just gone because of error rates. Taxpayers still do not have a complete picture of this problem. This is $1 billion. But we do not get the complete picture of the problem because areas below $58 are completely ignored. Or forgiven.
▶ 1:16:07Chair Ernst: Are you aware of any other federally supported program that allows for this level of uncounted error and what effect does this have on accountability? >> thank you for the question. I'm not aware of other programs that set that threshold. I think certainly it creates bad incentives for states to try to reduce errors.
▶ 1:16:41Chair Ernst: Rather than focusing on the crux of the problem. To ensure that those benefits are properly administrated.
▶ 1:17:00Chair Ernst: Thank you. That is an issue we have been attempting to work on congress as well. You interact with a lot of filler business owners. How have you seen those?
▶ 1:17:24Chair Ernst: >> what I have seen most commonly is the way the current system is now. They don't always get the information. The reason why somebody made those decisions, it gets confusing with the business owners.
▶ 1:18:03Chair Ernst: Businesses are always working to hire. They don't necessarily know the reason why.
▶ 1:18:09Chair Ernst: Thank you. I will yield back time and turned to senator young for his questions.
▶ 1:18:19Senator Young: I think this is such an important topic that we are discussing today. The upward mobility act. I have spoken with others about this topic. When I was in the house, this issue of trying to make sure that everyone has incentives to get off public assistance and into the labor market is really important.
▶ 1:18:48Senator Young: If you look at a more granular level, we start with this dynamic of what we have called negative effective tax rates. The concept is if someone is poor, they are not smart.
▶ 1:19:22Senator Young: They are risk adverse. Are you hearing from would be employees about this issue? If I go to work, can you offer any anecdotes you might have? >> I can speak to the story I shared earlier with a childcare center. There was an employee that currently have position.
▶ 1:19:52Senator Young: They would look to make it full-time. They work for employee part-time. Her days were filled. She was trying to help employees in a variety of businesses. Make sure they keep qualifying for those benefits.
▶ 1:20:23Senator Young: >> I can allude to one of the conversations I had. They wrestled with what that impact would be. They pushed very hard.
▶ 1:20:55Senator Young: They were left with this gap. Am I looking at the career growth? Or do I have to worry about the short-term? You can fix that transition. Your transition should go on the same path. Only a parallel path. Being transitional as opposed to the heart cliff that we have.
▶ 1:21:22Senator Young: >> we do have a lot of anecdotes but we also have survey data. They said they took in action to not take a prey -- pay raise. Because they were in fear of losing out.
▶ 1:21:55Senator Young: I think this is an elegant policy proposal. It would be piloted so it could demonstrate what works. Another way to take a stab at this long-standing challenge, I know there have been compliance problems with that over the years.
▶ 1:22:26Senator Young: This strikes me as an incredibly sensible proposal. I'm grateful for all of our witnesses. I hope we can see some relief for getting this done. More importantly, give the workers of america some work. The vast majority of americans want to work. Hopefully we can get this done.
▶ 1:22:57Senator Young: Thank you very much. I yield back. >> thank you. I will ask unanimous consent to submit a statement. On how our current fragmented system creates a problem. Without objection. A couple of more questions and opportunities.
▶ 1:23:28Senator Young: I do listen to the ranking members concerns. I heard you talk about what you described as doing that. This creates a unified funding stream. But it does not try to do it on the cheap. You have to use the funding for the intended purposes.
▶ 1:23:52Senator Young: In any savings that result, the state could then use the money to help the next person. Help them overcome the benefits cliff. So puts the money right back in the program that was designed to serve. It is indeed a five state pilot.
▶ 1:24:31Senator Young: I have found it arrogant of people to claim they have the answers. Everyone who is struggling at the margins in poverty has an individual problem. I think this is been such a hard problem to solve over the 50 years or more that it has existed.
▶ 1:25:00Senator Young: There is no one-size-fits-all solution. For how we would help an individual. The programs I come from washington are often so rigid. They have rules. If you do not follow those rules you get sanctioned or fined. With this approach with a pilot program, it's also a couple of problems. They have been dating for this.
▶ 1:25:33Senator Young: It does not have that arrogant approach. You have been studying this. Tell me how my comments there as it relates to state flexibility and using the money for the purposes it was intended in tailoring the need to the individual, and your research, how important is that? >> I agree with you 100%.
▶ 1:26:02Senator Young: I disagree a little bit that the block grant was not a positive thing. It is one of the most successful public policies we have had in a generation. I think that is really part of it. It gave states the flexibility to use federal dollars that they matched with their own state funding to meet the needs of their particular state residents.
▶ 1:26:31Sen. Husted: I know when I was in the state legislature, we are to those discussions. People always said the money should go to a food bank or childcare. So you would have these debates where the need was most. >> exactly. Every state is different. They have been allowed to use that federal funding in a way that they feel best meets the needs of their state.
▶ 1:27:02Sen. Husted: I know we try a pilot program. The problem that local and state governments have with that is it is federal money and they do not have enough money of the state and local level. What have you seen from some of the pilot programs about whether or not those approaches are effective?
▶ 1:27:28Sen. Husted: >> states do need more flexibility with those benefit programs to implement a pilot program that has the opportunity to be successful. States are trying to navigate pilot programs but it is really try to put a band-aid on a broken system created by the federal system. They really do need the flexibility offered by the upward mobility act.
▶ 1:28:01Sen. Husted: To have the opportunity to do a rigorous evaluation so we can see if they have effective outcomes.
▶ 1:28:06Sen. Husted: Thank you. I appreciate you coming here. I will ask you a similar question. In ohio we have employers talking about this all the time.
▶ 1:28:37Sen. Husted: It really at the entry level. In the hospitality industry. Do you hear a lot about challenges with the benefits in iowa as it relates to some of that? >> yes. I would refer back to some of those stories I have shared. Certain industries if they are starting out.
▶ 1:29:08Sen. Husted: They can be more effective than others. It comes up. It is not an isolated example.
▶ 1:29:17Sen. Husted: I want to thank all of you for being here today and serving as witnesses for this important conversation. It is my hope that we will be able to advance this cause on a bipartisan basis. In our state it is a very bipartisan issue. The benefit cliff is a real issue. No matter what side of this you are on.
▶ 1:29:56Sen. Husted: Those of the individuals you are trying to serve who are literally the lowest income earners in the country. Or whether you are a business that would love to give them a chance but they do not take that opportunity because it does not make financial sense for them to do so. I ask unanimous consent of the record of today's hearing be open for two weeks. Without objection. So ordered. With that, I thank you for being here today.
▶ 1:30:27Sen. Husted: The committee stands adjourned. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap.org]