Can a Person on Government Assistance Ever Dig Their Way Out?

I have a friend who has been living on government assistance in Section 8 HUD housing for over a decade.  She recently began looking into the possibility of buying her own home.  Her youngest child will turn 18 soon and it is nearing the time when she will no longer be eligible for the program so she recently made a decision be proactive about the upcoming move.  My friend, Joanie, has a debilitating condition called Fibromyalgia.  She has good days and bad days, but she has managed to build a small business tending houseplants in mostly business offices, with a few in homes.  She works on the days she feels well enough to do so.  She has built up a small client base as there is not a huge demand for her services.  The way HUD housing works is you pay 1/3 of your income for your rent payment.  Here is an example of the progression of how this works.

As you can see, earning $1000 a month she is doing okay, with $447.50 leftover for groceries and sundries, although her budget is bare bones and her car better not break down or she won’t have anyway to fix it, and no way to get to her customers.

She has few business expenses but as she makes more money, the expenses increase slightly.  Self-employment Income taxes (federal, state, self-employment – see “Answer #1”) taxes go up as her income increases, as does the 33% of her gross income for rent.

While making $1000 her health insurance is covered by the government, her copays are very inexpensive and she is eligible for food stamps.

For each $100 she makes, about half of her food stamps is taken away, until she is making $1500 when they go away altogether.  Additionally, once she gets to $1400 her government health insurance is removed and she has to begin paying for her own health insurance.  Her copays are high since she can’t afford a very good health plan.  Because Section 8 housing continues to rise by the time she’s grosses $4000/month she is only left with $510 after paying her bills.

How is a person supposed to get ahead?

It almost seems better for her to work less and stay on the government dole.

Now if she could somehow buy a home she would have a much better chance.  She has looked around in the areas near her customer base and she actually found a few homes where she would have an $800 mortgage payment which is pretty amazing for the area.  But there again she has a problem because she has no savings, and is not making enough money to save anything.   Even moving to an apartment where she would be renting is going to be a stretch because most places expect first and last month’s rent and a one year lease.

I know it can be done, because I did it – although I was not on Section 8 HUD housing.   For many years there has been a very long waiting list for getting into HUD housing and I was off welfare by the time I would have become eligible for HUD housing.   I was fortunate to have several things work for my benefit:  My stepgrandparents were willing to loan the money to me so that I could buy my 35 year old mobile home, the lot rent was cheap when I first started living there, I was fortunate to be hired at a good wage, even though I’d been out of work for a few years staying at home caring for my children, and I did not have a serious illness that complicated matters.

Have you ever been on welfare or public assistance?  Have you known anyone who was?  Doesn’t it seem like the system is a little bit broken?

 

 

OUT OF DEBT AGAIN is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to AMAZON.COM. OUT OF DEBT AGAIN is an affiliate for several companies and may be compensated through advertising and marketing channels. This post may contain affiliate links.

18 thoughts on “Can a Person on Government Assistance Ever Dig Their Way Out?

  1. I never realized how crazy that HUD costs were. Basically when your friend hits $2000 in gross income it gets insane for her to stay in the HUD housing (perhaps earlier), but because they keep taking their 1/3 it is nearly impossible for her to get out. I wonder how much of that is by design? You would think it would be set up to encourage folks to improve their situation and get out, but it seems to be set up to do exactly the opposite.

    [Reply]

    Mrs. Accountability Reply:

    @Money Infant, yes it is kind of crazy. I mean, it works out pretty good when you are super low income, but when you start making more money it actually seems you are penalized for trying. Most people aren’t able to double their income, which would help them to take the leap to higher ground and move past being dependent. I also believe many Americans are not in good health due to the poor diet. It’s a vicious cycle to be sure.

    [Reply]

  2. I’ve lived in Section 8 housing and the rent couldn’t exceed market rent for the apartment. I don’t know where you live so I have no clue what market rent would be but there has to be a cap on what they take a third of. I can’t imagine they can charge MORE than what she could rent the apartment for as non-section 8.

    Also, she could rent an apartment with a roommate or someone’s spare room in their house. That would at least ease (if not eliminate) the move in requirements and could be lower rent than she would be paying where she is.

    [Reply]

    Mrs. Accountability Reply:

    @Ashley, she’s been in a three bedroom home since when she got on the program her son and two daughters were much younger. If she had had three daughters, she would have been limited to a two bedroom. For what it’s worth, the numbers I’ve used are not exact, we came up with estimations on the various factors. The other homes in her neighborhood have now increased in rent to around $1500. Of course ten years ago it was not so expensive. Getting into an apartment would be a lot cheaper, but she also has pets and would like to stay in a house. At any rate, my point was to describe the difficulties in trying to get ahead. It is almost like a trap it seems, and I’m glad I was able to get ahead of it. The other factor is my friend’s energy levels. I have tried to encourage her to expand her business, maybe hire someone to help her but she doesn’t have the energy to expand. I have another friend who has a small child that gets sick very often and this poor lady works a full time job, a part time job and cleans houses on the weekend, so she makes too much money to get health care for her child through the state health care system. Her employer covers her health insurance at no cost to her, but to cover her child she would have to pay $700 a month, which she can’t afford that at all and she can’t work anymore than she already does. She is trying her best, she immigrated here from another country and she is one of the sweetest people I’ve ever known but working as a janitor isn’t paying a lot. It can be tough out there to get ahead.

    [Reply]

    Ashley Reply:

    For some reason the reply button isn’t working for me so I’ll just have to reply down here.

    Yipes $1,500 is a lot of money for rent. Yet, of course now that she doesn’t have kids she doesn’t need a 3 bedroom anymore. I understand that she may desire to stay in a house but I guess she needs to weigh that desire against her desire to get off government assistance. Same with the pets. Pets aren’t a need. It doesn’t make sense to me to stay on government assistance so you can keep your pets. And there are market rentals that accept pets. Is living with a roommate out of the question? I think this is the key to getting off assistance. It was for me. I ended up moving my daughter and I into a two bedroom apartment and got a roommate to cover half the rent. (my daughter and I shared a room)

    I know she isn’t earning $4,000 a month and that was just an example but if someone were to earn that I would imagine it’s enough for any single person to live in your area without government assistance. I know it would be in my area.

    [Reply]

    Mrs. Accountability Reply:

    @Ashley @ Money Talks, actually she has one under 18 still at home, and won’t be able to stay in the home with three bedrooms before too long. You’re right on all points. I will pass on your suggestions but my main point was to illustrate the difficulties people encounter when on these programs and trying to get off. And yes, $4000 would be plenty for a single person to make it. We are managing on less than $4000 for a family of four. But there again, my mortgage is only $534. Thanks for adding to the discussion, Ashley. Mrs. A

  3. What is being defined as “self employment tax”? The standard definition of this – Social Security and Medicare – are 7.65% (6.2 SS and 1.45 MC) for employer and employee, or 15.3% for the combined (self employment tax). It’s currently 2% lower than that, due to what congress calls the “payroll tax cut”. Is this the combined rate of those taxes plus federal and state income tax? At those income levels, I’d actually expect her to pay very little in income taxes, so 30% in taxes seems on the high end (esp since the “employer” half of the self-employment tax is deductible for income tax purposes).

    But that’s a small point. Certainly, you raise a good point.

    It seems that it would be much easier if the government someone eased people off the health insurance (a premium that rose along with income?) instead of an all-or-none approach.

    [Reply]

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, as I mentioned to Ashley we made some estimations to come up with the matrix. Actually now that you mention that she is eligible for earned income credit but has some debt owed so any money she has coming back to her is seized by the IRS each year when she files her tax return. She is okay with this and figures since she can’t really afford to make monthly payments at least the creditor will get a chunk each year and hopefully one day it will be paid off. But yes, the bigger point is why is it so difficult to pull out of being dependent on the system. I know when I was on welfare I was tempted to not report my *birthday* money that my MIL gave me because it would ding my food stamps the next month! It makes you want to look for ways to get around the system in hopes to get ahead.

    [Reply]

    Kosmo Reply:

    @Mrs. Accountability, Ah, OK. When I see that term, it has a precise definition to me. It seems that her actual current tax liability is somewhat less than 30%, then (basically, the 30% she pays less the refund that is being garnished by the IRS). Not that it makes much difference to her, but it makes the numbers make sense.

    I didn’t realize that gifts affected food stamp eligibility. I guess it makes some sense. If you receive $100,000 in gifts in a year, you might have $0 in income, but wouldn’t be in need of food stamps, either.

    [Reply]

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, it always had a feel to it when I was on welfare of “they don’t want you to get ahead”. They were always preaching to us about getting off the system but how? Speaking of that $100,000 in gifts wasn’t there a guy somewhere that won the lottery or something and had no income but was taking food stamps? Yes, here is the article: http://news.yahoo.com/blogs/detriot/2m-michigan-lottery-winner-defends-food-stamps-172712202.html

    Kosmo Reply:

    @Kosmo @ The Soap Boxers, I surely hope the government doesn’t want people on welfare to get ahead. I’m pretty sure that taxpayers would be very happy to see people on welfare get a nice paying job 🙂

    Yeah, I’m aware of the Michigan story. Pretty sad that the guy would take funds out of the system that could go toward people who really need it. I guess winning the lottery makes some people become generous … and other people not so much 🙂

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, for what it’s worth, what I mean by saying the government doesn’t want a person to “get ahead” is that it seems they want you stuck right there on welfare or on assistance forever. If for every dollar you make they take half, it is a very difficult climb out of living at poverty level. As I mentioned I was extremely fortunate in my own situation for several reasons, one being that I was lucky to be part of a program that gave me a $300 stipend to buy a whole new working wardrobe. Because I’d been living below poverty level for over five years (and living paycheck to paycheck working from home for the previous five) I didn’t have even one outfit I could wear in an office, we could barely afford thrift shopping twice a year so everything I wore was in sad condition. I was given the choice to go to Ross Dress for Less or Walmart but had to spend the first portion ($200) in one day on one receipt! For someone who really doesn’t like clothes shopping all that much, it was a long challenging day. Thanks for your input on this post. Oh, and by the way, I made some changes to the image and also in the post because I realized I was using the term “self employment taxes” when I really meant all the taxes a person needs to set aside to pay when they are self employed (federal, state, and self employment). Oh, and about that guy. I couldn’t imagine wanting to stay on food stamps a minute longer than necessary! I don’t know about in Michigan but in Arizona I had to go in every three months with all my records, bills, etc. (they lost my folder about 5 out of 6 visits so I just started carrying every single thing with me so I wouldn’t have to return with copies of our birth certificates, or other things they needed and should have had but couldn’t find… this comment I’m making is causing me to realize I might need to write some posts on the experience of being on welfare from my point of view…hmmm… stay tuned…). Thanks for your input! 🙂 Mrs. A

    Kosmo Reply:

    @Kosmo @ The Soap Boxers, I don’t know what sort of effort the government makes to get feedback, since I’ve never been on any of these programs. It seems like it might make sense to gather feedback from those currently in the programs and those who have managed to get ahead, in an effort to determine what aspects are good and which ones need to change.

    I do hear some stories about people who want to milk the system for all it’s worth and have no intention of “getting ahead”, but I believe there are a lot of people who would love to get ahead and get off public assistance.

    J.K. Rowling was on public assistance when she wrote the first Harry Potter book. Anyone care to calculate the ROI of the money Britain spent on her public assistance? I can’t imagine how much she has paid in income taxes over the year. Probably happily paying them, when she looks back at the lean years.

    [Reply]

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, I did not know J.K. Rowling was on PA when she wrote Harry Potter. Interesting. Yes, I have known people who are only interested in getting what they can for free. It’s too bad when that happens.

    [Reply]

  4. It’s not impossible for your friend to become a homeowner, even on her current income. I know here in NJ were I’m from. There are state programs where low – to moderate income individuals can become owners. Whenever there is a large home development being built, the builder has to make it available to low to moderate home buyers.

    The housing purchase price is not the same as market rate homes, there is down payment assistance if you go through the various programs etc. May be she can find out if her state has the same thing.

    Regarding income, have you introduce her ways she can increase her income through passive streams, considering she does have a health aliment that prevents her from going outside. Creating a passive stream of income with ways on the internet is not overnight, but it something to work towards.

    [Reply]

    Mrs. Accountability Reply:

    @Lorillia, thank you so much for your input. I have the BEST readers here, everyone has been so helpful. A few months ago my friend did spend some time with a realtor and found several homes she loved and could afford. We were so excited because it looked like everything was going to work out. One of her longtime clients and one of her adult children who is well off financially had both offered to cover the down payment, which was going to be around $4000 if I recall. But then when the time came to follow through, they both backed out and something went awry on the realtor’s end. But your response gives me hope for her, and I will tell her to keep on looking and I’ll keep my eyes out for her, too. I will also encourage her on the passive income, you are right, it is something to work toward. Thank you again. Mrs. A

    [Reply]

  5. I have many stories of people digging themselves out of PA. My ex for one went from PA to a job making $88 an hour. My mother does a lot of animal rescue work and some of the animals come from homes where people are on the bottom. After digging themselves back out they get their pet back with a GREAT feeling of pride.

    [Reply]

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge