Off the Charts Blog | Center on Budget and Policy Priorities

We sat down with Arloc Sherman, Senior Researcher, to discuss what to look for in the Census Bureau’s upcoming release of data on poverty in 2009.

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Arloc, tomorrow, the Census Bureau will release official data on national poverty, income, and health insurance coverage in 2009.  Let’s focus on poverty.  How does the Census Bureau define poverty?

The official poverty definition accounts for cash income before taxes. So it includes earnings and government cash benefits like unemployment benefits for jobless workers. It does not include tax credits or noncash benefits (such as public housing or food stamps). In 2009, a family of four was considered below the poverty line – or officially “poor” – if their cash income was less than about $22,000.

What do you expect the poverty data for 2009 to show?

We expect a large increase for 2009 in both the number of Americans in poverty, and the share of the population that were living in poverty. This is a reflection of the effects of the severe recession and the unusually large amount of long-term unemployed workers. The longer people are out of work, the more likely they are to fall into poverty. The increase in poverty may even be among the largest single-year increases in many years.

Earlier, you mentioned that the poverty definition excludes non-cash income like food stamp benefits. Weren’t those significant parts of the Recovery Act of 2009 that were intended to lessen the harmful effects of the recession? How do we regard the Census poverty data if it’s missing a large share of the government’s anti-poverty efforts?

You’re right. The Census numbers released on Thursday will leave out tax credits and non-cash assistance, which make up the majority of the help to families under the 2009 Recovery Act. However, a broader definition of poverty is due out at the end of the year. It’s called the Supplemental Poverty Measure, and Census plans to unveil a preliminary version of it, and it will include tax credits and food stamps and other non-cash benefits. The new measure will do a better job of showing how the Recovery Act has helped mitigate the true rise in poverty over the course of the recession.

Will this new measure show that poverty in the country isn’t really that dire?

Actually, it is still quite dire. It’s just that poverty hasn’t necessarily risen as much as the official numbers will show. Moreover, there is an even darker cloud looming on the horizon: The Recovery Act provisions that have proven so successful in shielding people from deeper poverty levels are set to expire at the end of this year. That means this extra help will evaporate, and assuming the labor market is as troubled as the predictions forecast, poverty could go even higher.

What should policymakers do?

Congress can take three key steps:

• One: Extend the unemployment benefits for the long-term unemployed, which are due to expire November 30
• Two: Extend the child tax credit for lower-income working families with children. The Recovery Act broadened that to cover more families, so don’t let that run out.
• Three: Extend a highly successful little jobs program called the TANF Emergency Fund, which has placed a quarter of a million people in jobs and is set to expire at the end of September.

You can download a podcast of this conversation here or on iTunes.

Here are three things to keep in mind in examining the official figures on poverty in 2009, which the Census Bureau will release on Thursday:

1.  Poverty may increase by a record amount in 2009. Both the number and percentage of Americans in poverty could show record one-year increases, in data that go back to 1959.  (The existing records are increases of 3.2 million and 1.3 percentage points, both in 1980.).

The expected large increase reflects the recession and the unusually high degree of long-term unemployment.  Between the start of 2008 and the end of 2009, the number of jobs fell by over 8 million.  Further, by late 2009, the proportion of unemployed workers who had been out of work for more than six months topped 40 percent, another record.  The longer people are out of work, the more likely they are to fall into poverty.

Even worse, the current economic downturn follows an economic recovery that was the first on record in which poverty was higher — and median income for working-age households lower — at the peak of the recovery (2007) than in the previous recession (2001).

2.  Thursday’s figures will omit the impact of large parts of the 2009 Recovery Act. The Census Bureau’s official poverty data account for the cash income that households receive, including unemployment benefits for jobless workers, but they leave out any assistance that families receive in the form of tax credits or non-cash benefits.  So Thursday’s data won’t show the poverty-reducing impact of tens of billions of dollars’ worth of Recovery Act tax credits for low-income working families (such as the new Making Work Pay Credit) and expanded food stamp benefits.

3.  Poverty will likely rise even higher next year if recovery provisions are allowed to expire. Forecasters generally expect unemployment to remain high through 2011, and poverty will likely remain high even longer than unemployment does.  In each of the last three recessions, the poverty rate did not begin to decline until a year after the annual unemployment rate started to fall.

Many pieces of the Recovery Act aimed at low- and moderate-income households are scheduled to expire soon.  If Congress fails to act, extra weeks of unemployment benefits for the long-term unemployed will expire on November 30, the TANF Emergency Fund jobs program will expire on September 30, and the expanded Child Tax Credit for working families will expire after 2010.  If these measures do not continue, poverty — particularly as measured by an expanded poverty measure the Census Bureau will issue this fall, which includes tax credits and non-cash benefits — will likely go up in 2011.

On Thursday, we’ll post an analysis of the new data.

I recently wrote about new Congressional Budget Office data showing that over the past three decades, after-tax incomes jumped by a stunning 281 percent for the richest 1 percent of Americans, while rising just 25 percent and 16 percent for households in the middle and bottom of the income scale, respectively. The table gives the relevant dollar figures for different income groups. (All figures here are adjusted for inflation.)

Just in the last year of the study (2007), the top 1 percent of households saw their average incomes rise by $89,000 — much more than the entire average income of families in the middle.

As past studies have shown, the top-heavy growth of recent decades marks a sharp change from the three decades following World War II, when the benefits of economic growth were shared much more widely. In fact, incomes grew faster over those earlier decades for the bottom 90 percent of households than for the top 1 percent.

Between 1979 and 2007, after-tax household incomes rose by 55 percent for the nation as a whole, the CBO data show. If this growth had been shared equally across all income groups:

• Middle-income Americans would have seen their incomes rise to $68,300 instead of $55,300, which would have meant an extra $13,000 a year in their pockets.
• Households in the bottom fifth of the income scale would have seen their incomes rise to $23,710 rather than $17,700, giving them an extra $6,010.

For more, here’s my recent report on the CBO data.

After-tax incomes nearly quadrupled for the top 1 percent of Americans in the last three decades, while barely rising among middle- and lower-income households, according to new data from the Congressional Budget Office. Here’s how different income groups did over that period:

The new CBO data — the most comprehensive numbers available on income inequality — only go through 2007, so they don’t show the impact of the recession and the stock market plunge. These events may have reduced inequality somewhat by shrinking incomes the most at the top, as the bursting of the dot.com bubble did a decade ago. But as the chart shows, that turned out to be just a speed bump for the top 1 percent, whose after-tax incomes soon resumed their climb.

I’ll discuss some other findings from the CBO data in a post next week.