The Center's work on 'Poverty and Income' Issues

The Center analyzes major economic developments affecting low- and moderate-income Americans, including trends in poverty, income inequality, and the working poor. In addition, we analyze the asset rules in various public benefit programs that can discourage low-income people from building modest savings and highlight potential reforms.


New Poverty Figures Show Impact of Working-Family Tax Credits

October 17, 2014 at 2:05 pm

The Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) together lifted 9.4 million people out of poverty in 2013 and made 22.2 million others less poor, our analysis of Census data released yesterday show (see first graph).

Using Census’ Supplemental Poverty Measure (SPM), which includes taxes and non-cash benefits as well as cash income, our analysis shows how critical these tax credits are for low-income families.  It also highlights the impact if policymakers let key provisions of the credits expire, as I explain below.

Each credit plays an important antipoverty role.  The EITC lifted 6.2 million people out of poverty in 2013, including 3.2 million children.  The CTC lifted 3.1 million people out of poverty, including 1.7 million children.  Both credits acting together lifted some additional people out of poverty.

The EITC and CTC combined lift more children out of poverty than any other antipoverty program.

Unfortunately, critical provisions of the EITC and CTC are set to expire at the end of 2017.  If that happens, 16.4 million people — including 7.7 million children — will fall into or deeper into poverty, we estimate based on the Census data.  (See second graph.)  Our interactive calculator lets you explore what’s at stake for low-income families if policymakers don’t act.

Why We Should Give Wages Room to Grow

October 17, 2014 at 1:35 pm

My latest post for U.S. News’ Economic Intelligence blog shows that American workers have been shortchanged in the recovery from the Great Recession and explains why the projected quickening of wage growth over the next few years won’t trigger an upward spiral of wages and prices.  It says in part:

How can wage increases go from 2 percent per year to 3.5 percent [as the Congressional Budget Office projects will occur over the next three years] without igniting unacceptable inflation?  The answer lies in the arithmetic of prices, productivity and labor costs.

In round numbers, since the start of the recession in late 2007, hourly labor compensation (wages plus fringe benefits) has grown at about 2 percent a year on average.  Productivity growth (increases in output per hour worked) offset about 1.5 percentage points of that increase.  The difference, a mere 0.5 percent a year, is the growth rate of labor costs per unit of output produced.

Prices were rising three times as fast as that over this period — 1.5 percent per year — so businesses had three times the revenue per unit of output they needed to cover the increase in unit labor costs.  It’s not surprising that profits grew substantially while workers got the short end of the stick. Businesses could have raised hourly compensation by 3 percent a year over this period (half paid for by higher prices, half by greater productivity) without threatening their bottom line.

CBO projects that inflation will rise gradually toward the Fed’s stated longer-term goal of 2 percent per year. That means hourly compensation can rise at 3.5 percent a year without putting any additional upward pressure on prices: Price increases would cover 2 percentage points of that increase, and greater productivity would cover the rest.

Click here for the full post.

Rental Assistance Kept Over 3 Million People Out of Poverty Last Year, New Census Data Show

October 16, 2014 at 4:33 pm

Rental assistance programs kept millions of people above the poverty line in 2013, according to CBPP’s analysis of new Census data.  The findings highlight the central role that rental assistance plays in helping low-income Americans keep a roof over their heads.

Our analysis using the Census Bureau’s Supplemental Poverty Measure (SPM), which accounts for non-cash benefits and taxes as well as cash income, shows that rental assistance kept 3.1 million people, including 1.0 million children, out of poverty last year (see chart).  (The SPM methodology understates the value of some types of rental subsidies, so the actual impact on poverty likely is somewhat higher than these estimates indicate.)

The SPM data don’t break down what type of rental assistance kept these people out of poverty, but for most, it likely was one of the three primary federal rental assistance programs: Housing Choice Vouchers, Public Housing, and Section 8 Project-Based Rental Assistance.

Rental assistance could lift many more people out poverty, but due to funding constraints only one in four families eligible for assistance receives it.  Families without rental assistance are far more likely to experience homelessness and housing instability, which have been linked to negative health, education, and developmental outcomes over the long run.

Sequestration cuts to Housing Choice Vouchers in 2013 caused tens of thousands more families to be left without the assistance they need to afford stable homes.  Those cuts were only partly restored in 2014.  When it returns in November, Congress will consider legislation setting 2015 funding levels for many federal programs.  As they weigh their options, policymakers should place a high priority on protecting funding for rental assistance to avoid exposing more of the nation’s most vulnerable people to poverty, homelessness, and hardship.

SNAP Kept Nearly 5 Million People out of Poverty Last Year, New Figures Show

October 16, 2014 at 1:39 pm

SNAP (formerly food stamps) kept 4.8 million people above the poverty line in 2013, including 2.1 million children, our analysis of Census data released today shows (see graph).  The figures are based on Census’ Supplemental Poverty Measure, which — unlike the official poverty measure — includes non-cash benefits (like SNAP) and taxes as well as cash income.

By providing low-income families with resources to buy food, SNAP not only reduces “food insecurity” (difficulty affording adequate food) but also frees up room in their very tight budgets to cover other necessities, such as rent and clothing.

SNAP has an especially pronounced impact on poverty among the poorest families with children:  close to half (45 percent) of SNAP participants are children, and SNAP benefits are targeted to the poorest households.  In 2013, SNAP kept 1.3 million children out of “deep poverty” (incomes below half of the poverty line, or roughly $9,800 for a family of three).

Safety Net Cut Poverty Nearly in Half Last Year, New Census Data Show

October 16, 2014 at 12:25 pm

Safety net programs cut the poverty rate nearly in half in 2013, our analysis of Census data released today finds, lifting 39 million people — including more than 8 million children — out of poverty.  The data highlight the effectiveness of cash assistance such as Social Security, non-cash benefits such as rent subsidies and SNAP (formerly food stamps), and tax credits for working families like the Earned Income Tax Credit (EITC).  They also rebut claims, based on poverty statistics that omit non-cash and tax-based safety net programs, that these programs do little to reduce poverty.

Accounting for government assistance programs and taxes cuts the poverty rate for 2013 from 28.1 percent to 15.5 percent, we found (see chart).  These figures are based on Census’ Supplemental Poverty Measure (SPM), which — unlike the official poverty measure — accounts for taxes and non-cash benefits as well as cash income.  (The SPM also makes other adjustments, such as taking into account out-of-pocket medical and work expenses and differences in living costs across the country.)

Safety net programs cut the poverty rate for children from 27.5 percent to 16.4 percent, we found.

Because the SPM includes taxes and non-cash benefits, it gives a more accurate picture of the impact of anti-poverty programs than the official poverty measure, which counts only cash income.  Non-cash and tax-based benefits now constitute a much larger part of the safety net than 50 years ago, so the official poverty measure’s exclusion of them masks the nation’s progress in reducing poverty over the last five decades.

Nevertheless, some policymakers and pundits have used comparisons based on the official poverty measure to argue that federal anti-poverty programs are ineffective.  As Senator Orrin Hatch, the Finance Committee’s ranking Republican, put it last week, “For 50 years we’ve spent trillions of dollars on massive federal welfare programs that have largely failed.  The poverty rate has remained essentially unchanged since 1967.”  House Budget Committee Chairman Paul Ryan has made similar statements.

Comparing poverty rates in the 1960s and today using the official measure, which doesn’t count programs like SNAP, the EITC, and rental vouchers, implies that those programs — all of which were small or nonexistent in the 1960s — do nothing to reduce poverty, which clearly is not the case.  Columbia University researchers using an SPM-like measure (and adjusting the poverty line for inflation) found that the poverty rate fell from 26 percent in 1967 to 16 percent in 2012 if one includes this assistance.  Today’s Census figures provide further evidence of the safety net’s strong anti-poverty impact.