The Center's work on 'Trends' Issues


Child Poverty Remains High, But States Can Make a Difference

September 19, 2014 at 12:55 pm

More than half of the states plus the District of Columbia had child poverty rates of 20 percent or higher last year (see map), new data from the Census Bureau’s American Community Survey show, and in some states — like New Mexico and Mississippi — poverty affected as many as one in three kids.  Such extensive child poverty unnecessarily damages the prospects of millions of children.

Relative to their better-off peers, poor children have poorer health, do less well in school, and complete fewer years of education.  Over the long term, they are more likely to have chronic bad health and to work fewer hours and earn less as adults, which can contribute to a vicious cycle of poverty.

In addition, the stress of hunger, unsafe neighborhoods, and unstable housing, among other hardships that many poor families face, can have harmful physiological effects on children’s still-developing brains.  This “toxic stress” can impede their social and emotional development and ability to learn.

States have a range of effective tools to reduce child poverty and the associated hardships. They can, for instance:

  • Raise the state minimum wage in conjunction with creating or improving the state’s earned income tax credit.
  • Provide quality early childhood education to help boost the future prospects of children in poor families while allowing their parents to work and build a better future for them.
  • Connect more poor children to a full range of federal supports, including nutrition, housing, and health care.

Why More Inequality Means Less State Revenue — And How States Can Respond

September 19, 2014 at 11:06 am

Growing income inequality in recent decades has slowed state tax collections, a new report from Standard & Poor’s finds, making it harder to fund public services ― like education ― that lay the groundwork for a strong future and help push back against rising inequality. States need to adapt their tax codes to take growing inequality into account.

Virtually all states collect more taxes (as a share of family income) from low- and moderate-income families than from high-income families.  So it makes sense that collections would slow when, as we’ve documented, the lion’s share of income growth goes to the richest families.

  • Many states have a flat-rate or nearly flat-rate income tax.  A flat income tax raises less revenue from economic growth — especially when most of the gains go to people at the top of the income scale — than a graduated income tax, which taxes higher incomes at higher rates.
  • Growth in sales tax collections weakens when low- and middle-income families’ incomes stagnate or grow more slowly, since they spend (rather than save) a larger share of their income than wealthy families do.
  • States’ antiquated sales tax rules favor high-income consumers.  Those at the top tend to spend more on services, like lawn care or health club memberships, which remain exempt from sales tax in many states.  They also spend a larger share of their income online — purchases that often are effectively tax-free.

States can respond to slowing tax collections by making their income tax more progressive through a more graduated rate structure.  This would make tax collections more responsive to economic growth, bringing faster revenue growth when the economy expands.  Tax collections would also fall more when the economy slows, but states can address this with stronger reserve funds, better mechanisms to manage surpluses, and other policy tools, as we have explained.

States also can broaden their sales tax base to include more services, including those used by high-income families, and extend the sales tax to Internet sales.

Over time, these changes would give states more resources to push back against rising inequality by investing in education and training, providing supports like child care assistance for low-wage workers, and adopting or expanding state earned income tax credits.

Conversely, if states fail to adapt their tax systems to this growing problem, they will have an even harder time stemming the harmful rise in inequality.

Poverty Above Pre-Recession Levels in 47 States, New Census Data Show

September 18, 2014 at 4:46 pm

Poverty remained above pre-recession levels last year in 47 states plus the District of Columbia, our analysis of Census data issued this morning shows (see chart).  In some states, the increase was substantial — in Arizona, California, Florida, Georgia, and Nevada, poverty rates were four to five percentage points higher in 2013 than in 2007.  The stubbornness of high poverty rates in the wake of the Great Recession underscores the need for states to do more to help working families make ends meet.

Poverty rates in the states not still above pre-recession levels, Alaska and the Dakotas, weren’t statistically different from 2007.

Unequal wage growth and rising income inequality have played key roles in preventing more substantial improvements in poverty.  For workers earning low pay, wages are right where they were 40 years ago after adjusting for inflation, according to the Economic Policy Institute.  And since the recession’s official end in 2009, most workers’ wages have fallen, while workers at the top have seen some growth.

States have tools to help to address low wages and rising income inequality.  They can create or improve state earned income tax credits (EITCs), which promote work and reduce poverty and can improve low-income children’s chances of success both in school and, later, in the workforce.  States can also raise their minimum wage — the federal minimum wage is 22 percent below its peak value in 1968, after adjusting for inflation — and index it to inflation.  Improvements in these two areas are complementary for reasons we explain here, reaching a broader population than the EITC or minimum wage alone and keeping many more families out of poverty.

Income Inequality Remains at Historic High, Census Data Show

September 18, 2014 at 2:43 pm

Income inequality remained near a record high in 2013 by several measures the Census Bureau released earlier this week, with data going back to 1967.

The principal Census summary measure of household income inequality, known as the “Gini coefficient,” was not statistically different from the record high in 2012.  And the share of national income that goes to the top fifth of households was 51.0 percent, not statistically different from its record high of 51.1 percent in 2011.  The share of the nation’s income going to the top 20 percent has been growing for decades, but it only recently surpassed 50 percent.  That means the top 20 percent of households receive more of the nation’s income than the bottom 80 percent combined (see chart).

The Census figures provide an incomplete look at pre-tax income inequality — for example, they don’t include capital gains (a major income source for the affluent) and don’t ask about earnings above $1.1 million, while also leaving out key income sources for the poor such as government food assistance, rent subsidies, and tax credits.

Still, the trend of high and rising inequality that the new data show is consistent with other recent studies.  For example, a recent Federal Reserve study finds evidence of growing income concentration between 2010 and 2013.  “Only families at the very top of the income distribution saw widespread income gains between 2010 and 2013,” the study found, as incomes grew for the nation as a whole but fell for middle- and lower-income households.  (Unlike the Census data, the Fed’s survey includes capital gains and SNAP — formerly food stamp — benefits.)

Preliminary tax-return data through 2012, as analyzed by economist Emmanuel Saez, provide further evidence about widening inequality in recent years.  Saez found that from 2009 to 2012, average pre-tax income of the top 1 percent of households rose 31 percent — or by about $300,000 per household — but rose by just 0.4 percent (an average of about $170) for the other 99 percent of households.  (These figures do not include government benefits and, thus, provide a picture of economic inequality before tax and transfer policies.)  The top 1 percent received 95 percent of the nation’s total rise in pre-tax income during this period, Saez found.

Families With Children Gained in 2013, But Poverty Still Higher and Incomes Lower Than Pre-Recession

September 16, 2014 at 3:56 pm

The child poverty rate fell from 21.8 percent in 2012 to 19.9 percent in 2013 in the first statistically significant one-year drop in child poverty since 2000, according to new data released by the Census Bureau today.  While the poverty rate among children remained well above the 2000 level, when it was 16.2 percent, the improvement in 2013 is welcome news that the economic recovery has finally begun to improve the circumstances of the lowest-income children.

The drop in child poverty appears driven in large measure by an improving employment picture among parents.  Between 2012 and 2013, the share of families with someone working and the share with someone working full-time, year-round both rose.    For example, the share of families with children with a full-time, year-round worker rose from 76.3 percent in 2012 to 77.1 percent in 2013, meaning that an additional 220,000 families with children are supported by at least one full-time, year-round worker.

This improving employment picture for parents also translated into an increase in median income among families with children.  The median income for these families rose from $60,856 in 2012 to $62,161 in 2013 (all adjusted for inflation).  This is a welcome improvement, but median income among these families remains well below its 2007 level of $66,494 and even further behind its peak of $68,580 in 2000.  Between 2000 and 2013, the family with children right in the middle of the income distribution lost $6,400 in income.

Improvements in 2013 were particularly large among Latino families with children, but the Great Recession had been particularly harsh for these families as well.  Poverty among Hispanic children rose markedly from 26.9 percent in 2006 to 34.9 percent in 2010, an 8 percentage-point increase.  Since 2010, the situation has improved.  Poverty fell to 33.8 percent in 2012 and then to 30.4 percent in 2013, and now stands 4.5 percentage points below the 2010 level.  Today’s data show that the recovery is making a significant dent in Hispanic child poverty as the employment rates and earnings of Latino parents rebound.