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Greenstein on Today’s Census Figures

We’ve released a statement on the new Census figures on poverty, incomes, and health insurance.  Here’s the opening:

Today’s Census data contained the good, the fair, and the ugly.  The good news is that the number of uninsured Americans dropped by 1.3 million and the share of Americans without insurance fell by more than in any year since 1999; the fair news is that the poverty rate stayed flat after rising in the previous three years and seven of the previous 10; and the ugly news is that median household income fell by 1.5 percent after adjusting for inflation while income inequality widened significantly.

Click here for the full statement.

A Timely Reminder: Improvements in the Safety Net Have Dampened the Rise in Poverty

When the Census Bureau releases its poverty figures for 2011 tomorrow, the official poverty rate could reach its highest point since 1965, as I discussed earlier this year.  Although private-sector employment improved in 2011, other factors that affect the poverty rate (such as the amount of unemployment assistance provided to jobless families, government employment, and real average weekly wages) fell.

But even if the comparison to 1965 proves technically true, it will be misleading.  That’s because the official poverty rate is based on families’ pre-tax, cash income.  It ignores all non-cash benefits (such as SNAP, formerly called food stamps) and working-family tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit — the very parts of the safety net that have expanded substantially over the past half century and that have reduced the reality of poverty, even if the improvement doesn’t show up in the official poverty figures.

In 1965, cash programs that are included in the official poverty measure — Unemployment Insurance, Aid to Families with Dependent Children (since converted into Temporary Assistance for Needy Families), Supplemental Security Income for the low-income elderly and people with disabilities, and state and local general assistance programs — comprised more than 90 percent of the benefits provided by major federal income-support programs for low-income and jobless Americans.  By 2010, they accounted for only a little more than half of the benefits.

In other words, the official measure of poverty counts various means-tested cash assistance programs that have shrunk markedly, while ignoring key forms of “non-cash” assistance that have expanded substantially.  The result is that using the official poverty measure to compare today’s poverty rate to that of decades ago yields a distorted picture that obscures more than it illuminates.

The Census Bureau is developing alternative poverty measures that count the full safety net’s effect.  Its most complete and analytically sound measures — those that follow the poverty-measurement recommendations of the National Academy of Sciences (NAS) — go even further, also accounting for rising work expenses and out-of-pocket medical expenses, for example, and modestly updating the poverty line itself.

Under these measures, poverty rose slightly over the last decade, including during the recent downturn, but has been flatter than the official rate since 2000.  Census will release NAS-based poverty data for 2011 later this year.

Unfortunately, the NAS measures don’t stretch back to the 1960s or 1970s to allow a full comparison with the official poverty data.  But a cruder measure that I calculated myself — unlike the NAS measures, it’s not a complete and balanced measure of poverty — shows the growing importance of non-cash benefits in raising people out of poverty back to 1979 (see chart).

Under this measure, which counts taxes, the estimated value of food stamps, and housing assistance, poverty rose much more slowly in recent years than the official poverty rate.  It shows that in 2010, such “non-cash” assistance cut the number of people in poverty by more than 10 million, or 3 percent of the population.

Tomorrow’s Census data will likely underscore the very serious state of poverty in America.  But as we consider how to reduce the number of poor families, we shouldn’t get distracted by comparisons that fail to account for how effectively major parts of the safety net have fought poverty. 

The EITC: Our Strongest Tool for Boosting Single Mothers’ Employment

You might know that research consistently shows that the Earned Income Tax Credit (EITC) significantly boosts work effort, especially among single mothers with limited education.  But you might not realize just how effective the EITC is.

Research by economists Bruce D. Meyer of the University of Chicago and Dan T. Rosenbaum of the University of North Carolina at Greensboro found that EITC expansions between 1984 and 1996 were responsible for more than half of the large increase in employment among single mothers during that period. The biggest gains in employment attributable to the EITC were for mothers with young children and mothers with low education levels.

Even more striking, a highly regarded study by University of Chicago economist Jeffrey Grogger found that the EITC expansions enacted in the 1990s “appear to be the most important single factor in explaining why female family heads [of households] increased their employment over 1993-1999.”

In other words, the EITC expansions did more to boost employment among single mothers than the 1990s overhaul of the welfare system, as the chart shows.  Recent proposals to build on the purported success of the 1996 welfare law by block-granting SNAP (food stamps) and other programs ignore this fact.

The EITC’s proven success as a work incentive explains why expanding it should be central to any initiative to raise employment among low-income individuals.

At the moment, of course, jobs are still scarce, so job inducements like the EITC aren’t likely to be as effective at putting people to work as they would be in a stronger labor market.  Still, as the economy improves, the EITC and policies like it are promising.

A good place to start would be to strengthen the very small EITC for workers not raising children.  This would be especially beneficial for less-educated single men, who have fared poorly in the labor market for many years — including prior to the recession, when employment among single mothers rose substantially (in no small part due to the EITC).

President’s Budget Falls Short on Renewing Housing Assistance

Announcing the President’s 2013 budget for the Department of Housing and Urban Development, HUD Secretary Shaun Donovan said that a key goal is to protect rental assistance for the low-income families that use it.  Unfortunately, the budget falls short for the three largest rental assistance programs, our new analysis shows.  As a result, as many as 55,000 low-income families would risk losing their housing vouchers, and public housing for 1.1 million low-income families would deteriorate due to delayed maintenance and repairs.

These three programs — Housing Choice vouchers, public housing, and Section 8 project-based rental assistance (PBRA) — help 4.5 million low-income households, nearly all of which include seniors, people with disabilities, or families with children.

The budget proposes cost-saving policy changes to shrink the funding gap between what the budget provides and what we think it needs to fulfill its key goal.  We’re all for reforms that improve program effectiveness and cut costs.  And some of the proposals, like enabling the voucher program to help more working-poor families, are sound.   But others are simply bad ideas — particularly raising rents sharply on 500,000 of the poorest HUD-assisted households.   Moreover, HUD’s budget overstates the likely savings from many of these proposals.

Analysis of HUD Requests to Renew Rental Assistance
Program HUD request for 2013 Renewal and operating shortfalls, net of realistic policy-related savings
Housing Choice Voucher renewals $17.2 billion $250 – 440 million
Section 8 PBRA $8.7 billion ~$1.1 billion
Public Housing Operating Fund $4.5 billion $350 million
Total $1.7 – 1.9 billion
Source: Center on Budget and Policy Priorities and HUD.

Using more realistic cost projections and assuming that Congress will not agree to hike rents on the poorest HUD tenants, we estimate that the President’s request is at least $1.7 billion short of the amount needed to sustain rental assistance for current families (see table).

Fortunately, HUD expects revenues for the Federal Housing Administration — which help cover the cost of HUD programs — to rise next year.  That means Congress could boost HUD funding above the President’s level and enable HUD to keep serving as many families as it does now, while still keeping HUD funding well below recent years’ levels.

The Myth of the Out-of-Control Federal Government

Are the size and reach of the federal government exploding, as some have suggested?  While overall federal spending is well above its historical average as a share of the Gross Domestic Product (GDP) and is expected to remain so even after the economy recovers, our new examination of the latest Congressional Budget Office (CBO) data belies claims of a large and permanent expansion of the federal government.

Non-Interest Spending Outside Medicare and Social Security Set to Fall in Coming Decade

Here’s what we found:

  • If we continue current policies, federal expenditures outside of interest payments on the debt are projected to decline in the decade ahead as the economy recovers. In fact, these expenditures (which analysts call “primary outlays”) have already fallen from 23.9 percent of GDP in 2009 — at the bottom of the recession — to a projected 22.0 percent of GDP in the current year, 2012.  They are projected to fall further, to 20 percent of GDP or lower in the latter part of this decade.
  • Total non-interest spending outside of Social Security and Medicaretwo programs whose costs are being driven up by the aging of the population and the rise in health care costs throughout the U.S. health care system — will fall well below its 50-year historical average in the decade ahead (see graph).  By 2022 it will fall to 10.8 percent of GDP, compared to an average over the 1962-2011 period of 13.0 percent (see table).

As we conclude:

To be sure, in subsequent decades, as the population continues to age and health care costs continue to rise, federal non-interest spending will climb significantly higher.  One key factor is that average health care costs are considerably greater for people in their 80s and 90s than for people in their late 60s and early 70s, and the baby boomers will become very old in future decades.  In addition, if the debt continues to rise faster than GDP, interest costs will continue to swell.  We will have to tackle these issues.

Program Spending as a Share of GDP Under Continuation of Current Policies
Avg 1962-2011 2012 2017 2022
Primary outlays 18.5% 22.0% 20.0% 20.0%
Less Social Security 14.5% 17.1% 14.9% 14.5%
Less Social Security and Medicare 13.0% 13.8% 11.6% 10.8%
Note: program spending includes all federal expenditures other than net interest on the debt. Sources: OMB through 2011; CBPP analysis of CBO data thereafter.

But when Americans hear talk of the government exploding in size and reach, they don’t usually think this means that more people will receive Social Security and Medicare because the population is growing older or that Medicare will cost more because of factors like the aging of the baby boomers and advances in medical technology that improve health and prolong life but at significant cost.

Outside of those demographic and health cost factors, the portrait of a rapidly growing federal behemoth is simply at odds with reality, since costs are shrinking to levels well below their historical averages.

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02 2012