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Poverty Halved

Greg Spears

IF YOU’RE LIKE ME, you almost dread looking at the morning newsfeed. This is why I’m happy to share some good news: The U.S. poverty rate has been cut nearly in half. What’s more, it was accomplished while the economy was practically flat on its back, with tens of millions out of work.

When I was a Washington, D.C., reporter in the mid-1990s, I reported from some of the poorest neighborhoods in Baltimore, Camden and Washington. The policies then being tried—limiting cash assistance and upping the penalties for drug crimes—made conditions even more desperate. The poor, it seemed, would always be with us.

But now researchers at the Urban Institute project that the poverty rate has been cut to 7.7% of the population in 2021, compared to 13.9% in 2018. In raw numbers, some 20.5 million people have risen above the poverty line within the past year. That’s greater than the population of New York, Los Angeles, Chicago and Houston combined.

“Cutting poverty in half in the midst of a recession is the social-policy equivalent of defying gravity,” notes Jason DeParle, who covers the poverty for The New York Times. How was it done? A combination of scientific thinking and pure luck.

Congress asked the National Academies of Sciences, Engineering, and Medicine to identify evidence-based programs that could cut childhood poverty in half. In 2019, the Academies recommended a package of program expansions, including:

  • Increasing the earned income tax credit, which encourages work by returning the taxes withheld from the paychecks of low-income workers.
  • Making the Child and Dependent Care Tax Credit fully refundable, so the parents would get a check even if it was greater than the taxes they owed.
  • Raising food stamp benefits—now called SNAP, for Supplemental Nutrition Assistance Program—by 35%.

In normal times, such costly recommendations might have gathered dust. But then came luck—in this case, bad luck. When COVID-19 shut down much of the face-to-face economy, Washington grabbed the Academies’ recommendations off the shelf and wrote them into the huge relief bills being rushed through Congress.

It’s often said that bipartisanship is dead, but I’d have to politely disagree. The two parties competed to show which one was more generous over the past 18 months. As a result, the emergency bills they passed contained these additional geysers of spending:

  • Stimulus checks were sent at three different times. All but the most affluent families of four should have received $11,000 since March 2020.
  • The Child and Dependent Care Tax Credit was paid forward, so parents didn’t have to file a tax return to obtain the money. The credit was also broken into monthly payments and directly deposited into parents’ bank accounts.
  • The federal government topped off state unemployment benefits with $300 extra per week at two different times in 2020 and 2021. Many people made more money unemployed than they had while working.

This avalanche of money was an about-face from the policy of benign neglect I’d seen in the mid-1990s. Back then, Washington was worried it had created a permanent underclass, and so began throttling back on welfare payments. Millions of people who’d lost welfare benefits found their way to low-wage jobs.

But the pendulum of federal largess (or lack thereof) may have swung too far. During the Great Recession of 2007-09, far more money was spent bailing out the big banks and Wall Street firms than helping homeowners facing foreclosure. Some 10 million families lost homes. Fast forward to 2020: Lawmakers were determined not to neglect hard-pressed workers again, especially in an election year.

Most of these newly expanded programs will soon expire, unless the Senate passes one more big relief bill this year. If that fails, it’s easy to anticipate that poverty will begin to tick up again. Still, at least we now know what levers to throw, should we want to attack poverty again.

Meanwhile, the current success of these programs has left us with a related headache: How do we pay for these programs—without a surge in the federal deficit and a follow-on spike in the inflation rate?

Greg Spears worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, he spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. Greg currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. He is also a Certified Financial Planner certificate holder. Check out Greg’s earlier articles.

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Dwain Sims
Dwain Sims
6 months ago

I think we can safely say in this current economy, if you are not working its because:

  1. You cannot work (due to a myriad of reasons that include health, disability, legal issues, etc.)
  2. You don’t want to work.

There seem to be plenty of jobs out there for folks that want a job.

Chazooo
Chazooo
6 months ago

See, Socialism will succeed if given half a chance!

booch221
booch221
6 months ago

The federal government topped off state unemployment benefits with $300 extra per week at two different times in 2020 and 2021.

The first round of CARES Act enhanced unemployment benefits was $600 per week.

https://www.cnbc.com/2020/05/28/extra-600-dollars-in-weekly-unemployment-benefits-runs-out-in-july.html

Greg Spears
Greg Spears
6 months ago
Reply to  booch221

Thanks much for this clarification. The flood of funds that has come from Washington has been incredible, with so many parts that’s it’s difficult to enumerate exactly.

R Quinn
R Quinn
6 months ago

Let’s be clear the estimated reduction in poverty rate was for the year 2021 according to the Urban Institute. There is nothing to crow about. Of course giving any group of citizens a chunk of money will raise their standard of living. – until the money is gone and then you are back where you started.

Headlines claiming poverty was halved are dangerously misleading. The real challenge and goal IMO should not be such claims but reducing those in poverty by actually reducing their NEED for assistance. That means education and training, counseling in making life decisions and then making sure they are given the opportunity to use their skills.

There are those who favor a minimum guaranteed income as a way of eliminating poverty. How long before that new income level becomes the base for poverty which at some point must be the case.

Greg Spears
Greg Spears
6 months ago
Reply to  R Quinn

I take exception to your claim that HumbleDollar’s coverage is ‘dangerously misleading.’ These four publications also report huge drops in U.S. poverty rates this year: The New York Times, The Wall Street Journal, The Philadelphia Inquirer, and The Economist magazine. 

You claim poverty has not fallen because it will only rise after emergency support is withdrawn. I reported in the story that poverty will begin rising as these temporary aid measures expire. But the very fact that poverty has fallen dramatically this year is an important accomplishment—and one worth noting—because we are enduring an extraordinary economic challenge.

I sense that you feel that the poor are not worthy of cash support, and must work to earn their way out of poverty. This is a traditional belief that people are to blame for their economic condition. This is no doubt true in some cases, certainly, but lacks empathy for the rising generation, which faces ruinously high costs for housing, health care, college, and now cars.

You say that any group of people can be removed from poverty if you simply give them a chunk of money. In our society, that best describes people 65 and over. If the social contract transfers wealth mainly from workers to retirees, I wonder if workers will continue to shoulder the cost of Social Security without means testing once the trust fund runs out? I suspect they will not—unless their economic security is greatly strengthened.

macropundit
macropundit
6 months ago
Reply to  Greg Spears

>> I sense that you feel that the poor are not worthy of cash support, and must work to earn their way out of poverty. This is a traditional belief that people are to blame for their economic condition.

Come on. None of this follows from what RQ said. This is a projection of your own beliefs onto others. And traditional? Well that’s revealing.

One doesn’t need to assign any blame to have a different opinion about what helps and what doesn’t. For example, bankers understand the moral hazard of loaning money in certain circumstances. This has nothing to do with assumptions of how those circumstances came about, which would allow for possibility of positing blame. The primary moral maxim is “do no harm”.

R Quinn
R Quinn
6 months ago
Reply to  Greg Spears

How did you get all that from what I said? Every generation has its challenges. Perhaps you forget the challenges of the depression, world wars even the draft hanging over young people.

I never implied people are to blame generally for their poverty, but I said our goal should be to help them out of it not to make it easier to stay in it.

A temporary drop in poverty is rather meaningless don’t you think especially knowing the temporary part was based on intentional actions.

Social Security is an insurance program intended to have citizens self-fund their future security. It is not wealth transfer. And it was never intended to me a new form of welfare via means testing. The fact it is in the state it is in is the result of actions by Congress – failure to assure funding for all the promises made over the years. FYI the benefit formula is skewed in favor of lower income retirees and the taxation of the benefits targets higher income retirees some of which goes to fund the program. The trust will never be allowed to go bust.

I said nothing about HumbleDollar, but irresponsible headlines and less than comprehensive reporting so people can understand the full issue is most certainly dangerous. What good purpose does reporting “poverty halved” accomplish while knowing all the facts when saying that? Will 2022 headlines report poverty returns to pre- stimulus levels?

Last edited 6 months ago by R Quinn
bjmk3224@sbcglobal.net
bjmk3224@sbcglobal.net
6 months ago
Reply to  Greg Spears

“I sense that you feel that the poor are not worthy of cash support, and must work to earn their way out of poverty. This is a traditional belief that people are to blame for their economic condition.”

We all must work to earn our way out of poverty – work for wages, work at being frugal, work at making good decisions for ourselves and our families. This is the way out of poverty. Our decisions have consequences. There are always catastrophes that befall people and they need both our support and compassion, but when so many folks have ash/benefit support as their way of life, yes, they are to blame for their ecoomic condition and we are to blame for supporting them in this lifestyle. At some point you run out of other people’s money.

corrupt
corrupt
6 months ago
Reply to  R Quinn

Of course giving any group of citizens a chunk of money will raise their standard of living. – until the money is gone and then you are back where you started.”

Or perhaps in worse shape if you believe in lifestyle creep.

Rick Connor
Rick Connor
6 months ago

Greg, thanks for the great article tackling a complicated and controversial topic. Reading the article and comments I noticed that the terms
poverty rate” and “poverty level” have been interchanged at times. I checked the US Census site and they use the term “Threshold” which I think makes it clearer. As I understand it the poverty threshhold is a defined income level, based on family size and makeup. The poverty rate is the percentage of families whose incomes (regardless of where the income comes from) are below that threshold. The way I read it, if we provide income to lower income families and that extra income raises their total income above the family threshold, they are longer in poverty, and the poverty rate goes down. I agree it doesn’t necessarily change their structural finances, or show that used the money nobly. But, as a matter of mathematics, reduce the poverty rate.

The Census site for this data is full of caveats on how the data was collected, who it was collected from, and how it should be used. It certainly isn’t perfect data, but data never are.

The poverty rate reported is at a given point in time and, in my opinion, it would take several years of data to see the long term impact of a policy change.

Again Greg, thanks for writing this and bringing it to the community.

Brent Wilson
Brent Wilson
6 months ago

I understand the skepticism but these are raw numbers as Greg pointed out in the article. I don’t think anyone could reasonably say, or prove, that half of those who previously lived in poverty no longer face severe financial difficulty.

I agree that there are certainly some families living in poverty who received the stimulus and did nothing to improve the lives of their children. But on balance, I believe the money that was provided to poor families is a positive for society and that of poor children.

I don’t think the extra stimulus was meant to solve the foundational causes of poverty, only to provide expedited assistance during a time when many in the country needed it most. I certainly take this as a positive, also recognizing that this assistance was not as targeted as it should have been. Many secure middle class families did not need the money and invested every penny.

Greg Spears
Greg Spears
6 months ago

The poverty rate is first a measure of cost. Specifically, the Census Bureau sets the poverty threshold at three times the cost of a minimal food diet, adjusted for family size. Family incomes are then compared to this level of cost. People who live on less income than that standard are considered poor.

Generous cash distributions made in 2020 and 2021 have recently raised about half the people whose incomes were below those levels above the poverty line. As I said, I thought it was a bit of good news during a difficult time for so many. 

medhat
medhat
6 months ago

I think both statements can be true, that the “poverty rate” can decline yet the factors that contributed to the poverty in the first place are unchanged. The question that remains unanswered is if these, as Greg indicates, emergency measures borne of the pandemic have an enduring impact, or if in the absence of continued support the rate trends back towards a historical norm. As a pet interest of mine, I like to read the few objective academic studies that seek to find an answer, but all too often they’re swamped by bias, both intentional and inadvertent, that make mountains of conclusions from molehills of data.

Greg Spears
Greg Spears
6 months ago

Let me try to answer your questions. The poverty rate is unchanged at $17,420 for a family of two, and $21,960 for a family of three in 2021, according to the U.S. Census Bureau.

Wealthier Americans may have saved their stimulus money, but not the poor. Research by JPMorgan found that low-income families spent down the money faster than other groups.

Did this spending benefit children? Apparently, yes. The stimulus payments “have the largest impact on children, reducing their projected poverty rate 81% relative to what it would have been without any benefits,” according to the Urban Institute. 

R Quinn
R Quinn
6 months ago
Reply to  Greg Spears

Can you explain exactly how that money can be defined as reducing the poverty rate? Are those children no longer at the bottom of the income level? Even if the stimulus were permanent would that not mean a new definition of the poverty level?

I really don’t understand how giving a household a cash payment changes the poverty level or how any impact can be said to affect the child population more than the rest of the family.

If I see a homeless person on the street and I hand them a $1,000 have I changed their status, do I know how the money will be used, have I raised them from poverty or homelessness? I’m guessing none of the above.

These calculations make no sense and sound more like political rhetoric.

Last edited 6 months ago by R Quinn
parkslope
parkslope
6 months ago
Reply to  R Quinn

The official income measure of poverty is determined by the Orshansky poverty thresholds. It is not simply a fixed percentage of Americans with the lowest income.

If a family with more children than adults is lifted out of poverty then the benefits have a greater impact on children.

Mik Cajon
Mik Cajon
6 months ago

Beware of fake news from activists disguised as professors/journalists.

Last edited 6 months ago by Mik Cajon
R Quinn
R Quinn
6 months ago

If I live near poverty and you send me some stimulus money and give me a tax credit, do you have any idea how I spend that money? Do you have any idea if any of the money is used for the children?

Some reports say most of that stimulus was saved or used to pay down debt.

The poverty rate was not cut in half. The same conditions that existed before the flood of cash still exist and given inflation, perhaps things are worse for some.

Temporarily we just changed the level defining poverty.

Mik Cajon
Mik Cajon
6 months ago
Reply to  R Quinn

Nailed it…again.

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