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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