To Really Determine Who Is Poor in the US, Count All Anti-Poverty Spending
In their latest report on Income and Poverty in the United States: 2018 released on September 10th, the US Census Bureau reported that, in 2018, the share of Americans living in poverty fell for the fourth consecutive year. According to this latest official government information, 11.8 percent of Americans — including some 38.1 million children, working-age adults, and seniors — had incomes below the official poverty line and were living “in poverty.”
But the official poverty measure (OPM for short) actually ignores more anti-poverty benefits than it counts in determining who is officially “poor” in America, so what this official data leaves out is as important as what it counts. As a result, the OPM has grown increasingly unconnected to reality as it fails to count a rising share of taxpayer assistance provided to aid the poor.
Like any poverty measure, the OPM hinges on two basic features: The poverty line is the first. Despite significant changes in household consumption patterns, the poverty line has not been modified, except for adjustments for inflation, since the 1960s, and it remains set at approximately three times the cost of what was considered an adequate food diet fifty some years ago.
The second feature is what the official poverty measure counts as income to determine if a family is above or below the poverty line. The OPM counts the income poor and other families receive from pre-tax earnings, social security, and welfare checks, among other sources. But it fails to count the fastest growing types of federal anti-poverty benefits. These include food stamps, housing assistance, and Medicaid. It also ignores the value of the Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit (CTC), both designed to help low-income workers and their families escape poverty. These programs started after the official poverty measure was developed and have expanded dramatically in recent decades. In fact, they have grown far faster than the anti-poverty programs counted as income under the OPM. As the figure below shows, in just the last two decades, programs that are not counted as income under the OPM (the various programs in red) have grown 16 times faster than those that are counted as income (family assistance and Supplemental Security Income (SSI), in blue).
This uncounted taxpayer assistance has been a boon to those on the left and right who seek to exploit the annual poverty data for political purposes. For those on the left, not counting the largest and fastest growing anti-poverty programs has enabled them to call for massive new investments to “lift the remaining millions out of poverty. Similarly, some on the right claim that President Lyndon Johnson’s War on Poverty has been lost, as the official poverty rate remains near 1960s levels despite massive spending on anti-poverty programs. This is the result of OPM’s ignoring the value of more recent anti-poverty programs in determining whether recipients are “poor.”
Meanwhile, the gap between what is considered by the OPM and the real resources poor families have at their disposal is about to get a lot worse. Recent proposals by a number of Democratic presidential candidates call for the creation of new and expanded refundable tax credits and other in-kind benefits — the same kind of benefits currently ignored under today’s definitions. Guarantees for child care, housing, and health care, which could redistribute hundreds of billions in additional benefits annually to low-income households, would not change the number of Americans counted as officially “poor.” For example, one proposal creating more than $270 billion per year in new refundable tax credits paid to low-wage and other workers (which would actually cost more than all current anti-poverty spending on food stamps, the EITC, the child tax credit, and housing assistance combined) would not move the “official” poverty needle a single inch, just like the existing programs.
An improved count and an understanding of the efficacy of those uncounted programs would help policymakers better judge whether and what additional changes are needed to help more Americans escape poverty. Simply counting what taxpayers provide to help families escape poverty as income under the OPM would better determine whether those programs are working or not. The income and benefits of families would not be changed. Prior nonpartisan reviews suggest that this basic step would reduce the “real” poverty rate from the currently reported 11.8 percent in 2018 to around 10.0 percent, moving over 5 million people out of the poverty ranks. This more accurate understanding would allow policymakers to focus on programs with the best returns. At the very least, Americans shouldn’t spend hundreds of billions of new dollars on anti-poverty benefits without knowing their effects, and while so much current anti-poverty assistance is ignored in determining the official level of poverty in America.
Matt Weidinger is a resident fellow in poverty studies at the American Enterprise Institute. He served for more than two decades on the staff of the House Ways and Means Committee, most recently as the deputy staff director.