News flash: government spending reduces poverty

In 2014, 14.8 percent of Americans were in poverty. That’s the headline figure the Census Bureau released today as part of its annual report on income, poverty, and access to health insurance in the US. But it doesn’t tell the whole story. For one thing, the official poverty measure, taken without context, is woefully incomplete.

More importantly, the number itself doesn’t tell us much about the nature of poverty in America. To get a full picture, one needs to dive into the raw microdata the census released today as well. Unfortunately, at the moment the agency only has data for the official poverty measure, not the superior supplemental measure also released today.

Still, by delving deeper into the numbers, we learn two things: that poverty is overwhelmingly concentrated among children, the elderly, and disabled people; and that government anti-poverty programs do significant amounts to combat it, and could do more if expanded.

More than two-thirds of poor people are children, elderly, or disabled

In 2014, 72.4 million Americans (22.9 percent) had incomes below the poverty line, before taking taxes and government spending programs into account. The supermajority of those people, 68.6 percent, were either children, elderly, or disabled. Another 19.2 percent were students, caretakers, or those who faced a spell of involuntary unemployment during the year. Together these vulnerable populations made up around 87.8 percent of the market poor — that is, people who are poor based on what they can earn on the job market, before adding in government benefits and tax credits.

Matthew Bruenig

The numbers indicate that one of the best predictors of poverty is whether or not you’re in the labor force, working full time. While the fully employed (those working 50+ weeks during the year) had a market poverty rate of 4.9 percent, every other group had poverty rates well over 20 percent, with non-elderly disabled people facing a poverty rate of nearly 50 percent.

Matthew Bruenig

The weak American welfare state actually does quite a bit to compensate for the market’s failures. In 2014, the welfare benefits counted under the official poverty measure — most notably Social Security but also Temporary Assistance to Needy Families (TANF) and Supplemental Security Income (SSI) — kept 25.7 million people out of poverty, bringing the actual poverty rate down from 22.9 percent to 14.8 percent.

As currently constructed, the US welfare state tends to do the most for the elderly and disabled, mainly because of the remarkably effective Social Security program.

Matthew Bruenig

Transfer programs kept 15.5 million seniors out of poverty last year, cutting the elderly poverty rate from 43.7 percent to 10 percent. Benefits also kept 4.4 million non-elderly disabled people out of poverty, cutting their poverty rate from 49.9 percent to 30.7 percent.

Breaking down the non-elderly disabled population further, the hard of hearing fared the best, with a 20.4 percent poverty rate. Other groups — which aren't mutually exclusive — hovered around a 33 percent poverty rate, even after counting benefits. (Note: Categories refer to aspects of life affected by the disability. So someone with difficulty living independently counts under "living independently," but may have trouble walking or performing intellectual tasks as well.)

Matthew Bruenig

This leaves out a number of government programs that the official poverty measure does not include. Non-cash benefits (such as food stamps and housing benefits) and tax credits (such as the Child Tax Credit and Earned Income Tax Credit), most notably, are left out. Judging from prior years, these non-cash benefits and tax credits tend to help children the most.

Expanding welfare benefits could dramatically reduce poverty

Mainstream political commenters often present poverty as a problem of shiftlessness, and the poor as lazy freeloaders. But the microdata shows this couldn’t be further from the truth. While just 22.5 percent of officially poor people in 2014 worked at some point during the year, this is not because of a widespread laziness problem, but rather because most poor people cannot work due to disability or age, or have found themselves involuntarily locked out of the labor market for significant periods of time during the year, e.g., after a layoff.

Overall around 80 percent of the nonworking poor in 2014 were either children, elderly, disabled, or students. Another 10 percent were caretakers. Another 4.1 percent were unemployed the entire year. That leaves very few who aren’t working despite being able to do so:

Matthew Bruenig

Conventional poverty analysis that focuses on employment and jobs is thus hopelessly flawed. While you can push people to join the labor market, or to work longer hours, or to try to boost their earnings, when it comes to reducing poverty, you are mostly pushing on a string. While market income offers little hope for poverty reduction, increasing welfare benefits targeted at vulnerable populations is generally a very easy way to cut poverty, as has been shown with elderly and disabled people through Social Security.

To illustrate this point, I simulated what would happen to poverty if we provided every family $300 a month for every child they are raising.

Matthew Bruenig

Holding all else equal, this sort of child benefit would pull 11.2 million people out of poverty, including 6.7 million children. It would cause the overall poverty rate to fall 24.1 percent and the child poverty rate to fall 42.8 percent. After children, the group that would most benefit from such a program would be the fully employed, who would see their poverty rate fall by 38.9 percent, as many would be collecting the child benefit for their families.

These kinds of simple universal welfare benefits are common elsewhere in the world. For instance, in Canada, parents can receive as much as $312 a month per child, a benefit recently expanded by the governing Conservative Party. Bringing these kinds of benefits to the US could transform us from a high-poverty society to a low-poverty society.

Matt Bruenig is a writer who researches poverty and welfare systems at the think tank Demos.

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