Government benefit programs cut poverty in a half

A new analysis of Census data finds that Social Security reduces the proportion of elderly living in poverty from 50 percent to about 12 percent and lifts 12 million elderly people out of poverty, while the Earned Income Tax Credit — a tax credit for low-income working families — now lifts more children out of poverty than any other government program.

Strengths of the Safety Net, by the Center on Budget and Policy Priorities, also finds the impact of government benefit programs in reducing poverty weakened modestly in 1996, especially among children. The study identifies this as a key reason the poverty rate failed to drop in 1996 despite economic growth.

Even so, the report found, government benefit programs have a large effect in reducing poverty. The incomes that families received through the private economy left 57.5 million people below the poverty line in 1996, the study reported. Government benefit programs lifted 27 million of these 57.5 million people out of poverty, cutting poverty nearly in half.

“An array of programs, led by Social Security, are having strong effects in reducing poverty,” said Wendell Primus, the Center’s director of income security and co-author of the study. “Without Social Security, poverty among the elderly would be widespread.”

Primus noted that in the absence of Social Security and other government benefits, one of every two elderly people would have fallen below the poverty line in 1996. Primarily because of Social Security, fewer than one in 10 elderly Americans was poor that year.

Primus added that an examination of these data over time also shows that when government benefit programs have been strengthened, they have lifted larger proportions of people out of poverty, while fewer people have been lifted out when — as in 1996 — the programs have weakened.

Study Counts Certain Non-Cash Benefits and Taxes

The study uses unpublished Census data to compare the number of people with incomes below the poverty line before receipt of government benefits to those left in poverty after government benefits are counted. The difference reflects the number of people the safety net programs remove from poverty.

The study follows the recommendations of a 1995 National Academy of Sciences panel in counting certain non-cash benefits such as food stamps and housing assistance as part of income and in reflecting the effects on income of federal income and payroll taxes and the Earned Income Tax Credit. As a result, the study’s measure of poverty after government benefits are counted shows somewhat lower poverty rates than the official Census Bureau poverty measure, which excludes non-cash benefits and the EITC and measures before-tax rather than after-tax income.

Programs Cut Poverty Nearly in Half

In 1996, the study found, 57.5 million people — 21.6 percent of the U.S. population — had incomes below the poverty line before receipt of government benefits. After government benefits are taken into account, the number remaining in poverty was reduced to 30.5 million people, or 11.5 percent of the population. The study also found that government benefit programs reduce the depth of poverty — the degree to which families’ incomes fall below the poverty line before receipt of government benefits — by two-thirds.

The study found that government benefit programs, sometimes referred to as safety cancer net programs, have their most striking effects on the elderly. Some 50.1 percent of the elderly population would have been poor in 1996 in the absence of government benefits, the study reported. Government benefit programs lowered the elderly poverty rate to 9.2 percent.

The strong effect of government benefits in reducing poverty among the elderly is due overwhelmingly to Social Security. In 1996, Social Security was responsible for nine of every 10 elderly people lifted out of poverty by government benefit programs. The safety net programs lifted a total 13 million elderly people out of poverty, with Social Security responsible for lifting out 11.7 million of these 13 million people.

Effect on Children Substantially Smaller

Government benefits lift from poverty more than four of every five elderly people who otherwise would be poor, the study found, but fewer than one in three children who otherwise would be poor. In 1996, government benefit programs lowered the child poverty rate from 23.6 percent before receipt of government benefits to 16.1 percent after receipt of benefits.

The Earned Income Tax Credit, expanded under Presidents Reagan, Bush and Clinton, emerged in 1996 as the single program removing the largest number of children from poverty, the study reported. The EITC, which offsets some or all of federal income and payroll taxes and, in many cases, also provides a wage supplement to low-income working families, lifted 4.6 million people — including 2.4 million children — from poverty in 1996.

Although the EITC has the largest effect in lifting children out of poverty, cash assistance and food and housing programs have a larger impact than the EITC in diminishing the severity of poverty among children. Many of the children whose families receive cash assistance are so poor that this aid renders them less poor rather than lifting them above the poverty line.

Since the EITC is available only to working families, its effects on children in those families are especially strong, the study found. Among working families, the EITC has a larger effect than any other program or category of programs both in reducing the number of poor children and in reducing the severity of poverty among those who remain poor.

The EITC’s effects are largest in the South, the region in which wages tend to be lowest and the proportion of working families with poverty-level incomes is highest. Nearly half of all children in the South who were lifted out of poverty by government benefit programs were raised from poverty by the EITC.

Weakening of the Safety Net for Children

The study found that despite the strengthened effects of the EITC in 1996, government benefits lifted out of poverty a smaller percentage of children who would otherwise have been poor than in the previous year. Overall, the benefit programs lifted about 400,000 fewer children from poverty in 1996 than in 1995.

This decline in the impact of the programs, while modest, was sufficient to prevent the child poverty rate, as well as the overall poverty rate, from dropping. Between 1995 and 1996, the poverty rate for children before receipt of government benefits declined modestly, reflecting improvements in the economy. But after receipt of government benefits, the child poverty rate remained essentially unchanged between the two years. The negative effect of a weakening safety net offset the positive effect of a growing economy, the study found.

From 1995 to 1996, the number of children receiving cash public assistance benefits fell 600,000, while the number receiving food stamps fell about 700,000. Improvement in the economy can explain only part of these declines, the study said. It noted that among children who were poor before receipt of government benefits, the proportions receiving public assistance and food stamps fell in 1996.

The welfare law enacted in August 1996 was not a major reason for this decline, according to the study, as few of the legislation’s major impacts were felt that year. Many states already had policies in place that were causing caseloads to drop.

The study explained that with these state efforts continuing and the welfare law taking effect, the decline in the number of children receiving food stamps and cash public assistance became sharper in 1997, with the number of children receiving these benefits falling by much larger amounts than can be attributed to continued economic growth. This suggests the proportions of poor children receiving these forms of assistance are likely to have fallen significantly in 1997 and that the safety net’s effect in reducing child poverty could be weakening further. Poverty data for 1997 will be available later this year.

New Trend Could Reverse Long-term Pattern

This developing trend of a weakening safety net for families with children could begin to reverse a decade-long pattern. The Center’s report compares the effects of government programs on poverty in 1987 and 1996, two similar points in the business cycle. During this period, significant changes in safety net programs occurred. In the years prior to enactment of the welfare law, the EITC expanded, more low-income disabled children became eligible for SSI, and food stamp benefits were improved. As a result, despite the modest weakening of the safety net between 1995 and 1996, government benefit programs still had a greater impact in reducing poverty in 1996 than in 1987.

But if safety net programs reduced poverty more than in 1996 then in 1987, the economy had a smaller impact. The poverty rate as measured before receipt of government benefits — the measure that reflects the impact of the economy by itself — was actually higher in 1996 than in 1987, even though the unemployment rate was significantly lower.

“Despite remarkable progress in reducing unemployment, the economy is performing less well than in previous recoveries in lifting people out of poverty,” study co-author Kathryn Porter said. “As a result, the role of the safety net in reducing poverty takes on added significance.”

The Center on Budget and Policy Priorities is a nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs, and specializes in issues related to fiscal policy, social welfare and nutrition policy. It is supported primarily by foundation grants.

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