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Poverty Reduction: The Invisible Hand of Government

Jodie Levin-Epstein – Deputy Director, CLASP Posted: 9/13/11 02:17 PM ET

Poverty data released today tells a cold truth about a rich nation that could do better. The U.S. is now home to 46.2 million poor people according to the latest Census Bureau report on income, poverty and health. That’s about one in seven or 15.1 percent and the largest number in the 52 years for which poverty estimates have been published.

The big numbers muscle out an important back story: without government programs, poverty levels would be even worse. In part, this tale has not made it to center stage because it’s easier to talk about how many people are living in poverty but far more difficult to draw attention to how much worse it would be without interventions. Another reason is that there are political forces dedicated to dismissing the role of government so that they can shrink it and “drown it in the bathtub.” Even if that means, for example, that more people will fall into poverty.

To count as poor in 2010, annual pre-tax income for a family of four must be below $22,314, which translates into $107.00 per person per week. The Census data reveal that in 2010:

  1. The poor are getting poorer with nearly half (44 percent) living in extreme poverty, which is less than half of the threshold. This translates into about $11,000 per year for a family of four, or $53 per person per week. The 20.5 million who live in extreme poverty is the highest ever recorded. Their numbers are greater than Florida’s entire population.

  2. Full-time workers too often are among the poor including 2.6 million who work full-year. Their numbers are equivalent to Nevada‘s entire population.

  3. Too many children are poor with those under age 18 making up more than one-third (35.5 percent) of those living in poverty even though they are only 24.4 percent of the total population.

  4. Elder poverty has not disappeared with one of every 11 seniors living in poverty.

As much as poverty has grown, it would have been worse without government playing a role. More than 4.5 million people stayed out of poverty during the Great Recession thanks to seven provisions in the American Recovery and Reinvestment Act, according to a Center on Budget and Policy Priorities report, which used an improved poverty measure to assess the impact. In New York City, the Center for Economic Opportunity found that government programs and policies reduced poverty by 3 percentage points between 2008 and 2009. An analysis in three states by the Urban Institute found that child poverty was cut in half due to safety net programs.

The Census report provides a peek at government programs’ anti poverty effects. For example, if tax credits were counted, the value of the federal earned income tax credit would reduce the number of children classified as poor by 3 million. In 2010 poverty was also reduced by:

  1. 3.2 million people through Unemployment Insurance

  2. 20 million people including 14 million elders aged 65 and over through Social Security

While the success of government safety net programs should be celebrated and protected, they are necessary but not sufficient. Government investment in decent jobs is an important piece of making the invisible hand of the market work well for low-wage workers, particularly now, in the aftermath of the Great Recession and with a sticky 9 percent unemployment rate.

The nation needs jobs and the poor need jobs with livable wages. Three decades of wage stagnation have chipped away at the middle class and are now hitting low wage workers hardest. Notably, median earnings for male workers with a high school diploma fell by over one-third between 1969 and 2009.

The Administration’s American Jobs Act offers valuable strategies. In addition to proposals that provide incentives to hire the long-term unemployed and use unemployment insurance to expand work-share programs that avoid layoffs, the jobs package establishes a Pathways Back to Work Fund aimed at investing in low-income youth and adults. Pathways includes funds for a proven wage subsidy program, jobs for youth, and work-based training initiatives.

These and other worthy notions face more than the usual political challenges. Instead of leaders dueling over how best to provide opportunity and protect vulnerable families, some political forces promote policies that would reduce the incomes of already low-income families. One notion being floated is that low-wage earners, including the 7 percent of workers who live below poverty, should pay more taxes. More than one conservative presidential hopeful is calling for a hike in these workers’ federal income tax. Charges that such actions are unsound, even immoral, are inevitable. But another conservative notion, that most of the poor are “allegedly” poor and not “truly” poor, will likely be used by these political figures to deflect the charge of immorality. After all, if most of the poor are only “allegedly” poor, where’s the harm? Politicians cloaked in the belief that most of the poor exist only “allegedly” risk behaving indifferently to those who get by on little income. That’s a moral hazard the nation can ill afford.

The public, it turns out, wants more government attention to poverty reduction. One recent poll found that 56 percent believe that the government does not give poor people enough attention. Another poll found that 64 percent want more federal government involvement in reducing poverty.

It’s time to hand it to the government. Its programs can make a visible difference.

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