In any given year, the US poverty rate would be much higher than it ends up being if not for a variety of government programs, such as Unemployment Insurance (UI), the Supplemental Nutrition Assistance Program (SNAP, commonly referred to as food stamps) , Supplemental Security Income (SSI) and public housing, among others.
In 2021, for instance, traditional non-pandemic related government programs reduced the poverty rate from 23.1% to 12.6% using the supplemental measure. These numbers are based upon estimates from the Urban Institute, since the official US Census Bureau data will be released later this year. This poverty reduction (45%) is typical in the US after the distribution of our standard slate of government assistance programs.
What was unique about 2021 was that the government created additional programs to help American families weather the COVID-19 pandemic — including stimulus checks and child tax credits.
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With these additional programs, the poverty rate was further reduced from 12.6% to 7.7%. The combination of traditional government assistance and pandemic-related programs is projected to have reduced poverty by a total of 67% (from 23.1% to 7.7%), keeping nearly 50 million Americans out of poverty. The projected rate for children was even lower at 5.6%, down from 30.1% before standard benefits and pandemic programs (an 81% reduction).
These projected poverty rates—both overall and for children—would be the lowest on record in the US
To get an idea of a typical US poverty rate using the supplemental measure, the average overall rate for the decade preceding the pandemic was 14.3% (average reduction of 45%) while the average child poverty rate was 15.7% (40% average reduction) .
Projected overall poverty rates differed from state to state, ranging from a low of 4.9% in Minnesota to a high of 10.9% in Florida. Projected child poverty rates ranged from a low of 1.9% in Maine to a high of 8.8% in Delaware and Florida.
Here in Pennsylvania, the projected overall rate was 5.8%, down from 21% without any government assistance (72% reduction). The projected rate for children was 3.5%.
Poverty reduction is nothing new for the US government. In 2019, for instance, before the pandemic hit the US, traditional government programs were responsible for a 47% reduction in poverty (from 21.9% to 11.7%). What the much higher projected reduction (67%) in 2021 shows us, however, is that we can reduce poverty much more if we so choose.
Real-world evidence from other countries also helps demonstrate that much lower poverty rates are possible. A variety of wealthy countries have committed themselves to greater poverty reduction than is traditionally attempted in the US
Using the most recent available non-pandemic data from the Luxembourg Income Study (LIS) and applying the official US Census Bureau absolute poverty measure to other countries, for instance, we find that countries like Luxembourg (90% reduction), Belgium (83% ), Austria (81%), Ireland (80%), Germany (79%) and Denmark (79%), among others, reduce their poverty rates by significantly larger margins than the US (50% with these data). After these reductions, a number of these countries end up with very low poverty rates. Luxembourg achieves a 2.2% poverty rate, for instance, while Switzerland, Norway, Denmark and the Netherlands achieve rates below 5%.
All of this sounds great, but there are drawbacks. We reached out to David Wessel, a senior fellow in economic studies at the Brookings Institution and director of their Hutchins Center on Fiscal and Monetary Policy, to help us understand one such macroeconomic implication that many Americans are grappling with now: inflation.
Wessel explained to us that today’s inflation is likely due to a combination of factors, including particularly strong demand for goods during the pandemic, the unanticipated reluctance of millions of workers to return to the job market, China’s “zero COVID” policies, and supply chain issues.
An additional factor Wessel cited? The fiscal stimulus of late 2020 and early 2021. He does not believe that the stimulus was a bad idea, especially for low-income families, but that it could have been better designed to prevent inflationary effects.
He told us that: “I think the size of the March 2021 American Rescue Plan (ARP) was too big, especially on top of the December 2020 legislation. The Fed could have responded to the larger-than-anticipated ARP, but it didn’t. I do think the Child Tax Credit may have been too generous toward upper-middle-class families, but full refundability for those who do not owe taxes is a very good social and economic policy. We shouldn’t be reluctant to help people at the bottom of the income scale because we are worried about the inflationary effect—we can offset that in other ways.”
We also reached out to Mona Charen, nationally syndicated columnist and policy editor at the right-leaning The Bulwark, for a conservative’s perspective on the possible permanent implementation of some of these pandemic-related family supports. She responded:
“The best thing for a child is two devoted married parents. But if we cannot give that to every American child, we can at least lift more of them out of poverty. Our antiquated system of EITC, tax credits, WIC, and TANF is too complex and contains disincentives and trap doors. Far better to provide a direct child allowance to poor and working-class families.”
As LIS and Urban Institute data reveal, government programs can work very well in reducing poverty. They provide us useful evidence to continue the conversation of the best ways to address economic deprivation in the US However, we should not understate that additional government programs do come with extra costs, so programs must be properly designed to account for all possible negative social and economic impacts.
Lawrence Eppard is a researcher, Shippensburg University professor, director of the Connors Forum, and host of their Utterly Moderate Podcast. Jörg Neugschwender is a researcher and data team manager at the LIS Cross-National Data Center in Luxembourg.