Poverty in America, Before and After COVID-19

As I begin this morning, I’d like to give you a sense of my background and experience and all that led me to what I’m about to say. First of all, I’m a New Yorker. I grew up in Brooklyn. My family had moved there in 1968 after Sen. Robert Kennedy asked my dad to leave his job in the United States Department of Justice and come to New York to run an antipoverty program in Bedford-Stuyvesant, a large, very troubled section of central Brooklyn with a population equivalent in size to Pittsburgh.¹ It was from watching Dad work on that project in the early 1970s that I decided to work in programs to help struggling Americans move up.

My first chance to do so effectively came after the election of Gov. George Pataki in 1994. It was then, as a young, prospective political appointee in this new Republican administration that I benefited from a fortunate fact: When Republicans are in charge, the line for leadership jobs in social services is very short.

After I had served in various positions, Gov. Pataki appointed me the commissioner of the Office of Temporary and Disability Assistance. During my time working in the Pataki administration, I traveled frequently to Chautauqua County and throughout New York, working with county officials and nonprofits to provide assistance to people in need.

At the conclusion of Gov. Pataki’s third term, Mayor Michael Bloomberg asked me to come to New York City to run the largest government social services agency in the state, New York City’s Department of Social Services.² In that job, I supervised 14,000 employees and served more than one million New Yorkers in need of assistance. We used to say then and there that the agency we worked for provided more aid to people in need than any other institution in the city. And it was true.

When Mayor Bloomberg left office, I moved to Washington, DC, to become the head of the poverty studies program at the American Enterprise Institute, a public policy think tank that I knew made meaningful contributions to our national discussion. After five years in that role, AEI’s board chose me as its president, and I’ve served in that capacity for two years.

I say all that so you can know how grateful I am to return to a topic and place familiar to me, talking about poverty, here in Chautauqua County. I am happy, in the question-and-answer section of our talk today, to discuss the broader focus of AEI and the condition of our country generally, but my formal remarks will be limited to the topic I know best—the state of the American social safety net for struggling Americans.

I have one more introductory remark to make: This morning I am going to be speaking mostly about poverty reduction and some about improving upward mobility. I will not be discussing inequality, at least in my formal remarks, though I am happy to discuss that topic in the Q&A. Most people in the field acknowledge that these are three different issues—alleviating poverty, increasing upward mobility, and addressing inequality. My focus has always been mostly on the first and second and less on the third.

So, when it comes to poverty in America, most politicians and policy experts have an unhappy story to tell. It goes something like this: They’ll say that we have waged an unsuccessful war against poverty. They will point to a seemingly stagnant poverty rate and growing welfare spending to prove that we’ve gotten nowhere. They will use incomplete statistics to show that we spend less and perform worse than other developed nations. Some will say that we’ve spent far too much on useless, if not detrimental, social programs. Others will say that we have failed because we haven’t spent enough or haven’t been committed enough.

Despair about the success of America’s poverty reduction programs has become a feature of American political rhetoric.

President Ronald Reagan gave the most famous statement of this pessimism: “The Federal Government declared war on poverty,” he said, “and poverty won.”³ Since President Reagan’s time, pessimism has persisted and, with the current pandemic and economic crisis, intensified.

This past March, Sen. Bernie Sanders of Vermont painted a miserable picture of poverty in America: “500,000 of the very poorest among us are homeless, millions are worried about evictions, 92 million are uninsured or underinsured, and families all across the country are worried about how they are going to feed their kids,” Sen. Sanders said. “Poverty in America,” he said, “has become a death sentence.”⁴

Thankfully, all these depictions are wrong.

In fact, accurate, more complete data on the real condition of American households reveal more reasons for optimism about our safety net than there are for pessimism. Since the 1990s, our country has made remarkable, yet often overlooked strides to improve the lives of millions of low-income Americans.

Unfortunately, our politicians and experts seem more eager to deny progress than to recognize it. They would rather use incomplete poverty statistics as ammunition to attack the opposing party.

Democrats use them to malign Republicans as uncaring or heartless. In 2019, Rep. Ilhan Omar (D-MN) accused congressional Republicans of “quite literally tak[ing] the food out of the mouths of children.”⁵

Other politicians—mostly Republicans—use disheartening statistics to illustrate the failure of big, expensive government programs.

In 2014, then Speaker Paul Ryan wrote that “the poverty rate is the highest in a generation.”⁶ But he was using the flawed official poverty rate, a metric discredited by academics across the political spectrum.

The official poverty rate excludes from income all in-kind benefits and refundable tax credits including those provided by programs such as the earned income tax credit, Medicaid, and the Supplemental Nutrition Assistance Program (or food stamps). Indeed, the official poverty measure doesn’t take into account all the most important and effective actions we have taken to reduce poverty. Nor does it account for falling tax liabilities among low-income families.

Once we account for the effects of those programs and of falling taxes, we get a different picture of the situation.

Bruce Meyer of the University of Chicago and AEI and James Sullivan at Notre Dame have found that, properly measured, poverty in America was just under 3 percent, as of 2019,⁷ as shown in the chart I am displaying, which compares Meyer and Sullivan’s findings to the official poverty rate for all Americans. Factoring in all the assistance families are provided, correcting for inaccuracies in reporting, and looking at what low-income families consume, the child poverty rate has fallen from 16.1 percent to 3.7 percent,⁸ or by more than 7.6 million children,⁹ in the past 30 years.

Now let me pause here and say something about the resource level that we as a nation have determined is the minimum amount a household should have to be considered above the poverty level. It is low—roughly $21,000 for a family of three ¹⁰—but it is also consistent over time adjusted for inflation. If we are going to use it to measure our progress, we have to use it consistently and properly, and to do that, we have to take into account all the resources available to a family.

And we’ve had exceptional success in making more resources available to families in need. In 2018, the Council of Economic Advisers published a report that declared, “Based on historical standards of material wellbeing and the terms of engagement, our War on Poverty is largely over and a success.”¹¹ Now, this might seem like an overstatement, but it really isn’t. In terms of the goal we set for ourselves, historically and consistently—to get the poorest Americans above a certain standard of material well-being—we have clearly succeeded.

Now I need to make very clear to all of you that I understand that being above the poverty line is not the end of the story. Families just above the poverty line face difficult challenges. They are not safely in the middle class; they need greater skills and stronger families, and public policy ought to be focused on helping them move up. But public policy also needs to recognize that the challenge we face now is not to end poverty—we did that—but to help people move up.

I’d like to show another chart that further illustrates the point I’m making about the economic situation of the lowest income Americans. This is from a Congressional Budget Office report, released just last week.

As you can see, over the last forty years, according to the CBO, Americans in the bottom 20% of earners have experienced over 91% cumulative growth in their incomes.¹² Our safety net focuses on people at the bottom, and it has helped them greatly improve their income and access to food, housing, and healthcare. But Americans in the lower middle, who don’t receive the same level of aid, have not benefited by that focus. They may be struggling, too, but they seek and need a different kind of support. What they and all Americans want are greater skills, higher wages, more jobs, and faster economic growth.

For a long time I have felt that some—even prominent academics and high level policy experts—are purposely pessimistic about our successes, even when they know the truth. They’re afraid to say too much because they worry that the good news will make further spending harder for them to justify. That may be an understandable political strategy, but it’s also dishonest and I think unhelpful to those who we really want to help because the pessimistic rhetoric focuses our attention on the wrong problem.

Now, I’d like to briefly describe why I think we’ve experienced this success. The key is a long-standing bipartisan agreement that the way to help people escape poverty is through a combination of work and government aid—. Not work alone: and not government aid alone. But the two together. That combination is responsible for virtually all of the income growth experienced by low income families during this period.¹³

The story of how it happened is an old one, but in this fraught and divided political time, it is worth telling again.¹⁴ In 1996, a Democratic President, Bill Clinton and a Republican Speaker of the House of Representatives, Newt Gingrich worked together to pass bipartisan welfare reforms, which established an expectation of work for cash assistance recipients. The reforms also established time limits for the receipt of federal assistance and limited state funding for cash welfare to block grants instead of open ended funding streams.

The 1990s welfare reforms combined all this with significant new spending on subsidies targeted to low income working people, such as the Earned Income Tax Credit and Child Care, and since then, these work supports have been greatly expanded. The combination of requiring and rewarding work is what produced that precipitous decline in poverty for everyone, and for children, in the charts I showed you. We have learned that it takes work and support to lift a family out of poverty.

The benefits of working are not just about income. Employment means better health, stronger communities, greater social standing and personal dignity, less substance abuse, greater parental support from fathers.¹⁵ Working parents set an important positive example for their children.

In a recent paper, Raj Chetty, Nathaniel Hendren, and their colleagues at Harvard found that proximity to more employed people correlated with increased upward economic mobility for children. They concluded, quote – Evidently, what predicts upward mobility is not proximity to jobs, but growing up around people who have jobs. – unquote.¹⁶

My AEI colleague Nick Eberstadt found that men without work spend far more time in front of screens than nearly any other group, averaging over 2,100 hours per year.¹⁷ This kind of inactivity has negative consequences for these men, and negative consequences for our society.

So my position is that the combination of greater employment with more generous and available work supports has dramatically reduced poverty in the United States. This winning combination has not solved all of our problems but it has come very close to solving the one we set out to conquer.

There are two other factors that play a big role in reducing poverty: One is family and the importance of two married parents in children’s lives and the other is the strength of the overall economy.

Any effort to help reduce child poverty has to talk about the positive role two active and involved parents play in children’s lives. Children in single parent families are more likely to be poor; struggle in school; have difficulty with the criminal justice system; fail to graduate from high school or college; and when they grow up, they are more likely to work in low-skilled jobs when they grow up.¹⁸

That is why I have come to believe it is vital that we speak honestly about these challenges, with young people especially, and dedicate ourselves to alleviating the challenges of single parenthood by encouraging greater participation and support from the nonresident parent.

And over the past 30 years, we have done that. And there are some signs that this effort is working. There has been a remarkable decline in rates of teen pregnancy—from 115 per 1,000 women age 15–19 in 1991 to 16 per 1,000 women age 15–19 in 2019.¹⁹ This remarkable decline reflects, in part, a greater understanding among young people of the challenges of having children before couples are ready to be parents. And as for helping nonresident parents provide greater support, in 2020 more than $10 billion in child support collections was provided to low-income single-parent families by nonresident parents—partly as a result of a long-term effort begun in the late 1990s to increase child support collections.²⁰

The performance of the overall economy is also important. As anybody who works in social services will tell you, it is easier to help struggling families when the economy is strong. The recovery from the financial crises of 2008 was painfully slow, and that made it harder for struggling families to move up. But by the end of the long recovery with the strong job growth of 2017, 2018, and 2019,²¹ we had reached—no matter how you measure it—the lowest poverty rates ever.²²

That brings us to the most recent period, and I can almost hear you asking: How has this approach held up against the current COVID-19 crisis?

The sudden absence of work caused by the shutdowns required extraordinary but temporary actions—which occurred. America’s government and safety net rose to meet the unprecedented challenge. The Paycheck Protection Program, enhanced unemployment benefits, expanded food benefits, and direct stimulus payments—most of which are unconnected to staying employed—kept millions of Americans out of poverty.

In fact, our nation’s response, most of which occurred as the result of bipartisan legislation passed during the final year of the Donald Trump administration, kept millions of Americans from falling into poverty in the wake of the economic shutdowns. I am certain that when we look back at income, savings, and consumption data for Americans during the pandemic, we will find that for those at the bottom, their resources increased significantly and did not decline as you would expect.²³

Of course, these measures incurred enormous costs, but they were necessary in the short term, until the pandemic subsided and jobs came back. And now that recovery appears well underway and temporary benefits are expiring, I hope the safety net will return to the way it was before the crisis. We do not need enormous benefits flowing to nonworking, able-bodied adults in a world where jobs are available.

But some policy experts have identified the crisis as an opportunity to “reboot” or “recalibrate” American welfare policy.²⁴ By this, they mean to get rid of the Clinton-era consensus that has lifted so many Americans out of poverty.²⁵ And politicians such as President Joe Biden, Majority Leader Chuck Schumer, and Speaker Nancy Pelosi have been listening to them.

Despite all signs pointing toward a record recovery, Congress recently approved another large stimulus package.²⁶ This stimulus included more direct cash payments and an expanded child tax credit that is being sent to families with no strings attached: no work requirements or required involvement with local social workers who could help address underlying issues such as substance abuse or father absence. What many politicians, mainly Democrats, are now proposing is to make these emergency programs permanent, and that concerns me greatly.

These programs helped struggling families in the short term. But if they are made permanent, they will eliminate the expectation of employment. Cash benefits, unattached to employment or other social programs, fly in the face of the successful emphasis on working as the best way out of poverty.

There is another problem with this new approach to poverty reduction: It reduces the role of state and local workers in efforts to help families. Under the new IRS-led welfare program, direct monthly benefits are being sent from Washington to households with children regardless of whether the parent is working. This is a big change; in the past, benefits of this kind would entail an application, perhaps an interview or a visit to a local state or county administered office so that a social worker could discuss ways to address the family’s situation. Single parents could get help finding a job and be required to seek work or attend training. They would get aid and encouragement in seeking support from an absent parent, an evaluation of their housing and health issues, and perhaps a discussion of potential substance abuse or domestic violence issues. To some, I know that all sounds like the big hassle of busybody government workers intruding into the lives of poor families.

But I don’t agree. Nonworking single parents are in need of that kind of periodic contact with people who can provide help; I saw that kind of help provided every day in my 20 years of working for the state and city. And my worry is that replacing social services programs with checks from Washington—without any required interaction with a human—will lead to more problems in these homes, not fewer.

I would rather build on the successful, work-based approach of the past 30 years, instead of rejecting it out of needless pessimism that we haven’t done enough or out of a reckless effort to exploit an emergency to make radical changes to our long-standing safety-net system.

So let’s summarize.

A combination of a focus on employment and generous government support for low-income Americans led to dramatic declines in poverty among all Americans and their children.

The pandemic disrupted this approach and required an extraordinary response. A dramatic increase in emergency benefits worked to distribute support and reduce the economic harm that would have resulted from the economic disaster that COVID-19 caused.

But looking forward, our success in responding to the COVID-19 crisis may lead us to forget the lessons we learned before it and undermine our focus on work—leading, I am afraid, in the long term to less employment and, as a result, more family dysfunction and higher poverty rates. Government transfers and benefits, without earnings from work or attention to underlying issues, will not help people escape poverty.

Notes

¹ John Doar left his post as the assistant attorney general for civil rights in December 1967 and became the executive director of the Bedford-Stuyvesant Development & Services Corporation, a public-private partnership that worked to secure and distribute funding for public restoration projects, housing assistance, and other forms of community development aid.

² The New York City Human Resources Administration/Department of Social Services (HRA/DSS) is headed by the commissioner of social services, who oversees the department’s more than 14,000 employees and multibillion-dollar budget. The HRA/DSS encompasses most of the city government’s social services functions.

³Ronald Reagan, “1988 State of the Union Address,” January 25, 1988.

⁴ Bernie Sanders, “The rich-poor gap in America is obscene. So let’s fix it – here’s how,” The Guardian, March 29, 2021.

⁵ Susan Cornwell, “Democrats blast safety net cuts in Trump budget as ‘malicious’,” Reuters, March 12, 2019.

⁶ Paul Ryan, “An opportunity to cut povery,” USA Today, July 24, 2014.

⁷ Bruce D. Meyer and James X. Sullivan, Annual Report on U.S. Consumption Poverty: 2018, University of Notre Dame: October 18, 2019, table 1.

⁸ Meyer and Sullivan, 2019, table 2.

⁹ See data for 1990 and 2018 in The Annie E. Casey Foundation, “Child population by age group,” September 2020. The child poverty rate in 1990 was 16.1 percent. In 2018, it was 3.7 percent. There were 64,218,512 children in 1990 and 73,319,145 children in 2018. (0.161 * 64,218,512) – (0.037 * 73,319,145) = approximately 7,626,372 fewer children in poverty in 2018 than in 1990.

¹⁰ U.S. Census Bureau, “Poverty Thresholds by Size of Family and Number of Children [2020],” February 2, 2021.

¹¹ Council of Economic Advisers, Expanding Work Requirements in Non-Cash Welfare Programs, July 2018, p. 29.

¹² Congressional Budget Office, The Distribution of Household Income, 2018, August 4, 2021, p. 32.

¹³ Scott Winship, “Poverty After Welfare Reform,” Manhattan Institute, August 22, 2016.

¹⁴ For more information, see Ron Haskins, Work over Welfare: The Inside Story of the 1996 Welfare Reform Law (Washington, DC: Brookings Institution Press, 2007).

¹⁵ See Maria Cancian, Daniel R. Meyer, and Emma Caspar, “Welfare and Child Support: Complements, Not Substitutes,” Journal of Policy Analysis and Management 27, no. 2 (Spring 2008): 354–75; and Robert Doar, Phoebe Keller, and Angela Rachidi, “Angela Rachidi on the Social Safety Net and Welfare Policy,” January 5, 2021, in Banter.

¹⁶ Raj Chetty et al., The Opportunity Atlas: Mapping the Childhood Roots of Social Mobility, U.S. Census Bureau, January 2020, p. 26.

¹⁷ Nicholas Eberstadt and Evan Abramsky, “What Do Prime-Age ‘NILF’ Men Do All Day? A Cautionary on Universal Basic Income,” Institute for Family Studies, February 8, 2021.

¹⁸ See Sarah McLanahan and Gary Sandefur, Growing Up with a Single Parent: What Hurts, What Helps (Cambridge, MA: Harvard University Press, 1997).

¹⁹ “State-Specific Birth Rates for Teenagers — United States, 1990-1996,” MMWR Weekly 46, no. 36 (September 12, 1997); “Reproductive Health: Teen Pregnancy: About Teen Pregnancy,” CDC, August 5, 2021.

²⁰ US Department of Health and Human Services, Administration for Children & Families, Office of Child Support Enforcement, “FY 2020 Preliminary Annual Report and Tables,” June 17, 2021.

²¹ Bureau of Labor Statistics, “Employment, Hours, and Earnings from the Current Employment Statistics survey (National),” December 2019.

²² Meyer and Sullivan, Annual Report on U.S. Consumption Poverty: 2018.

²³ Laura Wheaton et al., “2021 Poverty Projections: Assessing the Impact of Benefits and Stimulus Measures,” Urban Institute, July 2021.

²⁴ For examples, see: Trish Clancy et al., “A Post Pandemic Reboot for Government Welfare,” Boston Consulting Group, October 14, 2020; Enggist et al., “The COVID-crisis as an opportunity for welfare recalibration?,” Swiss Political Science Association, February 2021.

²⁵ Several left-of-center opinion outlets have made this objective explicit. For a notable example, see Charles Lane, “Goodbye, Clinton welfare reform. Hello, child tax credit,” The Washington Post, March 9, 2021.

²⁶ For more information, see Gwynn Guilford and Sarah Chaney Cambon, “The Economic Recovery Is Here. It’s Unlike Anything You’ve Seen,” The Wall Street Journal, June 2, 2021.

Further Reading:

Notes