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Greenstein on Deficit Reduction and the Safety Net

February 13, 2013 at 10:04 PM

Testifying before a Senate Budget Committee hearing today, CBPP President Robert Greenstein said that policymakers will have to make tough decisions to put the budget on a more sustainable fiscal course but that "The quantity of deficit reduction over the next ten years is not the only important issue; the quality of the deficit-reduction measures adopted matters as well." The excerpt below discusses the importance of avoiding changes that weaken the safety net.

The Bowles-Simpson report made it a core principle that deficit reduction should not increase poverty or harm the disadvantaged. It largely shielded core programs for the disadvantaged from the cuts that it recommended. It also sought to design its revenue increases so they would maintain or improve the progressivity of the tax code.

These principles and design features are also reflected in the plan presented in July 2011 by the Senate's bipartisan "Gang of Six." (They have also been highlighted by a group of Christian leaders that ranges from the Catholic Bishops' Conference and the Episcopal Church to the Salvation Army and the National Association of Evangelicals, which has issued a call for policymakers to safeguard the poor in deficit reduction and draw a "circle of protection" around programs targeted on them.)

Our current system of supports for low-income families and individuals surely isn't perfect. But it does a great deal of good for tens of millions of our less fortunate fellow citizens. Using a measure of poverty that many analysts favor because it counts rather than ignores major benefits like food stamps and refundable tax credits -- the Census Bureau's Supplemental Poverty Measure -- we see that the poverty rate would have been 29 percent in 2010 without government assistance. But it stood at 15 percent when those benefits were counted. In other words, the safety net cuts U.S. poverty nearly in half, compared to what it would otherwise be.

Of course, it may be that in the absence of safety-net programs, some people might have worked more (although it is hard to see where the additional jobs would have come from in 2010, given the depressed labor market). But the impact of the safety net on poverty, including its effect on work, has been studied extensively. In a recent comprehensive review and synthesis of the research literature, some of the field's leading scholars examined the impact of the safety net on the amount that people work and found the safety net's overall impact on work to be small. They found that, after taking behavioral effects into account, the safety net lowers the U.S. poverty rate by approximately 14 percentage points. In other words, one of every seven Americans -- more than 40 million people -- would be poor without the safety net but are above the poverty line because of it.

One can also look at the Census data on how many people individual programs lift out of poverty. In 2010, for example, the Earned Income Tax Credit and the Child Tax Credit lifted about 9 million people in low-income working families above the poverty line, including 5 million children. SNAP (formerly called the Food Stamp Program) lifted about 4 million out of poverty.

Among the most striking figures are those that track poverty rates over the last few years. Given the depth and severity of the Great Recession, one would have expected poverty to have soared. It didn't. The Census Bureau's broad poverty measures show relatively modest increases in poverty, which stands in sharp contrast to the deep plunge in the economy and the doubling of the unemployment rate. Why didn't poverty rise much more as unemployment rocketed upward? The "automatic stabilizer" response of programs like SNAP and unemployment insurance, supplemented by the temporary increases in assistance in various safety net programs provided under the Recovery Act, counteracted most of the increase in poverty that would otherwise have occurred.

Click here for the full testimony.