Podcast: Poverty and the Recovery Act

January 12, 2010

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In this podcast, we’ll discuss the Center’s recent analysis of the effect of the Recovery Act on poverty. I’m Michelle Bazie and I’m joined by Arloc Sherman, the Center’s Senior Researcher in the Welfare Reform and Income Support Division.

1. Arloc, recently you examined the Recovery Act that Congress passed in February, which was formally called the American Recovery and Reinvestment Act of 2009, to see how it was affecting poverty in the country. What were the findings?

We found that the Act is helping push back against rising poverty. The analysis finds that nationally, the act is succeeding in keeping more than 6 million Americans out of poverty and reducing the severity of poverty for 33 million more.

2. Let’s take a step back and define what we’re talking about here. What is poverty? How did you measure poverty in the context of the Recovery Act?

Well, there is an official government definition of poverty but we couldn't use it because it only counts cash income, and that would leave out much of what the act provided, such as tax credits. To show the full impact of the Recovery Act, the analysis adopts a broader measure of poverty that many analysts prefer, one that was recommended by the National Academy of Sciences, that counts all of those additional income sources. Under that measure, a family of four in an average community is considered poor if its total disposable income was less than about $25,000 in 2009.

3. How did you conduct the study?

The analysis relies chiefly on Census Bureau data and focuses on 36 states and the District of Columbia. We examined the effect on poverty by looking at seven of the Act’s temporary provisions, which total $205 billion over five years.

4. What are those provisions?

  • First: a new tax credit called the Making Work Pay tax credit
  • Second: an expanded Child Tax Credit for lower-income working families with children;
  • Third: an expanded Earned Income Tax Credit,
  • Fourth: additional weeks of emergency unemployment benefits (paid after a worker’s 26 weeks of regular state unemployment benefits expire);
  • Fifth: an additional $25 per week for all jobless workers receiving unemployment benefits;
  • Sixth: a $250 one-time payment to certain retirees and veterans and people with disabilities and
  • Seventh and lastly: an increase in food stamp benefit levels.

5. So, those provisions are keeping over 6 million people out of poverty. What is this analysis leaving out?

This analysis is quite conservative in a number of ways. First, the seven provisions examined cover only one-fourth of the Recovery Act’s total spending. The remainder of the act contains an array of provisions — from highway jobs to homelessness prevention — that also have an effect on poverty but the Census data don't allow us to measure that.

Second, the analysis only includes the initial, most direct impacts of the Recovery Act. You see, each dollar in the act is likely to reach many different families and businesses. For example, an unemployment benefit payment first and most directly helps the worker who receives it and her family. But it also helps the grocery store where they go buy milk and eggs, and the grocery clerk who gets to keep his job, and the farmer who sells the eggs. We only count the effects on the first family — that first touch, so to speak — but all those other families benefit, too, in the form of higher incomes and potentially less poverty. In fact, the Congressional Budget Office has estimated that the legislation as a whole saved or created between 9 hundred thousand and 2.3 million jobs by the fourth quarter of last year.

6. Anything final you’d like to add?

The bottom line here is that even though the recession is expected to drive up states’ poverty rates for 2009, the rise in poverty would have been much worse without the Recovery Act.

Thanks, Arloc. For more information on poverty and the economic recovery, please visit CenterOnBudget.org

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