October 9, 1996

GOVERNMENT BENEFIT PROGRAMS CUT POVERTY NEARLY IN HALF LAST YEAR, SETTING A RECORD FOR POVERTY REDUCTION

Analysis Shows Safety Net More Effective Than Commonly Believed

An analysis of new Census data by Wendell E. Primus, in conjunction with the Center on Budget and Policy Priorities, shows that government safety net programs have a major impact in reducing poverty. The Safety Net Delivers: The Effects of Government Benefit Programs in Reducing Poverty finds that in 1995, the safety net programs cut poverty nearly in half and lifted more Americans out of poverty than in any previous year for which the Census Bureau has data.

The report also examines poverty data for various years of the 1980s and 1990s and finds that when safety net programs are cut, the number of people these programs remove from poverty declines, and poverty rises as a result. Similarly, when safety net programs are strengthened — as they have been since the mid-1980s — poverty eases.

"While the programs are not without flaws, these data provide powerful evidence that the programs are much more effective in combating poverty than many Americans understand," Primus said. A noted poverty expert, Primus served as deputy assistant secretary for human services policy at the Department of Health and Human Services until August. He now is an independent consultant.

Using Census data, the analysis finds that without the income which safety net programs provide, 57.6 million people fell below the poverty line last year. But when the support these programs provide is added in, the number of poor drops to 30.3 million.

In other words, in 1995, the safety net programs lifted 27 million people out of poverty and reduced the size of the poverty population by 47 percent. Most of those removed from poverty were either working families with low earnings or elderly people.

The Safety Net Delivers also shows that most who remained poor were significantly less poor than they would have been without the safety net programs. The Census data show the safety net programs reduced the depth of poverty by 70 percent.

The analysis looks at poverty rates both before and after safety net programs are counted. The analysis counts income not only from programs that provide cash benefits such as Social Security and welfare payments but also from non-cash benefit programs such as food stamps, rent subsidies, and school lunches. In addition, the analysis includes the effects of federal taxes — both the effects that income and payroll taxes have in reducing family incomes and the effects the earned income tax credit has in raising income. The measure the analysis uses in determining poverty rates when government benefits are counted is similar both to the approach recommended by a National Academy of Services panel last year and the approach the Administration and the Urban Institute used in analyzing the effects of the welfare bill on the number of people in poverty.

The analysis finds that when poverty is measured after safety net benefits are counted, the poverty rate fell in 1995 to its lowest level in 15 years, as both the number and the percentage of people lifted out of poverty by benefit programs reached all-time highs. The analysis finds this was due primarily to changes that Congress and the White House made in the safety net between the mid-1980s and the mid-1990s, mostly on a bipartisan basis. The strengthening of the safety net has had a particularly beneficial effect on children, the study explains.

• In 1979, the safety net programs lifted from poverty 33 percent of the children who would have been poor without the programs.
  
  
• In the early 1980s, the safety net programs were cut. Changes were made that reduced unemployment insurance and food stamp benefits, eliminated or reduced AFDC benefits for many low-income working mothers, and removed some low-income individuals from disability rolls. By 1983, only 17 percent of children who were poor without these programs were lifted out of poverty by them.
  
  
• Between the mid-1980s and the mid-1990s, this trend reversed. The earned income tax credit was enlarged, food stamp benefits grew, more low-income disabled children were made eligible for the Supplemental Security Income program, and a number of states extended AFDC to supplement the wages of low-income working mothers. By 1995, the safety net programs again lifted from poverty 33 percent of the children who would have been poor without them.
  
  
• In fact, the number of children removed from poverty by government benefit programs doubled between 1983 and 1995. During the same period, federal expenditures for children increased by 50 percent on a per capita basis, after adjusting for inflation.
  
  

Comparisons of recession periods and recovery years also provide strong evidence of the effects of these programs in reducing poverty, the study said.

• During both the recession of the early 1980s and the recession of the early 1990s, the number of people who were poor before receipt of government benefits climbed by 10 million to 11 million. When benefits are taken into account, the number of people living in poverty still grew by 11 million during the recession of the early 1980s. During this period, safety net programs were being reduced even as the recession took hold.
  
  In contrast, during the recession of the early 1990s, the number of people who were poor when government benefits are counted grew by just 5.5 million — or only half as much as in earlier recession. Between the two recessions, Congress and the White House strengthened the safety net on a bipartisan basis. As a result of the stronger safety net, the poverty increased much less during the recession of the early 1990s than during the recession a decade earlier.
  
  
• A comparison of poverty rates in 1989 — the peak year of the recovery of the 1980s — to poverty rates in 1995 tells a similar story. In 1995, the poverty rate before government benefits are counted was higher than it had been in 1989. But the poverty rate after government benefits are counted was lower in 1995 than in 1989. Expansions in the first half of the 1990s in the earned income tax credit, the SSI program for low-income disabled children, and food stamps lifted more people out of poverty in 1995 and drove the poverty rate below the pre-recession level. Of particular note, safety net programs lifted 2.5 million more children out of poverty in 1995 than in 1989.
  
  

The analysis explains that most children whom the safety net lifts out of poverty are children in low-income working families. Programs like the earned income tax credit and food stamps supplement the low earnings of these children's parents.

"Decisions made by government affect people's lives in measurable ways," Primus said. "When both parties, Congress and the White House have worked together to strengthen the safety net, we have eased the depth and severity of poverty, allowed working families to keep more of their wages and improved economic standards for millions of children.

"We are likely to look at 1995 and 1996 as the time when our children's safety net was the strongest," Primus added. "Only in the world of campaign rhetoric can one ignore the trends cited in the report and conclude that cutting federal safety net expenditures by $54 billion over the next six years — and allowing states to withdraw another $40 billion in state funds — as the new welfare law does will improve rather than weaken the safety net." He noted the report supports earlier studies which forecast that poverty will increase when the new welfare law is fully implemented.

Primus pointed out that the figures in the analysis should not be regarded as an exact measure of what poverty rates would have been in various years if safety net programs did not exist. The lack of such programs would have affected the behavior of individuals and institutions in ways that cannot be predicted or measured. Nevertheless, he observed, the conclusion that emerges from the data is inescapable — when safety net programs are significantly weakened, poverty rises substantially, and when they are materially strengthened, poverty declines markedly.

"These data provide overwhelming evidence that the safety net has worked much more effectively in reducing and alleviating poverty than many have claimed," Primus observed. "Let us hope that states take this lesson to heart as they begin the daunting task of implementing the new welfare law."

The Center on Budget and Policy Priorities is a nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs, and specializes in issues related to fiscal policy, social welfare and nutrition policy. It is supported primarily by foundation grants.

Wendell E. Primus was Deputy Assistant Secretary for Human Services in the Department of Health and Human Services. From 1977 to 1993 he worked at the Ways and Means Committee in the U.S. House of Representatives in such capacities as Chief Economist and Staff Director of the Subcommittee on Human Resources. Primus is currently consulting for the Urban Institute, the Brookings Institution and the Center on Budget and Policy Priorities.