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Fight Poverty, Protect the Safety Net

The official poverty rate was high (15.1 percent) in 2010, and when the Census Bureau releases new numbers for 2011 next month, that figure may climb still higher — due in part to declines in unemployment insurance payments, continuing layoffs by state and local governments, and the continuing sluggishness of the economy.  Policymakers can — and should — do more to address the problem.

The Great Recession showed how effective the safety net can be in combating poverty.  Alternative poverty measures that include the effect of tax credits and non-cash benefits show that poverty rose far less than it otherwise would have during the economic downturn, thanks to the safety net, which was enhanced by additional temporary initiatives that policymakers enacted as the economy contracted.  (Unfortunately, as I’ve explained, the official poverty measure doesn’t count a lot of the safety net.  That’s why official poverty rates have risen more than have alternative measures of poverty that are more comprehensive.)

In the recession, the safety net fought poverty in two ways:  (1) by directly supplementing incomes, it kept a substantial number of families out of poverty, and (2) by helping these consumers continue spending, it saved private-sector jobs.  The unemployment rate climbed steeply, but by less than it would have otherwise.  Poverty will likely rise, though, if policymakers cut the safety net deeply, as some have proposed.

Instead, the President and Congress should consider a set of actions in the near term that could keep millions of families from falling into poverty both by providing needed income support and by strengthening the recovery, which would generate more job opportunities and income:

  • Extend recent improvements in working-family tax credits (the Earned Income Tax Credit and the Child Tax Credit) that reward and encourage work for moderate and low-income families and individuals, and continue temporary extended unemployment assistance for long-term unemployed workers until the unemployment rate falls further.
  • Stem the losses of government jobs, and temporarily shore up state and local spending on needed services such as schools, health care, and fire departments.
  • Work to fund more jobs, such as for needed infrastructure, as my colleague Jared Bernstein has suggested, or to renew and expand the much-applauded subsidized employment initiative through the Temporary Assistance for Needy Families program that expired in September 2010.  Policymakers could adopt such initiatives as part of a larger balanced deficit-reduction plan that spurs the economy in the short term and provides needed deficit-reduction in the mid-term and long-term.

The Federal Reserve can help, too, by pursuing more aggressive policies to push the economy toward full employment.

We can do more to fight poverty in the long term, as well.  I’ll take a closer look at some of those policies in a later post.

Arloc Sherman

Vicepresidente de Análisis de Datos e Investigación