UW experts: Census Bureau’s annual ‘poverty numbers’ provide good news

The new “poverty numbers” from the U.S. Census Bureau reflect some good news for the nation’s antipoverty efforts, according to UW–Madison experts.

The bureau released its annual survey results on income, poverty and health insurance coverage for 2014 on Sept. 16. The good news is found in the Census Bureau’s alternative poverty measure, the Supplemental Poverty Measure (SPM), according to Timothy Smeeding, Robert Haveman and Lawrence Berger, former directors and current director respectively of the UW–Madison Institute for Research on Poverty — the nation’s original center for the study of poverty and inequality.

The SPM, considered by most analysts to provide the most accurate reflection of economic hardship, accounts for near-cash benefit programs such as Supplemental Nutrition Assistance Program (SNAP) food assistance and for tax credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). The nation’s official poverty measure does not take into account these sources of assistance to low-income families.

The SPM contains the good news that child poverty fell to its lowest rate since the 2009 inception of this measure, a statistically significant reduction.

The decrease in child poverty, which occurred in the context of an otherwise generally flat economy — neither the overall poverty rate nor median income changed to a statistically significant degree from 2013 to 2014 — primarily reflects the fact that women’s earnings rose last year, driven mainly by increased work hours among unmarried mothers. This change, coupled with increases in EITC and CTC tax credits and SNAP benefits, led to a significant drop in SPM child poverty, from 18.1 percent in 2013 to 16.7 percent in 2014. By comparison, the official child poverty rate, which does not take tax credits or SNAP into account, remained steady at about 21.5 percent.

“Release of the census’s 2014 poverty coverage figures provides a testament to the effectiveness of government efforts to reduce economic hardship,” notes IRP Director Berger. “We are all grateful for the good news in a time when many families continue to struggle in the slow economic recovery.”

Together the EITC, CTC, and SNAP programs cost about $130 billion in 2014. The EITC, which is contingent on work, rewards higher earnings. As such, the increases in earnings among low-earning single parents with children between 2013 and 2014 led to greater refundable tax credit receipt, reducing poverty despite added work-related expenses.

The SNAP food assistance program also reduced child poverty, but the effect of SNAP on the poverty rate dropped from 2013 to 2014 for two reasons: First, SNAP benefits fall as earnings rise; and second, a 14 percent cut in SNAP benefits (passed by Congress in November 2013) took full effect in 2014.

The increase in SNAP benefits under the American Recovery and Reinvestment Act expired in November 2013. Had the benefits remained at their 2009 to 2013 levels, SNAP would have had an even larger effect on child poverty in 2014. Overall, the effect of higher EITC benefits more than offset the lower SNAP benefit, leading to even lower rates of child poverty under the SPM.

Why is this good news? First, increased earnings by lower-skill mothers form one of the most promising approaches for reducing child poverty. Even though the overall recovery is slow, the work and earnings of these mothers has increased. This earnings increase was complemented by refundable tax credits and SNAP benefits in enabling many single parents with two or three children to move out of poverty.

“While the overall performance of the nation in reducing poverty is fairly weak, this good news about children’s poverty is important,” says Haveman, the John Bascom Emeritus Professor in the La Follette School of Public Affairs and Department of Economics. “Children are, after all, the source of the nation’s future economic performance.”

“The SPM and only the SPM tells us how these major programs reduce poverty and why they are worthy of our support,” adds Smeeding, the Arts and Sciences Distinguished Professor of Public Affairs and Economics, and affiliate of IRP. “We should work hard to maintain these refundable credits and SNAP benefits at current levels, and consider increasing them. Altogether they are increasingly reducing child poverty in America.”

—Deborah Johnson