50th anniversary cea report final post embargo

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1 THE RECENT SLOWDOWN IN THE WAR ON POVERTY 50 YEARS LATER: A PROGRESS REPORT The Council of Economic Advisers January 201 4

2 Executive Summary “Unfortunately, many Americans live on the outskirts of hope — some because of their poverty, help replace and some because of their color, and all too many because of both. Our task is to their despair with opportunity. This administration today, here and now, declares unconditional war on poverty in America. I urge this Congress and all Americans to join with me in that effort.” President Lyndon - Johnson, January 8, 1964 B. B. Johnson declared a Fifty years ago, in January of 1964, President Lyndon War on Poverty ” “ and introduced initiatives designed to improve the education, health, skills, jobs , access to and economic resources of those struggling to make ends meet. While there is more work to do, in the ensuing decades we have strengthened and reformed many of these p rograms and had significant success in reducing poverty. presents In this report, the Council of Economic Advisers of th progress made possible by d ecades of bipartisan efforts to fight poverty by evidence e and rewarding hard work. expanding economic opportunity We also document some of the key steps the Obama Administration has taken to further increase opportunity and economic security by improving key progr ams while ensuring greater efficiency and integrity. These steps prevented millions of hardworking Americans from slipping into poverty during the worst economic crisis since the Great Depression. than one Poverty has declined by more  - third since 1967.  The percent of the population in poverty when measured to include tax credits and in 2012. percent other benefits has declined from 25.8 in 1967 to 16.0 percent  new historical estimates of the Census Bureau’s Supplemental Poverty These figures use (SPM) to today’s poverty thresholds . The SPM is widely Measure anchored acknowledged to measure poverty more accurately than the official poverty measure, refundable tax credits and benefits like nutrition assistance which excludes the value of and has other limitations.  By anchoring the measure to today’s poverty standards we are able to ask how many each year since people in 1967 would have had inflation - adjusted family resources below the 2012 SPM poverty threshold s . Despite real progress in the Wa  r on Poverty, there is more work to do .  In 2012, there were 4 9.7 grappling with the economic and social million Americans hardships of living below the poverty line , including 13.4 million children . economic opportunity While the United States is often seen as the land of  , only about half of low - income Americans make it out of the lowest income distribution quintile in parents’ income are the differences over a 20 - year period. About 40 percent of 2

3 reflected in children’s income as they become adults, poi nting to strong lingering effects from growing up in poverty. This ly to programs that have historical  significant decline in poverty is largely due and increase economic security and opportunity. enjoyed bi partisan support A measure of “market poverty,”  reflect s what the poverty rate would be without that any tax credits or other benefits , rose from 27.0 percent to 28.7 percent between 1967 and 2012 . Countervailing forces of increasing levels of education on the one hand, and inequality, wage stagnation, and a declining minimum wage on the other resulted in increasing slightly over this period. However, poverty measured taking “market poverty” into antipoverty and social insurance programs account fell by more than a third, highlighting the essential role that these programs have played in fighting poverty . million P rograms designed to increase economic security and opportunity lifted over 45  people from poverty in 2012, and led to an average of 27 million people lifted ou t of poverty per year for 45 years between 1968 and 2012. C umulatively these efforts . over this period prevent ed 1.2 billion “person years” of poverty Social Security has played a crucial role in lowering poverty among the elderly. Poverty  among those aged 65 and older was 35 percent in 1960. Following rapid expansions in Social Security in the 1960s and 1970s, poverty among the elderly fell to 14.8 percent in 2012. These programs are especially important in mitigating poverty during recessions.  te an increase in “market poverty” of 4. 5 Despi percentage points between 2007 and 201 0 , the poverty rate , appropriately measured , rose only 0. 5 percentage points due to both existing programs and immediate actions taken by President Obama when he took office in response to the worst financial crisis since the Great Depression. of the “ D eep poverty ” — defined as the fraction of individuals living below 50 percent has declined as a result of these programs. poverty line Without government tax credits of the would have been in deep poverty , 19.2 percent benefits U.S. population other or in 2012 , but only 5.3 percent were in deep poverty when these benefits are included.  Programs that strengthen economic security and increase opportunity continue to be essential in keeping millions of Americans out of poverty and helping them work their way into the middle class.  Social Security benefits reduce d the 2012 poverty rate by 8.5 percentage points among all individuals, and by 39.9 percentage points among those age d 65 or older . 3

4  T ax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) d the 2012 poverty rate by 3.0 percentage points among all individuals, and by reduce 6.7 percentage points among children . The S upplemental Nutrition Assista nce Program (S NAP ) — formerly known as  Food the Stamp Program — reduce d poverty in 2012 percentage points among all by 1.6 individuals, and by 3.0 percentage points among children.  Unemployment Insurance (UI) reduce d poverty by 0.8 percentage point s in 2012 .  Antipoverty programs have been increasingly oriented around rewarding and opportunity for low - income encouraging work and are an important source of working families.  Both the EITC and the partially refundable component of the CTC increase the reward to work, offsetting payroll taxes and providing a supplement to labor market earnings. participation in Research has shown this and earnings , and increas es increases work the workforce, particularly for single parents .  Some traditiona l antipoverty programs have been redesigned to encourage and nutrition assistance have a job promote work. The vast majority of Americans receiving or are either too young to work or are disabled . Meanwhile, bipartisan are over age 65 , welfare reform signed by President Clinton in 1996 strengthened work requirements put a greater emphasis on employment . and  Despite concerns that antipoverty programs may discourage employment, t he best sincentive effects are small or nonexistent for most research suggests that work di programs .  rograms that help fight poverty and provide economic security P touch a wide swath of Americans at some point in their lives.  Programs that fight poverty help a broad range of Americans get back on their feet after used the EITC economic misfortune . For example, about half of taxpayers with children at some point between aged 14 to 22 Americans 1979 and 2006 , and over two - thirds of in 1979 / TANF, Supplemental Security Income (SSI) or received income from SNAP, AFDC UI at some point between 1978 and 2010 .  Social Security Old Age and Survivors’ Insurance, Social Security Disability Insurance, and are available to all Americans UI with a steady work history . These social insurance programs play an important role in keeping out of poverty those who retire, experience or lose a job through no fault of their lose a parent or spouse, a work - limiting disability, own. 4

5  The economic and social benefits from these programs go beyond just helping reduce poverty . in the current generation  Increased access to SNAP for children has been found to lead to bet ter health and greater economic self sufficiency in adulthood . -  I ncreased family income in childhood from the EITC and CTC leads to higher student achievement. term effects of Head Start and other  The long - high - quality preschool programs include higher educational attainment, employment, and earnings, and lower rates of teen children become teenagers and young adults. beneficiary pregnancy and crime, as President Obama’s policies to restore economic security and increase opportunity  have helped reduce povert y.  The Affordable Care Act ensure s all Americans have access to quality, affordable health insurance, by providing the resources and flexibility states need to expand their as well as financial help so Medicaid programs to all people who are in or near poverty hardworking families can find a health plan that fits their needs and their budgets.  T he President significantly expanded the refundability of the Child Tax Credit, making it available to millions of working parents who were previously ineligible. He also expanded the EITC for larger families, who face disproportionately high poverty rates, - income married couples. Together these expansions benefit approximately and for low The President is proposing to make 15 million families by an average of $800 per year. these tax credit improvements permanent and also to raise the minimum wage.  T he Administration has advanced investments in early learning and development programs and reforms for coordinated State early learning systems. President Obama has proposed the expansion of voluntary home visiting programs for pregnant women and families with young children; Early Head Start - Child Care Partnerships to improve the quality of care for infants and toddlers; and high - quality preschool for every child .  12 education system to - President Obama has advanced reforms of the nation’s K support higher standards that will prepare students to s ucceed in college and the workplace; pushed efforts to recruit, prepare, develop, and advance effective teachers and principals; and encouraged a national effort to turn around our lowest - achieving The Administration has also put forward proposals schools. to redesign the N ation’s high - schools to better engage students and to connect 99 percent of students to high speed broadband and digital learning tools within the next five years. Promise Zones where businesses partner with local  President Obama has proposed communities hit hard by the recession to put people back to work and communities can 5

6 develop and implement their own sustainable plans for a continuum of family and community services and comprehensive educ ation reforms.  employment and training opportunities for President Obama has proposed i ncrease d round - adults who are low - income or long - term unemployed , and summer and year along with reforms to our unemployment system to make it opportunities for youth c m ore of a re - employment system, and c ommunity ollege initiatives to reform our higher education system and support training partnerships with business in high - demand industries .  Other achievements include making college more affordable by reforming stude nt loan , and establishing the American Opportunity raising the maximum Pell Grant programs , Tax Credit which is the first partially refundable tax credit for college; placing 372,000 low - - round employment in 2009 and 2010; income youth into summer and year lp children learn and thrive; and improving access to school meal programs that he exten minimum wage and overtime protections t o nearly all home care workers to ding help make their jobs more financially rewarding. is that we have made progress in the War on The fundamental lesson of the past 50 years P overty largely through bipartisan efforts to strengthen economic security and increase opportunity. As our economy moves forward, rather than cut these programs and risk leaving hardworking Americans behind, we need to build on the progress we have made to strengthen Going forward, we can’t lose sight of the positive part government can and reform them. continue to play in reducing economic hardship and ensuring access to economic opportunity for all citizens. A t the same time, sustainable improvements are only possible if we create jobs and speed the economic recovery in the short run, raise economic growth in the long run, and work to ensure that the benefits of a growing economy reach all Americans. 6

7 I. Measuring Poverty: Who is Poor in America ? “We must open our eyes and minds to the poverty in our midst .” 1964 Economic Report of the President. The Other America depicted the poor as inhabiting Michael Harrington’s influential 1962 book , ” a world described in the 1964 Economic Report of the President as “scarcely an “invisible land One early recognizable, and rarely recognized, by the majority of their fellow Americans.” achievement of Johnson’s War on Pov erty was to cast light on the problem of poverty by developing an official poverty measure that has been released by the government in each year 1 turned out to be ill since August 1969. While reasonable at the time, t his measure has - suited to capturing th e progress subsequently made in the War. As a result, modern poverty measures tell a different story of who is poor, and especially how this has changed over time. Measuring Poverty Measuring poverty is not a simple task; even defining it is controversial. Just starting with a commonsense definition of the poor — “those whose basic needs exceed their means to satisfy them” — requires difficult conceptual choices regarding what constitutes basic needs and what resources should be counted in figuring a family’s m eans. There are no generally accepted for most necessary consumption items such as housing, clothing, s standards of minimum need transportation, etc. Moreover, our ideas about minimum need s may change over time. For some example, in 1963 even - income households did not have hot and cold running middle water indoors. Today, over 99 percent of households of all income levels have complete indoor plumbing. The Official Poverty Measure Mollie Orshansky, an economist in the Social Security Administration , devel oped the official poverty thresholds between 1963 and 1964 (Fisher 1992). At the time , the Department of Agriculture had a set of food plans derived using data from the 1955 Household Food Consumption Survey, the lowest cost of which was deemed adequate for “temporary or emergency use when funds are low.” families in this s urvey spent about one - third of Because their incomes , on average , on food, Ors hansky set the poverty threshold at three times the dollar cost of this “economy food plan,” with adjustments for family size, composition, and whether the family lived on a farm. 1 A similar poverty measure was adopted internally by the Office of Economic Opportunity in 1965. 7

8 These income thresholds were first used as the poverty thresholds for the 1963 calendar that ver since. These dollar year have served as the basis for the official poverty thresholds e amounts have been adjusted for inflation to hold the real value of the income needed to be above poverty the same over time. There have been minor tweaks to the methodology involving which price index is used to adjust for inflation , and how adjustments are made for family structure and farm status. P F N T HE O FFICIAL I OVERTY M EASURE LAWS The official poverty measure (OPM ) has several flaws that distort our understanding of both the level of poverty and how it has changed over time. Perhaps the most significant problem with the OPM is its measure of family resources, based on pre - tax income plus ca sh transfers (like cash w elfare, s ocial s ecurity , or UI payments ) , but not taxes, tax credits, or non - cash transfers . As (based on p such it inhabi market poverty ” ts a measurement limbo between “ re - tax, pre - transfer taking into account being after - resources) and “ p ost - tax, post transfer poverty” reflecting well the impact of policies directed at the poor. Several other shortcomings are more technical. First, the dollar value defining the cost of basic needs, or the poverty threshold, was set in the 1960s and has b een updated each year since using an index of food prices at first, but then the Consumer Price Index (CPI) after 1969. The use CPI is one source of the problems with the official measure that limits its usefulness for of the historical comparison. Methodo logical advances in measuring prices (e.g., rental equivalence and geometric treatment of housing costs, quality adjustments for some large purchases, averaging for similar goods ) have shown that the CPI overstated inflation substantially prior to y 1980s, leading to an inflated estimate of the cost of basic needs and thus higher the earl measured poverty over time. - U - RS (a historical series Revising the OPM measure using the CPI estimated consistently using modern methods) results in a fall in poverty from 1966 to 2012 that is 3 percentage points greater than that depicted by the official measure. Another flaw with the OPM thresholds is that they do not accurately reflect geographic variation in costs of living or economies associated with family size and st ructure. All current income - based poverty measures, including both the OPM and the SPM, suffer from large underreporting of both incomes and benefits. For example, Meyer, Mok, and Sullivan (2009) show that in 1984 , March CPS respondents reported only 75 percent of AFDC/TANF dollars, and this fell to 49 percent in 2004. For SNAP benefits, which are accounted for in the SPM but not the OPM, 71 percent of the value was reported in 1984 compared to 57 percent in 2004. U nderreporting will tend to increase measured poverty, so increases in underreporting over time understate the decline in the poverty rate during this period. The underreporting also means that the estimated effects of government programs on poverty, as des cribed in section III, of the true effects . are likely to be conservative lower - bound estimates 8

9 In defining the family resources to be compared to the poverty line, Orshansky created the tax money income the income concept used in the 1955 - — thresholds to be applied to after Househol d Food Consumption Survey. However, she was forced to use pre - tax money income (including cash transfer payments) due to limitations in the Current Population Survey (CPS) At the tim e , this was data, the only source of nationally representative information on income. approximation of disposable income, as few low - income families had any federal an adequate - kind transfers were not a quantitatively important income tax liability or credits owed, and in feature of the safety net. The Supplemental Poverty Measure provided a reasonable depiction of poverty in the 1960s, it has not While Orshansky’s measure 2 aged well. Today, for example, the value of the two largest non - health programs directing aid to the poor the EITC and SNAP — are entirely ignored by the o fficial measure , making it — impossible to assess the success of these tools in fight ing poverty . Over the past five decades , researchers have pointed to many flaws in the official measure (see box), leading to the development of alternative measures of pove rty with more comprehensive measures of both family needs and resources. The Census Bureau created a Supplemental Poverty Measure (SPM), which departs dramatically from the official measure in its methodology for calculating 3 family resources. This measure, first published in 2011, both the poverty thresholds and rd calculates poverty thresholds using recent expenditures by families at the 33 percentile of the , including food, shelter, clothing, and expenditure distribution on an array of necessary items 4 The utilities. dollar amount is calculated separately for families depending on whether they own or rent their home and whether they have a mortgage, and then increased by 20 percent to allow for other necessary exp enses. Further adjustments are made based on differences in family size and structure, and, unlike in the official measure, the threshold is adjusted for geographic variation in living costs (Short 2013). The Supplemental Poverty Measure also uses a more a ccurate measure of disposable income that accounts for both a greater number of income sources and a wider array of necessary Unlike the official measure, the SPM uses a post - tax, post - transfer concept of expenditures. resources that adds to family earning s all cash transfers and the cash - equivalent of in - kind transfers such as food assistance ( for example , SNAP or free lunch) minus net tax liabilities, which can be negative for families receiving refundable tax credits like the EITC or CTC. Necessary expen ditures on work and child - care are then subtracted from resources. 2 It should be noted that Orshansky herself noted many flaws with her measure, and believed it understated poverty. She argued it measured income inadequacy ra ther than adequacy, stating “if it is not possible to state unequivocally ‘how much is enough,’ it should be possible to assert with confidence how much, on an average, is too little (Orshansky 1965).” 3 While we use the term ‘family’ here, the SPM differs in its definition of a ‘family unit’ when assuming the unit of individuals over which resources are shared. Most importantly, the SPM includes all related individuals living at the same address, but also cohabiting individuals and co - residing children in their care. 4 More accurately, the thresholds are based on average expenditures on food, clothing, shelter, and utilities th th between the 30 and 36 percentiles of that distribution, multiplied by 1.2 to account for other necessary geographic differences in cost of living and family size and structure. expenses and adjusted for 9

10 The Supplemental Poverty Measure also subtracts medical out - of - pocket (MOOP) expenses - families’ since those funds are not available to meet other needs. The SPM can from resources - health care goods and thus be t hought of as a measure of deprivation with respect to non 5 services. However, it does not provide an accurate picture of the benefits of health care. Instead, the SPM reduces households’ out - of - pocket values health insurance only insofar as it medical costs and thus frees up resources for other uses. I t misses benefits that may arise because insurance improves access to health care and may therefore improve health outcomes , or reduces stress caused by exposure to financial risk . As a r esult, the measured trend in SPM poverty may understate progress in decreasing economic hardship since the War on Poverty . began by ignoring these benefits of increased access to insurance feature of the Supplemental Poverty Measure One important is that the definition of design minimum needs is adjusted each year based on recent data on family expenditures on necessities rather than adjusting a fixed bundle only for inflation . By considering families’ expenditures on an array of necessary items includi ng food, shelter, clothing, and utilities — and , rd percentile spend then setting poverty rates based on how much families at the 33 — the SPM 6 adjusts poverty thresholds as societies’ spend ing patterns on these necessities shifts. This type of threshold is “qua relative,” in the sense that thresholds will tend to rise with income, but - si are not directly tied to income as in a relative definition of poverty, such as setting a purely the median household income. half threshold at it is possible to Alternatively , create an “anchored” version of the Supplemental Poverty the focus in this report. The anchored version, like the official measure, fixes Measure, which is poverty thresholds based on expenditures on necessary items in a given year and then adjusts for inflation in each year. This version allows for the use of the more comprehensive only , while setting a fixed assessment of definition of resources in measuring poverty over time s. The anchored what constitutes basic needs spending on food, shelter, clothing, and utilitie measure is also more consistent with the vision of the War on Poverty architects , who believed E liminat that poverty can be eradicated. ing poverty defined with a relative measure may be 7 nearly ncomes . impossible, as the threshold rises apace with i 5 Korenman and Remler (2013) argue that the SPM’s treatment of MOOP expenses actually does a poor job o f capturing even deprivation of non - health care goods and services. They argue that households that are able to spend a large amount on health care are frequently those with substantial savings or other resources to draw on, and they present evidence that households with high out of - pocket expenses frequently score lower on “direct” - measures of hardship, like food insecurity. 6 So, for example, if families across the income spectrum spend more on, say, housing because preferences for or the ability to pay for space or bathrooms change then what is considered necessary for minimum hous ing will change. 7 The SPM is a hybrid, “quasi - relative” measure such that when spending on necessities increases, the threshold defining who is poor also increases. Eliminating poverty is theoretically possible, but it depends on how a country’s spending on necessities evolves as its income increases and requires spending on these goods to be stable even as income grows. 10

11 Who P oor is ? In an attempt to “provide an understanding of the enemy” for Johnson’s War, the 1964 Economic Report of the President presented tables depicting the “topography of poverty.” As Table 1 shows, some of the landmarks have changed since 1960 while many remain the same. For 2012, the Table presents the poverty rates measured with both the official poverty measure 8 and the supplemental poverty measure. The official measure is displayed for comparing the relative poverty of various groups i n the two time periods, but should not be used for flaws in poverty comparing changes in the levels of the between the two time periods due to above . The next section will provide trend data using a the official measure discussed historical estimates of the SPM are available only starting in 1967, consistent measure. Since for 1959 using the 1960 Census. the table shows only official poverty rate s Table 1 Poverty Rates by Selected Characteristics 2012 1959 Suppl e me nta l Offi ci a l Offi ci a l Pove rty Pove rty Pove rty Me a s ure Me a s ure Me a s ure 22.4 Al l pe opl e 15.1 16.0 Hous e hol d cha ra cte ri s ti cs 10.5 He a d worke d l a s t ye a r 17.8 10.0 55.7 29.2 27.4 He a d di d not work l a s t ye a r He a d ma rri e d 18.9 7.9 10.2 47.4 He a d s i ngl e fe ma l e 29.1 28.9 I ndi vi dua l Cha ra cte ri s ti cs Le s s tha n hi gh s chool (a ge 25-64) 33.9 35.8 25.3 Hi gh s chool (a ge 25-64) 10.2 17.5 15.6 5.9 Col l e ge (a dul ts 25-64) 6.7 4.5 18.0 26.8 Le s s tha n 18 22.3 14.8 9.1 36.9 65 ye a rs a nd ol de r Fe ma l e 16.7 16.4 24.9 25.8 27.3 57.8 Afri ca n Ame ri ca n 27.8 40.5 Hi s pa ni c 25.8 N/A 16.7 11.8 As i a n 34.2 N/A Na ti ve Al a s ka ns /Ame ri ca n I ndi a ns 30.3 Whi te 10.7 9.8 19.5 19.3 23.0 I mmi gra nt 25.4 28.4 N/A Di s a bl e d (a ge 18-64) 26.5 47.4 Li ve s outs i de a me tropol i ta n a re a 13.9 17.9 Note : Ca l cul a ti ons ba s e d on cha ra cte ri s ti cs of hous e hol d he a ds e xcl ude pe opl e l i vi ng i n group qua rte rs . Source : CEA ca l cul a ti ons ba s e d on 1960 Ce ns us a nd U.S. Ce ns us Bure a u. 8 In this table we use the official Supplemental Poverty Measure statistics published by the Census Bureau (Short 2013), whereas for hi storical comparisons below we rely on historical estimates produced by Wimer et al. (2013), described below. The series from Wimer et al. anchors its poverty measure at the 2012 SPM thresholds, so their those in Table 1. estimated poverty rates for 2012 are very similar to 11

12 Employment un employment is one of the strongest predictors of poverty. In 1959, 55.7 Unsurprisingly, percent of individuals in households where the head was out of work for a full year were — poor three times the rate of individuals in households where the head worked at least one While this week during the year. d to 29.2 percent, indi viduals in households rate has decline - year were still three times as likely to be poor as where the head was out of work for a full those in households where the head worked. ven full time employment is not enough to keep all families out of poverty However, e . - A today pe rson working full - time, full - year in 2013 being paid the minimum wage earns $14,500 for the year. These earnings alone leave such worker s below the poverty threshold if they have even one child. EITC , SNAP , and other benefits will help pull a fam ily of two above the While the poverty line, for a larger family such as one with three children — full - time, full - year minimum — wage work combined with government assistance is unlikely to be enough to lift that family out of poverty. Education Level Education’s role in poverty prevention has become more important over time: in 1959 , high - school dropouts were 3.8 times more likely to be poor than college graduates ; but in 2012, they were 6.1 times more likely to be poor (based on the SPM measure). The growth in the po verty much greater has led to gap by education is driven by growth in earnings inequality , which earnings for college graduates than for those with less education. Children poverty rate of the overall As in 1959, the child poverty rate today is higher than the population, though the SPM shows - that children are disproportionately helped by our poverty fighting programs. Once taxes and in - kind transfers are taken into account , the gap between child and non - child poverty falls . According to the officia l measure, the child poverty rate in But the official rate 2012 22.3 percent — nearly 48 percent higher than the overall rate. was ignores the contributions of the most important antipoverty programs for children: the EITC and other refundable tax credits an d SNAP. Including the value of these resources, the SPM 12.5 percent estimates that 18 percent of children are poor, a rate that is (2 percentage points) higher than the overall poverty rate. The Elderly overty is the large reduction in elderly One of the most heralded successes of the War on P poverty rates. In 1959, poverty rates were highest among the elderly with 36.9 percent of people 65 and older living in poverty (based on OPM) . Today poverty rates of those 65 and older average . Using the SPM measure re below the national shows elderly poverty at 14.8 a percent, however, more than 50 percent higher than the OPM measure. The reason for this difference is that the SPM subtracts expenditures on medical expenses from a family’s resources, and the el derly tend to have much higher medical expenses. Indeed, if the out - of - were not subtracted, the measured elderly poverty rate would be only 8.4 pocket medical costs 12

13 9 lower than their official poverty rate of 9.1 percent . percent In the absence of Medicare and — - - pocket medical expenses of the elderly would almost certainly cause their Medicaid, out of poverty to be much higher tha n the SPM poverty rate of 14.8 percent. Women ent Women are more likely than men to be in poverty, with a 2012 poverty rate of 16.7 perc This gap largely reflects higher poverty among single compared to 15.3 percent among men. - women, both those age 18 64 (22.9 percent compared to 20.2 percent among single men) and men). those age 65 or older (21.2 percent compared to 16.1 percent among single responsibilities help explain the poverty gap for single working - age women. Almost Childcare one - third (31.0 percent) of single women age 18 - 64 lived with their children in 2012, among whom the poverty rate was 27.5 percent. - third (35.2 percent) of single mothers Just over one - 64 were employed full age 18 time , full - year in 2012, compared to 44.6 percent of single - working - age males and 43.3 percent of single working - age women without children at home. Increased support for childcare for young ch ildren has been shown to positively affect mothers’ employment hours and earnings (Connelly and Kimmel 2003; Misra et al. 2011). The high poverty rate among older single women relative to men reflects a combination of lower Social Security benefits due to lower lifetime earnings; lower rates of pension coverage; and greater longevity that increases the chances of outliving their private savings (Anzick and Weaver 2001, SSA 2012). Race and Ethnicity P overty rates have fallen for all racial and ethnic groups over time and gaps by race have shrunk fifths of African Americans - still remain. slightly . However, troubling gaps In 1959, nearly three were in poverty, which was nearly three times the poverty rate of Whites. The fraction of has fallen by more than half since then ; yet at African Americans in poverty , the 25.8 percent SPM African Americans is still more than double the rate of 10.7 percent for poverty rate for Whites. Today, the SPM poverty rate among Hispanics is 27.8 percent, similar to that among Afric an Americans. However, this reflects smaller declines in poverty among Hispanics over the past 50 years. Among both African Americans and Hispanics the official and supplemental slightly poverty rates tell similar stories. However, the SPM reveals that Asian Americ ans have a 16.7 percent — higher poverty rate than the national average — at whereas their OPM poverty rate is lower than the national average. The higher SPM rate for Asian Americans reflects, in - cost metropolitan part, the fact that they tend to live in high (e.g., Los Angeles, New York areas City, etc.) and the SPM poverty thresholds are higher in such places due to its geographic adjustments for cost of living . Finally, while we do not have measures of poverty among American Indians and Alaska N atives in the earlier period, currently they have the highest rates of poverty of any race and ethnicity group at 30.3 percent in 2012. 9 expenses raises measured poverty for nonelderly adults and children by 2.9 Accounting for out - of - pocket medical and 3.1 percentage points, respectively. 13

14 People with Disabilities - - age people with disabilities are estimated to live in poverty , using Over one fourth of working both the OPM (28.4 percent) and SPM (26.5 percent) measures. This largely reflects their low employment rates. The effective poverty rate of people with disabilities may be understated due to the extra costs that often accompany disability, such as for ho me and vehicle renovations, assistive equipment, personal assistance, and other items and services that may not be covered by insurance or government programs (Sen 2009: 258, She and Livermore 2007, Fremstad 2009, Schur et al. 2013: 32 - 33). Rural and Urban Communities The official poverty measure overestimates rural poverty since rural communities tend to have lower costs of living than urban areas and the official measure does not take geographic cost - of - living differences into account. However, the OPM has revealed that significant poverty The Economic Research Service of persists in rural communities throughout the country today. the U.S. Department of Agriculture estimates that e five percent of persistent poverty - ighty — counties that have been in high poverty (over 20 percent based on the OPM ) for at counties — are in rural areas. The gap between poverty rates outside and within least 30 years metropolitan areas, though, has narrowed since 1959, when poverty rates outside metropolitan areas were more than double the rates within these areas. In fact, the adjustments for different housing costs across geographic areas in the SPM that poverty rates are higher in show 10 metropolitan areas than in rural areas today. 10 This comparison may be affected by significant differences among geographic area s in costs other than housing, such as transportation. In addition, there may be differences in housing quality that are not captured by the differences in housing costs. 14

15 II. Assessing the War on Poverty - time operation in pursuit of a “The elimin ation of income poverty is usefully thought of as a one That goal should be achieved before 1980, at which time the next goal unique to this generation. g a new distributional generation will have set new economic and social goals, perhaps includin goal for themselves” Robert Lampman, CEA economist in the Johnson A - dministration, writing in 1971. This section presents new historical estimates of the poverty rate from 1967 to 2012 based on the Supplemental Poverty Measure and s hows that substantial progress has been made in reducing poverty since President Johnson began major policy initiatives as part of his fight In the against poverty. 5 years , the poverty rate fell from 25.8 to 16.0 percent — a past 4 reduction of over one - third. T he CEA documents that much of this decline was due to the increased - reducing effects of the safety net expansion set in motion during the Johnson poverty transfer income, the poverty rate would be . Based Administration - tax, pre - on a measure of pre about as high today as in 1967 : over 28 percent. These analyses show that safety net programs lifted 45 million people from poverty in 2012, and between 1968 and 2012 prevented 1.2 bi llion “person years” from living below the poverty line. This section first reviews changes in the economy that provide context for understanding the lack of growth in market incomes in the bottom part of the distribution over this time period. The section then presents estimates of measured using modern methods . poverty trends since 1967 Context As noted in the quote beginning this section, the architects of the War on Poverty were data at their disposal at the confident they would live to see poverty eradicated. Looking at the time, it is easy to see how an analyst might have believed the end of poverty was on the Figure 1 shows the trend in the official poverty measure — horizon. the only consistently — from 1959 through 2012. Based on the trend available measure tracking poverty until recently in poverty observed between 1959 and 1968, one would have indeed forecast — extrapolating — that poverty would be eradicated by 1980. Poverty fell by a remarkably consistent linearly nts year over that 10 - year period, but the official poverty a rate of about 1.15 percentage poi measure stopped declining afterwards, reaching its lowest point in 1973. , the OPM is a measure of cash income that does not include non - cash As previously noted benefits or tax credits. While i t does not accurately capture the trend in poverty over time, it is nonetheless worth considering why the improvement in this measure of cash income slowed so S ocial S ecurity expansions abruptly in the early 1970s. The first, and clearest, answer is that during the 1960s brought the rate of poverty among the elderly down rapidly in before leveling the 1970s (Engelhardt and Gruber 2006). In 1959 , 36.9 percent of those 65 and older were in poverty , but by 1974 that fraction had fallen to 14.6 perc ent (based on the OPM). Over the next The 38 years the elderly poverty rate fell further to 9.1 percent in 2012. , deceleration in poverty reduction is less pronounced for nonelderly adults and children. In fact, using the SPM measure that accounts for expa nsions of the EITC and non - cash transfers, children’s poverty had greater declines in the 1990s than in the 1960s or 1970s. 15

16 Figure 1 Growth in inequality also helped put the brakes on improvements in cash income for most ds . Economic growth is an househol determinant of poverty (Blank 2000 ) as long as important the gains are shared with those in the bottom of the income distribution. When growth fails to benefit the bottom, it cannot play a role in eradicating poverty. As such , the distribution of While the real economy grew at an on the level of poverty . income can have a profound impact annual rate of about 2.1 percent during the 1970s and 1980s, ince 1980 economic growth has s produced the “rising tide” heralded by Preside nt Kennedy, as rising inequality left incomes not at the bottom relatively unchanged , ( DiNardo, Fortin, Lemieux 1996, Piketty and Saez 2003 the Lemieux 2008). As shown in Figure 2, incomes in the top quintile of distribution rose income contrast, 2000s and are about 50 percent higher today than in 1973. By dramatically until the real household incomes in the bottom 60 percent of the income distributio n stagnated until the mid - 1990s expansion, and today are little changed from the business cycle peak in 1973. 2 Figure 16

17 A large group of poverty scholars have pointed to inequality as a leading explanation this rise in for example for the lack of progress in reducing poverty since 1980 ( , Blank 1993, Gottschalk and Danziger 1995 and 2003, Hoynes et al. 2006). an important reason why The failure of the minimum wage to keep up with inflation is inequality increased , and progress in the 1980s (DiNardo, Fortin, and Lemieux 1996, Lee 1999) in the fight against poverty . President Johns on extended both the level and scope of has slowed the minimum wage , with its peak reached in real terms in 196 8 . Since then the minimum wage has risen and fallen, but today its level of $7.25 an hour is the same in real terms as in 1950. At this level, even factoring in the subsidy provided by the , a single parent of two kids EITC working full time would still have income near the poverty line. Figure 3 Several studies have documented a tight link between the va lue of the minimum wage and distribution (Lee 1999, DiNardo, income measures of inequality in the bottom part of the wage Fortin, and Lemieux 1996). For example, as shown in Figure 3 , changes in the ratio of the th — percentile of the wa ge distribution (the “ 50 - 10 wage gap”) median wage to the 10 a measure of inequality in the bottom of the wage distribution fo r women correlate very closely — 11 with changes in the real value of the minimum wage. T he best research suggests that large enough to increases in the minimum wage do not result in job losses undermine the goal of rais ing incomes for the poor (Dube, Lester, Reich 201 0 ) . Moreover, a recent meta - analysis by Doucouliagos and Stanley (2009) covering over 1,000 estimates of minimum wage effects finds “no evidence of a meaningful adverse employment effect.” Finally, a recent analysis and review 11 The figure updates an analysis in Lemieux (2008), who graciously shared data. 17

18 of the literature by Dube (2014) finds consistent evidence across studies that a 10 percent the poverty rate by about 2.4 percent. increase in the minimum wage decreases r ising inequality and slow wage growth among low - and middle - Another important factor in The percent of U.S. workers represented income workers has been the decline in unionization. 12 from 2 3.5 percent in 1983 to 12.5 percent in 2012. by unions has nearly halved This decline has contributed to inequality because u - and nions reduce inequality by raising the wages of low middle - income workers and compressing the returns to skill (DiNardo et al. 1996, DiN ardo and Lemieux 1997). most prominently, increased Many observers have implicated various demographic changes — immigration and a decline in two - — as additional factors behind the lack of parent families stribution. The recent literature on progress in market incomes in the lower part of the di immigration rejects the claim that competition from immigrants has had a meaningfully Because adverse effect on the wages or poverty rates of native workers (Peri 2013). the country - of - origin composition of immigrants h as increasingly shifted towards poorer countries , however, immigration has had a mechanical effect on poverty rates. Card and Raphael (2013) estimate that changes in the population shares and the country of origin of the foreign born rty rates (based on OPM) by 3.7 percentage points between 1970 and increased overall pove 2009 . While some immigrant households that may have seen their incomes rise as a result of coming to the United States , many still fall below the poverty line here . But o ther analysts focus ing on different time periods generally find much smaller compositional effects. For example, Hoynes et al. (2006) find that increased immigration accounts for only a 0.1 percentage point increase in poverty between 1979 and 1999. hat has occurred since the 1960s is a large increase in the number of Another dramatic change t people - female headed households. As shown in Table 1, individuals in such living in single , so this change households typically have double the poverty rates of the national average also tends to increase the poverty rate. Using decomposition techniques, Hoynes et al. (2006) show that changes in family structure alone account ed for a 3.7 percentage point increase in the 13 (OPM) poverty rate between 1967 and 2003. In fact, women’s poverty rates declined over this time period, however, since their labor force participation , and educational attainment, Reed gs increased and they had fewer children, all of which reduc ed their p overty rates ( earnin and Cancian 2001 ). Mo reover, changes in family structure can both cause and be caused by changes in economic circumstances. which has led to greater The last three decades have also seen a historic rise in incarceration, The fraction of the population in prison rose poverty. from 221 per 100,000 in 1980 to 762 per 14 100, 000 in 2008 (Western and Pettit 2010). In the short term, imprisonment removes wage 12 Ret rieved from http://data.bls.gov/cgi - bin/surveymost?lu , December 10, 2013. 13 Like all decompositions, the reference period matters. If the decomposition is performed using 2009 poverty rates rather t han those in 1970, the predicted increase is 2.8 percentage points. 14 Research suggests the increase is driven primarily by increased sentencing severity rather than increases in - Crotty and Meier 2003). criminal activity (Caplow and Simon 1999, Nicholson 18

19 earner from the family , which reduces their family’s income and increases the probability of s For example, Johnson (2008) finds that child poverty their children growing up in poverty. increases by 8.5 percentage points and family income falls by an average of $8,800 while a father is in prison. There are also long - term negativ e impacts on earnings from incarceration that lead to higher rates of poverty among those with a criminal record O ffenders’ wages are lower by between 3 . and 16 percent after incarc eration (Raphael 2007; Western employment and labor 2002 ) and each additional force partici pation are also negatively affected . R esearch shows that percentage point of imprisonment of men is associated with a reduction in African American employment or labor force participation of young African American men of approximately 1.0 o 1.5 percentage points. This relationship implies that the increases in incarceration over the t last three decades have reduced employment and labor force participation among young Holzer males by 3 to 5 percentage points (Holzer 2007). al African American so notes that while the magnitude of the effect of incarceration on hite and Latino offenders is less clear, most W studies find that their experience with employment and labor force participation after incarceration is similar to that of African American men. Together the factors described above created headwinds in the fight on poverty. Evaluating the precise impact of these factors is beyond the scope of this report, but it is likely that the ir As we shall see combined influence was to exert modest upward pressure on poverty rates. d suggests below, the fact that “market poverty” stayed relatively constant over this time perio that improvements in education or other factors may have offset the adverse effects of these For Previous studies based on the OPM support this notion . other changes. demographic and example, Mishel et al. (2013) suggest that the impact of increases in education in reducing poverty were slightly greater than the adverse impact of changing demographics. g the H A ccount Correctin of P overty S ince the 1960s istorical T he official poverty measure introduced by President Johnson’s administration ignores, by design, the most important antipoverty programs introduced during and after the War on Poverty . In particular, resources from nutrition assistance, tax credits for working families, and access to health insurance are not considered when computing whether a family is poor by the traditional metric. The Census Bureau has th e Supplemental Poverty Measure on ly as far back as 2009. published But recent research by poverty scholars on alternate measures of poverty all find that the official poverty rate displayed in Figure 1 dramatically understates the decline in poverty since the 1960s ( Fox et al. 2013, U.S. Census Bur eau 2013, Meyer and Sullivan 2013, Sherman 2013). and Work by , Fox, Ga rfinkel, Kaushal, Wimer Waldfogel (2013) is particularly valuable since they estimate poverty rates from 1967 to 2012 following the SPM methodology for computing ” measure that uses a fixed family resources. They also measure poverty using an “ anchored 19

20 poverty threshold based on expenditures on necessary items in 2012, adjusted only for inflation 15 - - RS). in each year (with inflation measured using a historically consistent series, the CPI U 4 Figure Figure 4 shows a striking fact: poverty has declined by 38 percent since 1967 , according to the anchored SPM measure . And, unlike the OPM, it continued to fall after the early 1970s. The figure shows the evolution of the poverty rate using the anchored SPM measure of poverty from 1967 to 2012, with the official poverty rate reproduced from Figure compared Using the 1. more accurate SPM measure of family resources changes the historical account of poverty in the United States significantly: between 1967 and 2012, poverty rates fell by 9.8 percentage points — from 25.8 to 16.0 percent. The trend in the SPM depicted in Figure 4 is very similar to that of an alternative measure of poverty bas ed on consumption data, which Meyer and material Sullivan (201 3 ) argue is a better measure of hardship (see box). Figure 4 shows that the fraction of Americans in p overty fell smoothly between 1967 and 1979 crepancy with the trend shown by the official to a low of 17.4 percent, a period where the dis measure is driven primarily by more accurate accounting for inflation in the 1970s. After rising steeply during the double - dip recession of the early 1980s, poverty rates fell slightly until rising again with t he early 1990s recession. 15 The ‘anchored poverty’ measure allows progress to be measured against a constant definition of living standards. Using the SPM methodology of updating poverty thresholds each year to reflect rising expenditures on since food, clothing, shelter, and utilities sh ows less of a decline in poverty the real value of the poverty threshold s rise over time (Fox et al. 2013) . Data constraints prevent Wimer et al. (2013) from following the SPM methodology exactly. The most important discrepancy from the Census procedure is that Wimer et al. do not adjust the poverty thresholds for geographic differences in living costs. It is worth noting that an alternative measure anchors poverty thresholds based on necessary expenditures in 1967, a nd adjusts for inflation each year afterwards. Both measures show similar declines in poverty, but using expenditures in 2012 gives a higher level of poverty in every period erty threshold. increased real spending on necessities over time has led to a higher SPM pov since 20

21 A C ONSUMPTION P OVERTY M EASURE - based poverty measures the amount households spend relative to a threshold Consumption on goods and services, and estimated “service flows” from large, infrequent purchases like housing and automobiles. Meyer and Sullivan argue in a series of papers (2003, 2012a, 2012b, 2013) that consumption provides a better measure of resources for low - income households nce from since it reflects accumulated assets, expected future income, access to credit, assista family and friends, non market income, and the insurance value of government programs. - They also argue that consumption data are more accurately reported relative to some safety net benefits included in the SPM, especially for households in or nea r poverty. The figure shows the trend in Meyer and Sullivan’s (2013) measure of consumption poverty, updated through 2012 and normalized to have the same level as the SPM measure in 2012. Although the underlying methodologies differ, the trends in consump tion poverty and SPM income poverty have been remarkably similar over time. For example, the declines in poverty between 1972 and 2012 shown by each measure are nearly identical. It is difficult to identify the effects of particular government programs on consumption poverty because one cannot easily identify and remove the consumption derived from particular government programs as one can with income under the SPM. However, the fact that the two measures are similar suggests that underreporting of bene fits has little impact at the margin of determining whether someone is poor. Additionally, the similarities in the measure suggest that spending through savings or borrowing from friends and family is rarely able to keep someone out of poverty. 21

22 In contras the depiction of the OPM, the steepest declines in the fraction of people in t to During that period poverty fell poverty occurred during the economic expansion of the 1990s. , in 1993 to 15.3 in 2000, the lowest poverty rate obser percent ved since from 21.5 percent As shown in Figure 2, economic growth in the 1990s provided a strong boost to low - 1967. incomes , in contrast to the income households as earnings grew even in the bottom quintile of experience of any other decade since the 1960s. es in the value of the EITC Dramatic increas upswing in the labor market to further encourage work and channel even more leveraged this - income working families. resources to low One last, and remarkable, fact shown in Figure 4 is that the poverty rate ticked up only slightly during the Great Recession after remaining steady for most of the 2000s . Despite the largest rise in unemployment since the Great Dep ression, the poverty rates rose by only 0. 5 this 7 and 2010. percentage points overall between 200 discussed below, shows how As effective the safety net and its expansion through the 2009 American Recovery and Reinvestment Act ( the Recovery Act ) have been . Since much of the credit for this is due to expansions in SNAP and tax credits, the official poverty rate fails to capture this crucial success. T he poverty rate s for children and for working - age adults follow a similar pattern to th e overall trend shown in Figure 4 . The fraction of children living in poverty declined from 29.4 percent in the poverty rate fell from 19.8 to 15.1 - 1967 to 18.7 percent in 2012 ; and for working , age adults percent over the same period. For the elderly, the trend in poverty is one of near continuous decline. Poverty fell quite rapidly up until the earl y 1980s, driven by large growth in per capita ocial S ecurity payments, from 46.5 percent in 1967 to 20.7 percent in 1984. Elderly poverty fell S ed up slightly further during the 1990s expansion to a low of 16.5 percent in 1999, and then tick in the 2000s. D the Recovery Act stimulus payments, elderly poverty declined riven in part by from 17.6 percent to 15.2 percent between 2007 and 2009, and it remains at that level in 2012. Measuring the I mpact of Antipoverty Efforts Direct The fact that poverty rates have fallen overall, even as household incomes in the bottom of the that policies have distribution have stagnated since the 1980s , suggests a substantial direct role being of the poor . played in improving the well - estimate the magnitude of et al. (2013) Wimer this impact by ing “counterfactual” poverty measures that simulate the fraction of the construct population that would have been poor in the absence of all government transfers, including the 16 overall tax system. In other words, t hey estimate the fraction of families that would have incomes below the poverty line if the value of all cash, in - kind, and tax transfers they received (or paid if the family owed taxes on net) were not counted. Comparing the difference between this measur e of “market poverty” and the SPM poverty rate provides a measure of the reduction in poverty accounted for by government transfers. Figure 5 shows the results of this 16 While this is a ‘static’ exercise in that it assumes that individual earnings themselves are not affected by the existence of safety net programs, this report later review s research on the effects of programs on employment and earnings an d find s that such effects are generally small where they exist, and not large enough to meaningfully alter the conclusions from this simplification (Ben - Shalom, Moffitt, and Scholz 2010). 22

23 analysis. The height of the overall shaded region indicates the poverty rate counting o nly while the height of the region shaded in black is the SPM poverty rate shown in market income, Figure 4. The difference, shaded in green, represents the percentage of the population lifted 17 and the net effect of the tax sy stem . from poverty by the safety net 5 Figure In part because of the rising inequality in earnings described above, market poverty increase d over the past 45 years by 1.7 percentage points from 27.0 percent in 1967 to 28.7 percent in 2012. In contrast, poverty rates that are measured including taxes and transfers — the se taxes and transfers are the green shaded region in the Figure — f e ll through most of this period . e Government transfers reduce poverty by 1.2 percentage points in 1967. This impact gr d w to a bout 7.4 percentage points by 1975 due to the expansion of the safety net spurred by the War to 12.7 on Poverty, and hover ed d around that level until the Great Recession when it increase percentage points in 2012. Despite an increase in “market poverty” o f 4.5 percentage points between 2007 and 2010, the SPM poverty rate rose only 0. 5 percentage points due to the safety net. In fact, the 200 9 actual Act reduced poverty by 1.8 percentage points in 2010 through its extensions to the Recovery ed as discuss below safety net . Overall , for the entire 45 - year period, the poverty decline of 9. 8 17 There are two counterfactuals estimated by Wimer et al. that are used in this report to discuss the impact of the safety net. For most estimates of the impact of the safety net we use a counterfactual poverty rate that strips away (“zeroes out”) all cash and in - kind transfers, as well as refundable tax credits but cont inues to subtract any “normal” tax liability from family resources. In this section, we define “market poverty” similarly, only this measure additionally zeroes out all tax liabilities. Since poor families near the poverty line tend to have positive tax — li abilities, market poverty rates are slightly — about 1.8 percentage points in 2012 lower (since we assume families can keep the taxes they in fact must pay). 23

24 percentage points is accounted for by the increased effectiveness of the safety almost entirely 18 net. shows a similar analysis of the effect of the safety net on trends in deep poverty Figure 6 and h ighlights two important features of the safety net often overlooked. First, the safety net improves the well - being of many more individuals than is reflected in the standard accountin g of how many individuals are lifted from poverty: in 2012, about one in twenty (5.3 percent) Americans live d in deep poverty, yet without government transfers the number would be closer to one in five (18.8 percent). the safety net Second, y eliminate s cyclical swings in the prevalence of deep almost entirel poverty. Figure 6 shows that despite large increases in deep market poverty driven by the business cycle, there is little if any rise in actual deep poverty due to the supports provided by the safety et. n Figure 6 Again, this phenomenon is especially visible during the Great Recession, when the prevalence of deep poverty ticked upward by only 0.2 percentage points despite an increase in market deep poverty of 3 .3 percentage points. T his corresponds to more than 9.6 million men, women , - and children prevented from living below one half the poverty line during the Great Recession . Over the 45 years shown in the , deep “ market poverty” actually rises from 14.9 to 18.8 Figure perce nt. Despite that increase, the fraction of those in deep poverty fell from 8.2 to 5.3 percent. 18 As described earlier, the underreporting of government income and benefits means that this is likely to be a - bound estimate of the effect of the safety net. conservative lower 24

25 W OMEN AND P OVERTY While women continue to have a higher poverty rate than men, the gap has decreased over time as poverty has fallen more for women than for men. The following chart shows that the gap between working - age women and men has decreased from 4.7 percent to 1.7 percent from 1967 to 2012. The decline in the poverty rate among women has been tempered by an increase in the number of single mothers, who have higher rates of poverty. The share of working age women who are single mothers rose from 11.6 to 16.1 percent between 1967 and 2012. Had the poverty rates of , this demographic groups (based on marriage and motherhood only) remained as they were in 1967 change would have increased poverty rates for working age women by 2.1 percentage points. In fact, poverty rates of women in all marriage and motherhood groups fell due to increased work, rising education, and smaller families (Cancian and Reed 2009 ), as well as to the increased impact of the safety net described in this report. The effect of government transfer and social insurance programs on poverty is slightly larger for women than for men. These programs reduced the 2012 poverty rate by 8.1 per centage points for women compared to 6.4 percentage points for men. This gender difference has been fairly stable over time, indicating that growth in these programs does not explain the narrowing poverty gap shown above. Rather, the closing of the gender poverty gap appears to be due to increases in women’s education and employment rates relative to men. 25

26 III. The Role of Antip overty Programs : A Closer Look “Poverty ... has many faces. ... Its roots are many and its causes complex. To defeat it requires a coordin ated and comprehensive attack. No single program can embrace all who are poor, and no and tomorrow’s poverty .” single program can strike at all the sources of today’s Economic - Report of the President. 1964 This section presents further detail on antipove rty effects of specific components of the safety In particular, it highlight net. the impact that different groups of programs — cash transfers, in - s kind transfers, and tax credits — have on the poverty rates of different age groups. It also shows how the relative importance of programs for nonelderly adults and children has changed since the start of the War on Poverty. refutes the concern The section then that the existence of safety net critics have raised programs may undermine growth in marke t incomes as well as our efforts to fight poverty . The social safety net has increasingly been designed to reward and facilitate work increasing participation rates — in many cases , requiring work. Even where programs are not explicitly design ed to require w ork, the highest - quality studies suggest that adverse earnings effects of safety net programs are nonexistent or very small, in part due to reforms over the past two decades that, for example, have o t phased out benefits gradually with increases in earnings minimize disincentives to work . Finally, this section presents findings on the level of economic mobility of individuals born into poverty in the United States, and the results of recent research showing the potentially large in terms of long - term outcomes returns to social spending of children in families receiving support . Antipoverty E ffects of S pecific P rograms This section illustrates the role that various antipoverty programs have had in improving the - being of different populations, and how the relative impacts of these programs have well evolved since the War on Poverty began. It is based on an effectively “static” analysis that would have on d from various public programs to ask what effect this zeroes out income derive on considers some of the broader impacts that these programs have poverty. The next subsecti on employment and . earnings Table 2 shows the impact of various safety net programs on overall poverty, and for three separate age groups: children, adults age 19 to 64, and elderly adults age 65 and over. The safety net e to S ocial S ecurity , which provides incom program with the single greatest impact is the elderly , people with disabilities , and surviving spouses and children , reducing the overall poverty rate by 8.5 percentage points in 2012. The program’s impacts on elderly poverty are profound: without S ocial S ecurity income, the poverty rate of t he elderly would be 54.7 percent, rather than its rate of 14.8 percent in 2012. On the other end of the age spectrum, arned refundable tax credits like the E 26

27 Table 2 Poverty Rate Reducti on from Government Programs , 2012 Nonelderly 65 Years All People Children Adults and Older 8.56 1.97 4.08 39.86 Social Security 3.02 6.66 2.25 0.20 Refundable Tax Credits SNAP 1.62 3.01 1.27 0.76 Unemployment Insurance 0.79 0.82 0.88 0.31 1.21 SSI 1.07 0.84 1.12 1.39 0.91 Housing subsidies 1.12 0.66 0.38 0.91 0.25 0.03 School lunch 0.21 TANF/General Assistance 0.46 0.14 0.05 0.29 WIC 0.13 0.09 0.00 Population (Thousands) 311,116 74,046 43,245 193,514 Note: Data are presented as percentage points. Source: Department of Commerce, Census Bureau. redit have large impact ax T hild C redit and the C ax T ncome I C s on child poverty — reducing the Tax credits also reduce the poverty fraction of children in poverty by 6.7 percentage points. percentage points. rates of nonelderly adults by 2. 3 The Supplemental Nutrition Assistance Program also has a dramatic effect on poverty, reducing c hild poverty by 3.0 percentage points and overall poverty rates by 1.6 percentage points. Finally, unemployment insurance reduced poverty by 0.8 percent overall in 2012. This effect, as with the effects for other programs, was less than at the height of t he Great Recession when , unemployment insurance reduced 10 , for example more people were without work: in 20 percentage points overall (Short 2012) . poverty by 1.5 to alter work behavior created by As noted, all of these estimates ignore the incentives are not gove rnment programs and of the impact of the different definitive causal estimate s programs on poverty. For example, Social Security may affect market incomes by changing . Similarly, the estimates do not take into acco unt the role incentives retirement and savings that UI plays in keeping people attached to the labor force , or that the EITC plays in importance of additional hours of work and incentivizing The participation in the labor force. these considerations is discussed below. be very effective in reducing with Even programs may a small impact on overall poverty rates in poverty for certain populations or alleviating hardship without lifting individuals out of s poverty . For example, SSI reduces poverty rates by 1.1 percentage point overall, but thi concentrated among a rela tively small number of low - represents a large poverty reduc tion elderly recipients who are income or have a (state . TANF and General Assistance ility disab programs which typically provide limited aid to very poor individuals not qualifying for other aid) as , at 0.2 percentage points rate the overall have only a small impact on TANF poverty bring people above the poverty level benefits are generally insufficient to . However, by raising have a much greater the se programs the incomes of those in poverty impact on reducing deep poverty. 27

28 Based on their historical estimates of SPM poverty rates, et al. (2013) conduct similar Wimer those analyses to in Table 2 for each year since 1967 for different groups of safety net Their res ults shed light on how the safety net has changed over the past 50 years. programs. In aggregate, the antipoverty effects of three types of federal aid programs — support through Social Security , SSI, and TANF; in - kind support like SNAP and housing cash programs like assistance; and tax credits like the EITC and CTC — down overall all increase over time, driving poverty rates. The steady increase in the effect of each type of program masks some across the populations served by each program. For the elderly, for example, the differences S ocial S ecurity payments steadily driving down trend is dominated by the growing real value of the elderly poverty rate. S ROGRAMS S ERVE A LL A MERICANS P OCIAL While the safety net provides crucial support for families in poverty, far mo re Americans benefit from the safety net than are poor in any given year. Of course, all Americans benefit from Social Security and Medicare support for the aged, shielding both them and their families from low income in retirement and the costs of adverse health shocks. And many people benefit from social insurance programs that are not means tested. For example, nearly half of all Americans will benefit from - unemployment insurance at some point over a 20 - year period. income families serve a very high fraction of Americans But even programs targeting primarily low - at some point in their lives. A recent studying using administrative tax records from 1989 to 2006 found that over 50 percent of tax filers with children benefited from the EITC at some point o ver the - (Dowd and Horowitz 2011). Moreover, CEA analysis of the National Longitudinal 19 year period finds that of all individuals aged 14 to 22 in 1979 Study of Youth 1979 over the 32 - year period from , 1978 to 2010:  29.6 percent benefitted from SNAP;  received support from SNAP, AFDC/TANF , or SSI; and 34.3 percent  69.2 percent received income from SNAP, AFDC / TANF, SSI, or UI. Looking at a broader array of programs, a large fraction of the population benefits in any given year as well. A ccording to the 201 3 Annual Demographic and Economic Supplement of the Current Population Survey, nearly half (47.5 percent) of all households received support from either school lunch, TANF, Unemployment assistance , refundable tax credits, SNAP, Insurance, SSI, housing WIC, Medicaid or Disability Insurance . An important feature of the safety net that is often overlooked : for most programs the majority of beneficiaries receive assistance for only a short period when their earnings drop for some reason, and then they boun ce out again. Research has shown, for example, that 61 percent of all EITC recipients claimed the credit for two years or less (Dowd and Horowitz 2011) ; and , half of all new 2000s left the program within 10 months - . SNAP participants in the mid 28

29 For chi a shift in importance of the safety net ’s different components . ldren, however, there is Figure shows the effect of eliminating various components of the safety net resources on the 7 SPM poverty rate in three years corresponding to recession - driven peaks of the poverty rate. In the early 1970s recession, AFDC, and food stamps to a lesser extent , played the most important Both in role in alleviating childhood poverty and t he EITC had not yet been introduced. ; - kind transfers and the EITC had a small impact on child poverty in the early 1990s recession, but cash reducing impact of both programs put together. transfer programs still outweighed the poverty - During the Great Recession, in - kind aid, cash - assistance, and tax credits however, we see that all played similarly important roles in reducing poverty for families with children. This shift reflects both the large structural change away from cash welfare assistance during the 1990s, and expansion of both SNAP and tax credits through the Recovery Act. 7 Figure , only showing the impact of various transfer programs on deep Figure 8 is similar to Figure 7 poverty, or the fraction of individuals with incomes below 50 percent of the poverty threshold. kind transfers have become the most important This figure shows that for deep povert y, in - safety net program over time, and tax credits are less effective due to the paucity of work among families with very low resources. 29

30 Figure 8 The Effects of Anti p overty Programs on Work and Earnings In his remarks before signing the cornerstone legislation of the War on Poverty, the Economic President Johnson declared: Opportunity Act, Our American answer to poverty is not to make “ the poor more secure in their poverty but to reach down and to help them lift themselves out of the ruts of poverty and move with the large majority along the high road of hope and prosperity. The days of the dole in our country are numbered .” He went on to describe the need to provide the poor with the means to lift themselves out of poverty through job training and employment services, among other strategies. In the past 20 years, this emphasis on promoting work through antipoverty programs intensified and we made dramatic changes to cash welfare an d other programs that shifted the focus toward requiring or rewarding work. The most important shift began when President Richard Nixon introduced the E arned I ncome as the in 1975 T ax C redit in the 1980s, 1990s, and 2000s . T he EITC was expanded multiple times safety - based support . The EITC was expanded most shifted increasingly toward work net 2009 Recovery Act in 2010 and 2013 extended recently in the . Since , with those improvements 1996 , the EITC has accounted for more support for low - income households than traditional cash welfare. Today , the EITC and the partially refundable C hild T ax C redit total $ 77 billion annually, nearly four times as the expenditures on the Temporary Assistance for Needy Families ). 9 program (see Figure 30

31 Figure 9 Because the EITC is a supplement to labor market earnings the credit provides strong , with otherwise low labor force attachment to increase their hours of work. incentives for those However , because the credit is reduced as earnings continue to rise , it may also provide those with earnings above the phase out threshold — above $22,870 for a married couple with three - children — an incentive to reduce their earnings. Several studies have addressed these incentive effects, and reach similar conclusions: the EITC is associated with increased labor force participation, especially among single mothers, but it does not appear to substantially alter the hours or earnings of those already working (Eissa and Liebman 1996, Liebman 1998, Meyer and 19 Taken together, these Rosenbaum 2001, Hotz and Scholz 2003, and Eissa and Hoynes 2005). results suggest EITC expansions played an important role in increasing labor force participation among single mothers, without adversely affecting hours worked by those already worki ng . Meanwhile, the 1996 welfare reform law replaced AFDC with TANF and significantly strengthened work requirements in the cash assistance program. The Personal Responsibility ended the and Work Opportunity Reconciliation Act of 1996 entitlement to cash as sistance and generally required to work or participate in “work activities” to receive beneficiaries were Moreover, the implicit tax rate on benefits in response to increased earnings — assistance. the 19 for about 60 percent of the For example, Meyer and Rosenbaum (2001) suggest that EITC expansion accounts roughly 10 percentage point rise in single mothers’ employment rates relative to single mothers without children between 1984 and 1996. 31

32 benefit reduction rate was reduced dramatically in many states. Matsudaira and Blank (2013) — potential increased the to work, with return income gains of over show that these changes for welfare recipients w ork ing 30 hours a week. $1,842 (in 2000 dollars) At the same time, it should be noted that ha v e found these reforms may have increased hardship researchers among groups with high barriers to employment, highlighting the continued importance of 2007; Turner, Danziger, and Seefeldt 2006) . programs that serve the most disadvantaged (Blank While today’s safety net has been reformed to promote work, it is important to note that careful research has shown that most assistance programs have only small , if any, disincentive effects on work. verty effects of the This suggests that the “static” estimates of the antipo any impact of these programs programs shown above largely capture the actual full including employment disincentives they may have — and may understate the poverty - reducing impacts of programs that effectively reward and facilitate work and thus increase market earnings . For example, examining labor supply behavior of individuals in the Oregon Health Insurance that Medicaid recipients are not less likely to be Experiment, Baicker et al. (2013) find employed nor do they earn less than they otherwise would have. Similarly, Hoynes and Schanzenbach (2007) study the initial rollout of SNAP (then food stamps) and find only small effects on labor supply. While there are no studies of the employment effects of the TANF program with ement s , prior studies of AFDC and the Negative Income Tax its work requir only modest disincentive effects experiments of the 1970’s suggest of a program without an emphasis on work. Burtless (1986) found that a dollar of benefits reduces work earnings by 20 cents ( total i ncome is increased by 80 cents ), but other evidence suggests the disincentive effects may have been even smaller (SRI International 1983). Evaluating the weight of the evidence for all programs, Ben - Shalom, Moffitt, and Sholz (2012) conclude that the wo rk disincentive effects of antipoverty programs have “basically, zero” effect on overall poverty rates. Going program by program, they conclude the behavioral effects of TANF are likely zero, and that the work disincentives induced by disability insurance, Medicare, and U nemployment I nsurance might reduce the estimated “static” antipoverty effects of those programs by one - eight h or less. Although housing assistance provides significant benefits to some of the poorest households including the homeless, its e ffects on among those of working age and free of disabilities are relatively modest. Shroder labor supply (2010) reports that the net negative impact of rental assistance on labor supply appears to vary among subgroups, may change over time, and seems rath er small relative to the amounts paid out in subsidy. Jacob and Ludwig (2012) find that receipt of housing vouchers in Chicago during the welfare reform era reduced employment by 3.6 percentage points among able - bodied working - age individuals and reduced e arnings an average 19 cents for each dollar of subsidies. Carlson et al. (2011) find employment effects in the same range for Wisconsin voucher Ben - Shalom et al. estimate that the poverty rate among housing assistance recipients. recipients is 66.0 percent, and use the Jacob and Ludwig data to estimate that housing assistance lowers the poverty rate among recipients by 8.2 percentage points rather than the st atic estimate of 14.9 points . Finally, a recent study by Chetty, Friedman, and Saez (2012) of the EITC on the earnings distribution also finds that “the impacts of the EITC ... come primarily They do find, however, that behav ioral responses reinforce the through its mechanical effects.” 32

33 amplify the effects of the safety net on deep poverty, so that the overall impact of the EITC might be somewhat greater than implied by the “static” estimates because of the increased 20 work induced by the program. Economic Mo bility When economic mobility is high, individuals and families can lift themselves out of poverty by - being. When economic taking advantage of opportunities to improve their economic well mobility is low, it is difficult to change one’s economic status and people may become stuck in Mobility can be measured either as relative mobility — the likelihood of moving up or poverty. — or ab solute mobility , which is the likelihood of improving down the income distribution economic well being in general without necessar ily moving up in the income distribution - (reflected in the saying , “a rising tide lifts all boats”). When there is low relative mobility, there are few opportunities for poor people to improve their standing in society by moving up the economic spectrum, and children from poor families are likely to continue to have low social status as they - being improves. economic and become adults, even if their material well When there is low absolute mobility, poor people and their children find it hard to escape the economic and material hardships of poverty. people to escape poverty, many do While economic mobility in the United States allows some not . About half of the poorest individuals remain in the lowest fifth of the income distribution after 10 and 20 years, and no more than one - fourth make it to one of the top three income quintiles (Acs and Zimmerman 2008; Auten et al. 2013). Those who were in poor families as lower earnings as adults compared to those to 40 percent children are estimated to have 20 ty (Mayer 1997; Corcoran and Adams 1997; Corcoran 2001; who did not grow up in pover Duncan et al. 2012). the children of low - earning fathers, about two - fifths of sons and Among - one fourth of daughters remained in the lowest earnings quintile when they became their antti et al. 2006). father’s age (J Consistent with this, one - third of children who grew up in the low est family income quintile were in the lowest quintile when they became adults (Isaacs 2008). More generally, studies find that about one - third to slightly less than one - half of parents’ are reflected in their children’s incomes later in life incomes (Chet ty et al. 2013, Black and Devereux 2011 children’s , Lee and Solon 2009 ), indicating that parents heavily influence economic fortunes. The results of these studies imply strong lingering effects from growing up in poverty. The of poverty on future economic prospects stem not just from one’s own family status, influence - poverty neighborhoods that often have lower - quality schools, but from growing up in high paying jobs, higher crime rates, and other conditions that can create disadv - antages lower (Sharkey 2009). Among children whose families were in the top three quintiles of family income, growing up in a high - poverty neighborhood raises the likelihood of downward mobility 20 Unlike the earlier literature, they also find evidence of a slight downward adjustment of earnings for workers near 200 percent of the poverty line. This is consistent with the predictions of static labor supply theory since that l. level of earnings is in the phase - out region of the credit. This negative impact is small, however, and Chetty et a emphasize it is dominated by the (also small) positive impacts at low earnings levels. 33

34 (falling at least one quintile) by 52 percent (Sharkey 2009). A com parison across geographic regions in the United States indicates that economic mobility is higher in areas with a larger middle class, less residential segregation between low income and middle - income individuals, - teen birth, crime, divorce, and children raised by single higher social capital, and lower rates of parents (Chetty et al. 2013). The above results mostly reflect relative mobility (moving up or down the economic spectrum). ( improving economic well While absolute mobility being without moving up t he economic - spectrum) has generally risen in the United States, the pace has slowed in recent decades. Comparing cohorts of men in their 30’s, median personal income went up 5 from 1964 percent to 1994, but down 12 from 1974 to 2004 (Sawhill and Mo rton 2007). Counting all percent family income, income went up 32 percent between 1964 and 1994, and only 9 percent between 1974 and 2004. So the recent improvement in family income, which reflects the rising 21 - third as large as in the earlier period. employment of women, was only one Despite the popular view that the United States is the land of opportunity, this Nation appears Measuring mobility by other developed countries. to have l ower economic mobility than many the strength of the dependence of children’s inc omes on parents’ incomes, the United States but lower mobility than other European United Kingdom and Italy has similar mobility as the , countries as well as with Japan, Australia, and Canada (Solon 2002; Jantti et al. 2006; Corak 2006, 2011). Can anythi A study of data on families over time (including ng be done to increase mobility? comparisons of twins and other siblings) found that genetics and shared upbringing play a significant , but overall minor role , in explaining adult earnings differences, indic ating that environmental factors other than upbringing are largely responsible (Bjorklund et al. 2005). Education appears to be one of the key factors that drives economic mobility. s shown in A distribution Figure 10, a in the bottom fifth of the income , almost half (45 mong families percent ) of the children who did not obtain college degrees remained in the poorest fifth as adults, while only one - sixth (16 percent ) of the children who obtained college degrees remained in the poorest fifth (Isaacs, Sawhil l, and Haskins 2008: 95). 21 Using a different method to assess absolute mobility, about half of individuals moved out of the bottom income quintile in the 1984 - 94 and 1994 - 2004 periods when t he quintile thresholds were fixed of the period (Acs and Zimmerman, 2008). at the begin ning 34

35 Figure 10 The importance of education is also shown by the findings that economic mobility is higher in that have a countries ure on education (Ichino et al. 2009) and areas of greater public expendit t he United States that have a higher - quality K - 12 education system (Chetty et al. 2013), and is improved for children in the poorest - third of families when states increase spending on one elementary and secondary education (Mayer and Lopoo 2008). Intergen erational Returns While much of the literature on mobility presented above is correlational, a handful of well - run outcomes of children exposed to safety net programs - crafted studies that track the long potential for investments in these programs to generate large returns. highlight the normal Early childhood educati on has been found by many researchers to have dramatic, super - The Head Start program created early in returns in terms of more favorable adult outcomes . the War on Poverty has been heavily researched and the combined results show that it can “rightfully be considered a success for much of the past fifty years” (Gibbs et al. 2013: 61). Studies following children over time, and accounting for the influence o f family background by comparing siblings, found that Head Start participants were more likely to complete high school and attend college (Garces et al. 2002), and scored higher on a summary index of young adult nthood, health status, and idleness (Deming outcomes that also included crime, teen pare 2009). The latter study found that Head Start closed one - third of the gap in the summary outcome index between children in families at the median and bottom quartiles of family Head Start nuity research design that compared access to income. Using a regression disconti across counties, Ludwig and Miller (2007) found positive impacts of Head Start on schooling 35

36 attainment, the likelihood of attending college, and mortality rates from causes that could be Head Start. Gibbs et al. (2013) suggest the combination of the benefits due to Head affected by Start might produce a benefit - cost ratio in excess of seven. Preschool Project , Abecedarian Randomized experiments studying the Perry , Chicago Project Child - Parent Centers , Early Training Project , and Project CARE programs largely confirm these findings. A variety of well - done analyses f in d that the adult benefits for children — especially girls — who participated included higher educational attainment, employment, and earnings along with other benefits (Schweinhart et al. 2005; Anderson 2008; Campbell et al. 2008; Heckman et al. 2007, 2010, 2011). Heckman and coauthors (2009) find that the returns to one preschool program (Perry) exceed the returns to equities. In the past dec ade, researchers have identified long - run linkages between early childhood (including exposure in - utero) health interventions and long - term outcomes. For example, Almond, Chay, and Greenstone (200 ) document that the Johnson administration used the 6 threat of withheld federal funds for the newly introduced Medicare program to force hospitals to comply with the Civil Rights Act mandate to desegregate, resulting in dramatic improvements in infant health and large declines in the black - white gap in infant morta lity in the 1960s. Chay, Guryan, and Mazumder (2009) show these improvements in access to health care and health soon after birth had echoes in the form of large student achievement gains for white test score gap. e black black teenagers in the 1980’s, contributing to the decline in th - Their results are consistent with improved health care early childhood health access and — improving test scores by between 0.7 and 1 standard deviations very large impact that a implies large i ncreases in lifetime earnings. For example, studying a different intervention Chetty, Friedman, and Rockoff (2011) find the financial value (the net present value at age 12 of the discounted increase in lifetime earnings) of a standard deviation increase in test scores to be $46,190 per gr ade. While it may not be surprising that human capital interventions have long - run returns, recent studies have also found intergenerational effects on child outcomes from tax or near - cash recent evidence suggests that transfers to their parents. That is, government transfers that ameliorate child poverty by increasing family income have lasting, long - run benefits in terms of better child outcomes. For example, Hoynes, Schanzenbach, and Almond (2013) study the initial roll - out of the Food Stamp (now, SNAP) program between its initial pilot in 1961 and 1975. While Food Stamps are distributed as vouchers for food purchases, since their amount is generally less than households spend on food the vouchers likely affect family behavior in the same manner as increa sed cash income (Hoynes and Schanzenbach 2009). Hoynes and coauthors find that exposure to Food Stamps led to improvements in adult health (reductions in the incidence of high blood pressure and obesity) and, for women, increased economic self - sufficiency. Similarly, Dahl and Lo chner (2012 ) and Chetty, Friedman, and Rockoff (2011) find that family receipt of additional income from refundable tax credits improves the achievement test scores of children in the family. Chetty and coauthors estimate that the i mplied increase in adult earnings due to improved achievement as a child is on the same order of magnitude, and probably greater, than the value of the tax expenditures. 36

37 the crucial fact that government expenditures o n the The results discussed above highlight safety net have a strong economic justification. Not only do they help to propel struggling adults back onto their feet and protect them and their families from hardship, they improve opportunity and the adult outcomes of their children. As such, the poverty - reducing impact of these programs constitutes an important investment opportunity. To give a sense of the magnitude of this opportunity, Holzer, Schanze n bach , Duncan and Ludwig (2008) estimate the cost of childhood poverty at about $500 billion (in 2007 dollars) or about 4 percent of gross domestic product annually in terms of foregone earnings, increased costs of crime, and higher health expenditures and lower health. While the Holze it attempt s to correct for hereditary though r et al. study is correlational ( the concern over bias in this estimate components of the intergenerational income correlation) Based on Census Bureau estimates, the total poverty gap — is overwhelmed by its magnitude. the shortfall between family reso urces and the SPM poverty thresholds among all families — with children is about $59.8 billion in 2012, or 0.37 percent of GDP. Even if the Holzer et al. , the benefit would estimate double the “true” causal effect of eliminating child poverty was exceed the added costs five - fold. These numbers create a powerful case for renewed efforts to fight poverty. 37

38 IV. The Obama Administration’s Record and Agenda to Strengthen Economic Security and Increase Opportunity “The idea that so many children are born into poverty in the wealthiest nation on Earth is heartbreaking enough. But the idea that a child may never be able to escape that poverty because she lacks a decent education or health care, or a community that views her future as all of us and it should compel us to action. their own, that should offend We are a better country than this.” - President Obama, December 4, 2013. The programs created during the War on Poverty and refined since have provided crucial support to Americans in need. clearly remain. In 2012, 49.7 million Americans, But challenges including 13.4 million children, lived below the poverty line an unacceptable number in the — richest nation in the world. There is clear evidence that antipoverty programs work, and we must redouble our effor ts to enhance and strengthen our safety net. At the same time, we must realize that while antipoverty programs are doing heroic work to lift struggling families from poverty, there is broad consensus among economists that a strong national recovery in th e short run, and stronger economic growth in the long run, are necessary to sustain progress in the fight against poverty. Indeed, as our social safety net reinforces the economic benefits of work by supplementing wages for low earners, a strong labor mark et with Given the growing jobs available for all is an essential partner in the fight against poverty. economic inequality in the past few decades, we must strive for balanced growth that benefits To do so, we must ensure that an economic ex pansion encompasses everyone, all Americans. and commit to giving all Americans opportunities for lifelong learning and skills development to ensure a broad base of human capital that will be rewarded by good wages. d in continuing the fight against This section documents the Obama Administration’s recor poverty, and discusses the Administration’s proposals to strengthen the safety net and to improve human capital and increase labor market earnings. These comprise a key part of the broader economic strategy to further the recovery and increase growth — all of which combat poverty. Taking Immediate Action During the Economic Crisis As the economy was sliding into the Great Recession, the Administration took action to The strengthen the safety net and prevent millions of Americans from falling into poverty. temporary Recovery Act instituted a number of antipoverty measures, including the creation of the Making Work Pay tax credit Economic worth up to $800 for a married couple, a $250 Recovery Payment for Social Security and SSI recipients ; unemployment changes including an additional $25 per week (for up to 26 weeks) to regular UI beneficiaries, increased federal funding for the Extended Benefits program, incentives for states to modernize their UI system - to reach part time worke rs and recent workforce entrants, and reauthorized Emer gency Unemployment Compensation; an increase in SNAP benefits ; and an expansion of the also delivered nearly $100 billion to Community Services Block Grant (CSBG). The Recovery Act States, school districts, postsecondary institutions, and students to help address budget 38

39 This total included $10 billion for the Title I shortfalls and meet the educational needs of all. Grants to Local Educational Agencie s program, a flagship program of the War o n Poverty’s Elementary and Secondary Education Act of 1965, which currently serves more than 23 million students in high - poverty schools, helping ensure access to a high - quality public education. In addition it in The cluded expansions in tax credits that were intended to be made permanent. EITC expansion increased the credit for families with three or more children, reflecting the fact that they have greater needs and higher poverty rates than families with two chi ldren. It also reduced the penalty that some low - income families faced when getting married. Together these two provisions benefit about 6 million households a year by an average of $500. In addition, the partial refundability of the child tax credit for w orking families was expanded, benefiting 12 million families by an average of $800 each. These changes were subsequently permanent. extended through 2017 and the President is proposing to make them The impact of these emergency measures on poverty was dram From 2007 to 2012, the atic. poverty rate would have risen by 4.8 percentage points if individuals received no income from tax credits and benefits like nutrition assistance and unemployment insurance. This would have - year rise in pov erty in 50 years. But, when the poverty rate measurement been the largest five includes tax credits and benefits as part of income, poverty only rose 1.3 percentage points from 2007 to 2012 (see Figure 5 above). By contrast, during the recession of the early 1980s when the safe ty net was not expanded by as much, poverty rose by 4.7 percentage points from 17.4 percent in 1979 to 22.1 percent in 1982 (as also shown in Figure 5). Figure 11 The Recovery Act played a large role in keeping Americans out of p overty during the recession, year were kept out of a as shown in Figure 11 . In total, between 3.9 and 5.7 million people 39

40 poverty by these programs from 2009 to 2012. Without the Recovery Act, the Supplemental nts higher in 2009 and 1.7 percentage points Poverty Rate would have been 1.9 percentage poi in 2010. Over the four years between 2009 and 2012, higher CEA estimates that 19.1 million person years were kept from poverty as a result of the expansions created by the Recovery Act alone. conservative, in that it does not account for the impact of those This calculation is expansions on employment through increased aggregate demand, and does not attempt to measure the impact of other components of the Recovery Act such as increased funding for Pell Grants and paying for COBRA for the unemployed. Expanding Health Care Security The Affordable Care Act (ACA) ensures that all Americans have access to quality, affordable health insurance. The ACA provides financial incentives to states to expand their Medicaid programs to all people who are in or near poverty. As a result, 26 states have adopted the Medicaid expansion. For moderate - income Americans, the ACA provides tax credits for the - ongressional purchase of insurance through marketplaces and cost sharing reductions. The C Budget Office estimates that, by 2016, these measures will increase the number of Americans with health insurance by 25 million (Congressional Budget Office 2013). Americans of all income levels are already benefiting from insurance market ref orms that ensure access to preventive services and no lifetime coverage limits. Further, Americans buying insurance are no longer forced to pay a higher premium because of their gender or health status, and can be confident that their insurance provides ad equate financial protection. The ACA has also begun reforming the way the United States pays for health care to promote more efficiency and quality in the health system, the early results of which are discussed in a recent CEA report (CEA 2013). Nutrition programs like SNAP are vital to the economic livelihood of many families and communities, especially in a recessionary period . Every time a family uses SNAP benefits to put healthy food on the table, the benefits extend widely beyond those individuals. In fact, the U.S. Department of Agriculture’s Economic Research Service estimates that an additional $1 billion in SNAP benefits supports an additional 8,900 to 17,900 full - - equivalent jobs (Hanson time . 2010) Empowering Every Child with a Quality Education T o prepare Americans for the jobs of the future, we have to str engthen our investments in the Nation’s education al system. The Administration has invested in coordinated State systems of early learning and proposed new policies buil ding on evidence of how to create a foundation for success in the formative early years of life. - quality early learning and development High programs can help level the playing field for children from lower - income families on vocabulary, social and emotional development, and acad emic skills while helping students to stay on track and stay engaged in the early elementary grades. These programs generate a significant retu rn on investment for society through a reduced need for spending on other services, such as remedial education, g rade repetition, and special education, as well as increased later productivity and earnings. The Admin istration’s comprehensive early - learning agenda invests in In early childhood education, care, and development for our nation’s youngest learners. 40

41 partne provide high - quality preschool rship with the States, the Preschool for All initiative would - while encouraging States to serve low - and moderate - income families , for four year olds from - additional four olds from middle - income families. The Administrat ion has also proposed year - investments in high quality early learning for infants and toddlers through new Early Head Start - Child Care Partnerships, as well as an extension and expansion of evidence - based voluntary home visiting programs that allow nurses, soci al workers, educators, and other professionals pregnant women and vulnerable families with young children to tools to connect that positively impact the child’s health, development, and ability to learn. Over the past 50 years, improvements in education at all levels have produced large returns for many Americans and played a key role in the economic mobility of children born to poor families. Because economic progress and educational achievement are inextricably linked, educating every American student to graduate from high school prepared for college and for a career is a national imperative. The President has articulated a goal for America to once ag ain lead the world in college completion by the year 2020, and the Administration’s education efforts aim t oward this overarching objective. To provide a high - quality education to all American children, the Administration , in partnership with states, has advanced reforms of the 12 education system to support higher standards that will prepare student ation’s s to N - K succeed in college and the workplace; efforts to recruit, prepare, develop, and advance effective teachers and principals; efforts to eliminate discrimination on the basis of race, color, o ensure the use of data in the national origin, sex and disability in public school; efforts t and a national effort to turn around our chronically l owest - classroom; The achieving schools. School Improvement Grants (SIG) program has invested over $5 billion in 1500 of the nation’s lowest performing schools. The Promis e Neighborhood Program, established by this Administration in 2010, has funded 58 neighborhoods across the country to design comprehensive projects that include a continuum of services and designed to combat the effects of poverty and improve education and life outcomes, from birth through college to career. The Administration has also put forward proposals to redesign the N ation’s high schools to better engage students and to connect 99 percent of students to high - speed broadband and digital learning tools within the next five years. C ontinued investments and reforms are needed to ensure that all students have access to a high - quality education that prepares them for r and for success in today’s global economy college and a caree . With the average earnings of college graduates at a level twice as high as that of workers with only a high school diploma, higher education is now the clearest pathway into the middle class. Our N ation suffers from a college attainment gap, as high school graduates from the wealth iest families are almost certain to continue on to higher education, while just over half of high This gap has increased over school graduates in the poorest quarter of families attend college. the past several decades. And while more than half of college students graduate within six years, the completion rate for low - income students is around 25 percent. To achieve the President’s goal for college completion, ensure that America’s students and workers receive the education and training needed for the jobs of today and tomorrow, and provide greater security for the middle class, the Administration is working to make college more accessible, Under President Obama, Pell Grant funding affordable, and attainable for all American families. 41

42 was increased to serve - income students and the average grant over 3 million additional low The Administration also created the A was increased by more than $900. merican Opportunity to ease college costs for over 9 million families, and championed comprehensive Tax Credit reform Finally, the of student loans that will save taxpayers $68 billion over the next decade. administration has launched an array of policies to contain college costs, and make it easier for - based repayment reforms students to manage their student debt through income , which limit student loan payments to a percentage of their income so that will not be young workers payments as they are establi swamped by debt career s . shing their households and Given the critical importance of education in expanding skills and opportunities, the Administration implemented several policies designed to increase college access and - income students. Recognizing that the opportunity to acquire the skills to affordability for low get and keep a good job starts early and through educati on, the President is also proposing to modernize America’s high schools for real - world learning. The goal is to provide challenging, relevant experiences, and reward schools that develop new partnerships with colleges and employers, and that create classes that focus on technology, science, engineering, and other skills today’s employers are demanding to fill jobs now and in the future. Creating Jobs and Growing Our Economy Building on the evidence that well - designed training programs can improve employment and earnings (Andersson et al. 2013) , this Administration has proposed investing in subsidized - - term employment and trainin g opportunities for adults who are low income or long unemployed. In 2009 and 2010, 372 - income youth were placed into summer and year - ,000 low , and supported job opportunities were created for about 260,000 low - round employment inc ome individuals . In a ddition, the President continues to build public - private partnerships t o provide opportunities for low - income youth. The Administration is using all available tools to help people who have lost their jobs to find new work or to train for new careers in gro wth fields th at will provide better jobs and paths to viable careers. This includes supporting training opportunities that lead directly to a job, and - making sure our unemployment system promotes re employment through wide - ranging reforms to the unemployme nt insurance program, some of which were adopted in the Middle , and continued investment in reemployment Class Tax Relief and Jobs Creation Act of 2012 services, which have proven effective in speeding the return to work . The President has proposed to buil d on these successes by further investing in creating job and work - based training opportunities for the long - term unemployed and youth seeking skills and wanting to get into the workplace. This Administration has already invested $1.5 billion in community college - business partnerships in all 50 states to build capacity and develop curricula to train workers for jobs in growing industries. President Obama has proposed to build on these succes ses with further investments that will transform community college education and support Americans in getting . training to enter skilled jobs 42

43 AGE W INIMUM M AISING THE R In 2013, the federal minimum wage was at the same inflation - adjusted level as it was in 1950. time worker earning $7.25 per hour would not be able to keep a family of four out of - A full Instead of poverty, even with the help of the Earned Income Tax Credit and Child Tax Credit. allowing the value of the minimum wage to continue to erode w hile incomes at the top of the distribution t is time to s oar, i ke the minimum wage a wage people can live on . ma Raising the minimum wage to $10.10 per hour would help a large, diverse group of workers, and indexing it to inflation would ensure that its re al value does not deteriorate over time, as it has after past increases. Nearly 19 million people earned wages near the minimum wage in ed 2012 and would be directly affect by such an increase, 48 percent of whom had household ti incomes below $35,000. Full - me workers earning exactly the minimum wage would see their earnings increase by $5,700, enough to move a family of four from 17 percent below the percent above it, once tax credit assistance is included. CEA estimates poverty line to The 6 ld lift roughly 1.6 e minimum wage to $10.10 by 2016 wou that raising th million orkers w out of whose wages are currently near the minimum wage , , and members of their families poverty. Opponents of increasing the minimum wage argue that the beneficiaries are largely middl - e The class teenagers, and those most in need of assistance are kept out of jobs by high wages. available evidence does not support those claims. workers who would be Among those directly affected by increasing the minimum wage to $10.10 , 90 percent are more than 18 A large literature has considered the effects of minimum wages on employment, years old. and the best evidence suggests there is little to no effect (Doucouliagos and Stanley 2009). While a higher minimum wage could increase compensation costs for employers, they could , and by extension also reap benefits, including lower employee turnover rates of lower costs hiring and training new workers, as well as increased demand for their goods and services - among low wage workers. Fighting for Workers Work that pays enough to support a family is the most central antipoverty measure. In 2013, the Obama Administration finalized rules to extend minimum wage and overtime p rotections to care workers who provide care ass istance to elderly people and nearly two million direct - people with illnesses, injuries, or disabilities. This will ensure our nation’s health aides, personal care aides and certified nursing assistants rece ive the same basic protections already provided to most U.S. workers, while improving the quality and stability of care for those who rely on them. Minimum wage and overtime protections have been a bulwark of protection against poverty, but the minimum wage has not kept pace with inflation. Today, a worker trying to support a 43

44 family on the minimum wage is still living in poverty. That is why President Obama supports the - (see box) . Harkin Miller bill to increase the minimum wage to $10.10 by 2016 R ebuilding Investing in and ard - H it C ommunities H Living in a high - poverty area pres ents a wide variety of challenges, including crime, limited access to quality education, and scarcity of good jobs. Since these issues often interact with each other and compound the problems they create individually, it is very difficult for people, parti cularly children, to overcome the disadvantages created by and associated with poverty. A child’s zip code should never determine his or her destiny. To help provide ladders of opportunity so that every child has a chance to succeed, the A dministration is work ing with S tate and local governments to focus public and private resources on transforming areas of high need into communities of opportunity. The Administration’s Promise Zones initiative focuses existing government resources on s private investment to create jobs, improve competitively select ed communities and leverage public safety, increase educational opportunities, and provide affordable housing The Obama . several years with this intense and Administration will designate 20 communities over the next layered approach to community revitalization. That approach includes working with local leadership, and bringing to bear the resources of the President’s signature revitalization initiatives from the Department of Education (ED), the Department of Hous ing and Urban Development (HUD), the Department of Agriculture, and the Department of Justice (DOJ), to ensure that federal programs and resources support the efforts to turn around 20 of the highest poverty urban, rural and tribal communities across the c ountry. The Promise Zones initiative will build on existing programs, including the Department of HUD’s Choice Neighborhoods and the Department of Education’s Promise Neighborhoods grant $157 million in Promise programs. The Administration has invested $248 million in Choice and since 2010. For every federal dollar spent, Choice Neighborhoods has attracted eight dollars of - income housing private and other investment and has developed nearly 100,000 units of mixed in 260 communities, ensuring that low - income residents can afford to continue living in their communities. Promise Neighborhoods grants are supporting approximately 50 communities representing more than 700 schools. To help leverage and sustain grant work, 1,000 national, state, and community organi zations have signed - on to partner with a Promise Neighborhood site. By expanding these programs, the Administration continues to support local efforts to income urban, rural, and tribal communities across the country. transform low - 44

45 V. Conclusion The War Federal Government’s priorities for on Poverty represented a dramatic shift in the helping those who are left behind in a growing economy. It set in motion a series of changes improv ed the well - that transformed our social safety net and outcomes of being and economic countless - income Americans and their children. The architects of the War on Poverty low believed that the combined effect of government policies attacking poverty on many fronts — providing income when earnings are low, providing access to health insurance, insuring that people have shelter and a minimal food budget, and providing access to education at all ages — would dramatically raise employment and earnings and reduce material hardship. In the years since 1964, this optimism and belief in the c apacity of government to improve the lives of less fortunate Americans has at times given way to the cynical belief that the safety net is ineffective, or even exacerbates the problems of the poor by reducing the incentives for those able to work to do so. The most important lesson from the War on Poverty is that government programs and policies can lift people from poverty; indeed they ha ve for the past 50 years. Poverty rates fell from 2 5.8 percent in 1967 to 16 percent in 2012 — a decline of nearly 40 per cent. In 2012 alone, the 5 kind combined effect of all federal tax, cash and in - . aid programs was to lift approximately 1 4 percent of the population — million people — out of poverty. over 45 program that purports to But another lesson is that we cannot afford to simply embrace any achieve this goal or attempt to freeze them in time. Instead, our antipoverty efforts have benefited from enormous changes in public policy since the 1960s , informed by a wealth of research on both successful and failed programs th at provide important insights into what does and does not work in fighting poverty . Our safety net has evolved to put more emphasis on rewarding and supporting work, such as by providing greater support to working families dit and refundable Child Tax Credit, while also making it through the Earned Income Tax Cre easier for them to get help from programs like SNAP and Medicaid. In 1967 we spent $19 billion in today’s dollars on what was then called AFDC and nothing on the Earned Income Tax Credit. Today the Earned Income Tax Credit and partially refundable Child Tax Credit are 3.8 times the 22 size of the TANF program. Meanwhile, the Affordable Care Act advances the goal of providing quality affordable health care to all Americans, with financial incentives to states to expand their Medicaid programs to all people who are in or near poverty and generous tax credits for moderate - . Our safety net remains imperfect, but these reforms and income households — improvements represent important progress many families work and raise and they also help the rewards to that work . Nearly 50 million Americans still live in poverty , however, including 1 3.4 million children, and so there remains a need to do more to help the poor The 1964 Economic Report of the President . estimate d that the total shortfall in income necessary to bring all poor families up to the 22 Based on CEA calculations using data from . http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/hist.pdf 45

46 poverty level was $11 billion (about $71 billion in today’s dollars), or about 1.6 percent of the since, and today . country’s annual Gross Domestic Product Our nation has grown much richer Continuing to make progress in the total shortfall below poverty is only 0.6 percent of GDP. closing that shortfall will require not just defending the programs that have helped reduce the economy, increase growth and ensure poverty but also continuing the efforts to strengthen that growth is reflected in broad - based wage gains so that families lift themselves out of poverty. 46

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