Indicators of Welfare Dependence: Annual Report to Congress, 1997. Economic Security Risk Factor 7. Pre-transfer and Post-transfer Poverty Rates

10/01/1997

Trends in the pre- and post-transfer rates of poverty show the anti-poverty effectiveness of social security and the major means-tested assistance program benefits.

Figure ECON 7. Poverty Rate of All Persons in Families with Related Children Under 18 Using Alternative Definition of Income, 1979-1995

Figure ECON 7. Poverty Rate of All Persons in Families with Related Children Under 18 Using Alternative Definition of Income, 1979-1995

Note: The pre-transfer rate measures poverty in terms of cash income (only) before all transfers. The official rate measures it in terms of cash income plus social security and means-tested cash transfers. The post-transfer rate measures poverty after adding not only social security and means-tested cash transfers but also the market value of food and housing benefits plus taxes (including the refundable EITC as well as Federal payroll and income taxes); it does not include the fungible value of Medicare and Medicaid.

  • In all years reported, the pre-transfer poverty rate for families with related children under age 18 was much higher than both the official poverty rate and the post-transfer poverty rate.
  • Table ECON 7 shows that the total reduction in the poverty rate from transfers declined from 6 percent in 1979 to 4 percent in 1983. By 1993, the total reduction in the poverty rate again reached 6 percent and increased to 7 percent in 1994 and 1995.

Table ECON 7. Antipoverty Effectiveness of Cash and Near-Cash Transfers for All Persons in Families with Related Children Under 18, Selected Fiscal Years

  1979 1983 1989 1993 1994 1995
Total Reduction in Poverty Rate 6.1 4.2 4.5 6.4 7.0 7.0
Total Population (in thousands) 133,435 132,123 135,430 144,551 145,814 146,227
Percent of Persons Removed from Poverty Due to:
Social Insurance (other than Social Security) 4.4 6.9 3.4 4.2 3.8 3.5
Social Security 9.1 5.9 6.5 6.3 6.6 6.1
Means-Tested Cash 8.2 3.5 5.1 5.8 6.5 6.6
Food and Housing Benefits 16.5 8.7 11.7 10.2 11.6 12.5
EITC and Fed. Payroll and Income Taxes -1.7 -5.8 -2.8 2.3 4.1 6.6
Total Percent of Pre-Transfer Poor Removed from Poverty by All Transfers 36.6 19.1 23.9 28.9 32.6 35.2
Poverty Rate (in percent):
Cash Income Before Transfers (pre-transfer) 16.6 21.9 18.6 22.3 21.4 20.0
Plus Social Ins. (other than Social Security) 15.8 20.4 18.0 21.4 20.6 19.3
Plus Social Security 14.3 19.1 16.8 20.0 19.2 18.1
Plus Means-Tested Cash Transfers (official poverty rate) 12.9 18.4 15.8 18.7 17.8 16.8
Plus Food and Housing Benefits 10.2 16.5 13.6 16.4 15.3 14.3
Plus EITC, less Fed. Payroll & Income Taxes (post-trans.) 10.5 17.7 14.1 15.9 14.4 13.0

Note: EITC = Earned Income Tax Credit

Source: Congressional Budget Office tabulations. Additional calculations by DHHS.

  • Table ECON 7 shows that a substantial percent of the poor population was removed from poverty by transfers in all years shown. After declining from 37 percent in 1979 to 19 percent in 1983, the percent of persons removed from poverty due to transfers consistently increased in the years reported. In 1995, 35 percent of all poor persons were removed from poverty due to transfers.
  • Table ECON 7 shows that the percent of the poor population removed from poverty due to food and housing benefits is much larger in all reported years than the percent removed due to other transfers. In 1995, 13 percent of the poor population was removed from poverty due to food and housing benefits.
  • Table ECON 7 also shows that whereas the EITC and Federal payroll and income taxes did not remove any poor individuals from poverty in 1979, 1983 and 1989, the trend reversed in 1993. By 1995, the EITC and Federal payroll and income taxes removed 7 percent of the poor population from poverty.