Indicators of Welfare Dependence: Annual Report to Congress, 1997. Measuring Deprivation

10/01/1997

Measures of dependence may change for a number of different reasons, both positive and negative. As discussed earlier, the Advisory Board cautioned that measures of dependence should be presented in context -- that is, with some measure of the impacts of dependence changes on deprivation. Many different measures could again be used for that purpose.

One measure of deprivation is to look at changes in the level of need over time. Elsewhere in this document, for example, measures of the "poverty gap" (see Appendix B) -- the amount of income that would be needed to bring all of those below poverty to the poverty line -- and of food insecurity are presented (see Chapter III). Both of these give some indication of changes in the level of need over time. Further, both focus on changes that affect the resources of the part of the population that is already classified as poor. This is appropriate in considering effects of changes in welfare programs, because most welfare recipients have below-poverty incomes even including their cash welfare benefits.

In this chapter, however, the deprivation measure presented focuses directly on changes in the anti-poverty effectiveness of welfare and related programs. Tables SUM 4 and SUM 5 (and their associated figures) show how much welfare programs have reduced poverty rates over the period since 1979, first for all persons and second for persons in families with related children under age 18.

These tables show that many more families would be poor if they did not receive welfare benefits. Counting only cash income (excluding welfare), the poverty rate would generally be four to five percentage points higher than it is calculated to be when means-tested cash benefits, food and housing benefits, and taxes (including refunds through the Earned Income Tax Credit (EITC)) are all counted. This final poverty rate -- taking into account all sources of support -- is a more complete measure of deprivation than is the official poverty rate or other measures that exclude some types of support. Breaking it down in this fashion allows the relative contribution of different sources -- including cash welfare and relatively fungible in-kind welfare benefits -- to the alleviation of poverty to be observed.

Poverty rates of all types began to increase in 1990 as the economy went into a recession, reaching a peak in 1993. As economic conditions have started to improve rates have come down, both before and after means-tested assistance. Poverty rates for families with children remain substantially higher than those for all families, however. The gap between poverty rates before and after public assistance has increased slightly over time, particularly in the last few years as the size of the EITC has grown. The EITC is a work-related benefit, however, and is not included as assistance in estimating dependence. Through 1995 the contribution of means-tested welfare programs to the reduction in poverty has remained roughly constant at about four percentage points, although during the recession of the early 1980s these programs did somewhat less to reduce total poverty. Current poverty-reduction rates for assistance programs are about the same as in 1979, although a bit more of the reduction comes in the form of non-cash benefits.

The relatively small changes in the level of overall deprivation since the late 1980s is consistent with the small changes in the dependence rate seen earlier. As larger changes in dependence occur under PRWORA, it will be both necessary and interesting to track changes in these deprivation rates as well. If this legislation succeeds in its aims, dependence should fall noticeably while deprivation measures remain largely unchanged.

Figure SUM4. Trends in Poverty with and without Means-Tested Benefits for All Persons, 1979-1995

Figure SUM4. Trends in Poverty with and without Means-Tested Benefits for All Persons, 1979-1995

Table SUM 4. Trends in Poverty with and without Means-Tested Benefits for All Persons, 1979 - 1995

  1979 1982 1985 1988 1991 1992 1993 1994 1995
Cash Income plus all social insurance 12.8 15.8 14.9 13.9 15.2 15.9 16.3 15.7 14.9
Plus Means-tested Cash Assistance 11.6 14.9 14.0 13.0 14.2 14.8 15.1 14.5 13.8
Plus Food and Housing Assistance 9.7 13.3 12.5 11.6 12.4 13.2 13.4 12.7 12.0
Plus EITC and Federal Taxes 10.0 14.2 13.5 12.0 12.6 13.3 13.3 12.5 11.5
 Reduction in Poverty Rate 2.8 1.6 1.4 1.9 2.6 2.6 3.0 3.2 3.4

Note: The first measure of poverty, labeled cash income plus all social insurance, includes social security but not means-tested cash transfers. Adding means-tested cash transfers yields the official census definition of poverty, the second line in the table. Food and housing benefits may be received either as cash or (more generally) as in-kind benefits in which case the market value of food and housing benefits is added. EITC refers to the refundable Earned Income Tax Credit which is always positive whereas Federal payroll and income taxes are a negative adjustment. The fungible value of Medicare and Medicaid is not included.

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

Figure SUM 5. Trends in Poverty with and without Means-Tested Benefits for All Persons in Families with Related Children Under Age 18, 1979-1995

Figure SUM 5. Trends in Poverty with and without Means-Tested Benefits for All Persons in Families with Related Children Under Age 18, 1979-1995

Table SUM 5. Trends in Poverty with and without Means-Tested Benefits for All Persons in Families with Related Children Under Age 18, 1979-1995

  1979 1982 1985 1988 1991 1992 1993 1994 1995
Cash Income Plus All Social Insurance 14.3 18.9 17.8 16.7 18.8 19.1 20.0 19.2 18.1
Plus Means-tested Cash Assistance 12.9 17.9 16.9 15.8 17.7 17.9 18.7 17.8 16.8
Plus Food and Housing Benefits 10.2 15.7 14.9 14.0 15.3 15.6 16.4 15.3 14.3
Plus EITC and Federal Taxes 10.5 17.0 16.2 14.4 15.3 15.5 15.9 14.4 13.0
 Reduction in Poverty Rate 3.8 1.9 1.6 2.3 3.5 3.6 4.1 4.8 5.1

Note: The first measure of poverty, labeled cash income plus all social insurance, includes social security but not means-tested cash transfers. Adding means-tested cash transfers yields the official census definition of poverty, the second line in the table. Food and housing benefits may be received either as cash or (more generally) as in-kind benefits in which case the market value of food and housing benefits is added. EITC refers to the refundable Earned Income Tax Credit which is always positive whereas Federal payroll and income taxes are a negative adjustment. The fungible value of Medicare and Medicaid is not included.

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