Indicators of Welfare Dependence: Annual Report to Congress, 1998. Measuring Deprivation

10/01/1998

Changes in dependence may or may not be associated with changes in the level of deprivation, depending on the alternative sources of support found by families who might otherwise be dependent on welfare. To assess the social impacts of any change in dependence, changes in the level of poverty or deprivation also must be considered. One way of measuring deprivation is to look at changes in the level of need over time. Elsewhere in this document, for example, measures of food insecurity and of the poverty gap – the amount of income that would be needed to bring all of those below poverty to the poverty line – are presented. (See Table ECON 9 in Chapter III for measures of food insecurity and Tables B-1 and B-2 in Appendix B for poverty gap measures.)

The deprivation measure presented in this chapter, however, focuses directly on changes in the anti-poverty effectiveness of welfare and related programs. Table SUM 4 (and its associated figure) shows how much welfare programs have reduced poverty rates for all persons since 1979.

Similar data are shown for persons in families with related children under age 18 in Figure SUM 5 and Table SUM 5.

Table SUM 4. Percentage of Persons in Poverty before and after the Inclusion of Means-Tested Benefits: All Persons, Selected Years 1979 – 1996

  1979 1981 1983 1986 1989 1991 1993 1995 1996

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.

Cash Income plus All Social Insurance 12.8 14.9 16.0 14.5 13.7 15.2 16.3 14.9 14.8
    Plus Means-Tested Cash Assistance 11.6 13.9 15.2 13.6 12.8 14.2 15.1 13.8 13.7
    Plus Food and Housing Benefits 9.7 12.2 13.7 12.2 11.2 12.4 13.4 12.0 12.1
    Plus EITC and Federal Taxes 10.0 13.2 14.7 13.1 11.7 12.6 13.3 11.5 11.5
Reduction in Poverty Rate 2.8 1.7 1.3 1.4 2.0 2.6 3.0 3.4 3.3

As can be seen by the figures and tables, many more families would be poor if they did not receive welfare benefits. Counting only cash income and social insurance (excluding welfare), the poverty rate for all individuals would be 14.8 percent in 1996, as shown in the top line in Figure SUM 4 and Table SUM 4. The official poverty rate, which adds means-tested cash assistance, was about one percentage point lower, as shown in the second line in the table and figure. The rate is further reduced when counting food and housing benefits (see third line in figure and table) and when counting taxes, including refunds through the Earned Income Tax Credit (EITC) (see fourth line). 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. 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. The contribution of all sources of means-tested support (including cash assistance, food and housing benefits, and the EITC and taxes) to the reduction in poverty has remained roughly constant, except that 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. In general, the net effect of means-tested support has been to reduce poverty rates by about three percentage points for all individuals (as shown in Table SUM 4) and by about five percentage points for individuals in families with related children under six (as shown in Table SUM 5).

Figure SUM 5. Trends in Poverty before and after Including Means-Tested Benefits: All Persons in Families with Related Children Under 18 Years of Age, 1979 – 1996

Percent of Population in Poverty

Figure SUM 5. Trends in Poverty before and after Including Means-Tested Benefits: All Persons in Families with Related Children Under 18 Years of Age, 1979 – 1996

Source: Table SUM 5.

 


Table SUM 5. Percentage of Persons in Poverty before and after Including Means-Tested Benefits: All Persons in Families with Related Children under 18 Years of Age, 1979-1996

  1979 1981 1983 1986 1989 1991 1993 1995 1996

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.

Cash Income plus All Social Insurance 14.3 17.4 19.1 17.4 16.8 18.8 20.0 18.1 17.8
    Plus Means-Tested Cash Assistance 12.9 16.3 18.4 16.5 15.8 17.7 18.7 16.8 16.6
    Plus Food and Housing Benefits 10.2 13.9 16.5 14.6 13.6 15.3 16.4 14.3 14.4
    Plus EITC and Federal Taxes 10.5 15.2 17.7 15.8 14.1 15.3 15.9 13.0 12.9
Reduction in Poverty Rate 3.8 2.2 1.4 1.6 3.5 3.5 4.1 5.1 4.9

The relatively small changes in the level of overall deprivation since the late 1980s are 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.

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