Indicators of Welfare Dependence: Annual Report to Congress, 2000. Measuring Deprivation

03/01/2000

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 report, for example, measures of food insecurity and lack of health insurance are presented.

The deprivation measure presented in this chapter, however, focuses directly on changes in the poverty rate, both under the official poverty rate and under expanded measures that take into account taxes and non-cash benefits. These measures also show the degree to which welfare and related programs are effective in moving people out of poverty. The data, shown in Table SUM 4 and its related figure, illustrate two primary points. First, cash welfare and non-cash welfare benefits such as food and housing reduce the number of poor families. Second, under any of the four alternate income measures presented in Table SUM 4, poverty rates have been decreasing since 1993, as economic conditions have improved and policies have promoted and rewarded work. Each of these points is discussed below.

Four different concepts of income are used in Table SUM 4, which shows alternative measures of poverty rates for all persons between 1979 and 1998. (A graph of these data is presented in Figure SUM 4, and a similar analysis is presented for the subset of the population that lives in families with related children under age 18 in Table SUM 5.) The four measures are as follows:

  1. "Cash Income plus All Social Insurance" is earnings and other private cash income, plus social security, workers' compensation, and other social insurance programs. This income measure, which excludes welfare, would result in a poverty rate of 13.5 percent in 1998.
  2. "Plus Means-Tested Assistance" shows the official poverty rate, which takes into account means-tested assistance, primarily AFDC and SSI. Poverty rates under this official measure are almost one percentage point lower, 12.7 percent in 1998. This indicates that many more families would be poor if they did not receive welfare benefits.
  3. "Plus Food and Housing Benefits" shows how poverty would be lower if the cash value of food and housing benefits were counted as income. Under this definition, poverty rates would fall by more than one additional percentage point, to 11.3 percent in 1998.
  4. "Plus EITC and Federal Taxes" is the most comprehensive poverty rate shown in Table SUM 4. It takes into account the effect of taxes, and is thus a more complete measure of deprivation than is the official poverty rate or other measures that exclude some types of support. Since 1993, taxes, including the refunds through the Earned Income Tax Credit (EITC), have caused additional reductions in poverty. By 1998, this measure of poverty was 10.5 percent.

Figure SUM 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-98

Figure SUM 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income:  1979-98

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

Table SUM 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: Selected Years

  1979 1983 1986 1989 1993 1995 1996 1997 1998
Cash Income plus All Social Insurance 12.8 16.0 14.5 13.7 16.3 14.9 14.8 14.2 13.5
  • Plus Means-Tested Cash Assistance
11.6 15.2 13.6 12.8 15.1 13.8 13.7 13.3 12.7
  • Plus Food and Housing Benefits
9.7 13.7 12.2 11.2 13.4 12.0 12.1 11.9 11.3
  • Plus EITC and Federal Taxes
10.0 14.7 13.1 11.7 13.3 11.5 11.5 11.1 10.5
Reduction in Poverty Rate 2.8 1.3 1.4 2.0 3.0 3.4 3.3 3.1 3.0

Note: The first measure of poverty, labeled cash income plus all social insurance, includes social security but not meanstested 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 a positive adjustment to income 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 HHS.

The combined effect of means-tested assistance, food and housing benefits, and EITC and taxes was to reduce the poverty rate in 1998 by three percentage points, from 13.5 percent to 10.5 percent. The total reduction in the poverty rate is shown in the final row of Table SUM 4.

As economic conditions improved during the mid-1990s, poverty rates decreased under all four concepts of income. Of particular interest are the poverty rates in 1995, the same year as the dependence rates shown in Table SUM 1, and the poverty rates in 1998, the most recent year for which data are available. In 1995, the final poverty rate was 11.5 percent after adding in non-cash benefits and taxes, a decline from 13.3 percent in 1993. Over the same time period, the dependence measure also declined, from 5.9 percent to 5.1 percent.

More current data indicate that the poverty rate continued to fall between 1995 and 1998, falling to 12.7 percent under the official measure and 10.5 percent under the most comprehensive measure. Data are not yet available on dependence measures for 1998, although administrative data on caseloads indicate a continuing decline in overall receipt of AFDC/TANF and food stamps.

During most of the past two decades, means-tested benefits (including cash assistance, food and housing benefits, and the EITC and other taxes), have caused a net reduction in poverty rates for individuals of about three percentage points. The net effectiveness of these programs in reducing the poverty rate was somewhat lower during the recession of the early 1980s, and was somewhat higher in the mid 1990's, largely due to expansions in the EITC (see Figure SUM 4 and Table SUM 4).

The net effect of all sources of means-tested support (including cash assistance, food and housing benefits, and the EITC and taxes) on the reduction in poverty is higher for persons in families with related children under 18. The gap between poverty rates before and after public assistance has ranged from 3.5 to over 5 percentage points for these individuals in recent years, as shown in Table SUM 5. Again, the net effectiveness of means-tested programs was lower in the mid 1980s and highest in the mid 1990s.

Since the enactment of PRWORA in 1996 and the subsequent implementation of TANF, caseloads for AFDC/TANF and food stamps have fallen dramatically. Although dependency measures as defined in this report are not yet available for the period after PRWORA, available measures on recipiency rates suggest that the legislation has been successful in causing a noticeable fall in dependence on welfare programs. The deprivation measures presented in Tables SUM 4 and 5 suggest that these large caseload declines have been accomplished without observed increases in deprivation. In fact, under the strong economy of the late 1990s, poverty rates are at their lowest levels since 1989. It will be important to continue to track changes in these dependency and deprivation rates over the next several years, to see how they are affected by future changes in economic conditions.

Table SUM 5. Percentage of All Persons in Families with Related Children Under 18 Years of Age in Poverty with Various Means-Tested Benefits Added to Total Cash Income: Selected Years

  1979 1981 1983 1986 1989 1991 1993 1995 1996 1997 1998
Cash Income plus All Social Insurance 14.3 17.4 19.1 17.4 16.8 18.8 20.0 18.1 17.8 17.0 16.1
  • Plus Means-Tested Cash Assistance
12.9 16.3 18.4 16.5 15.8 17.7 18.7 16.8 16.6 15.9 15.2
  • Plus Food and Housing Benefits
10.2 13.9 16.5 14.6 13.6 15.3 16.4 14.3 14.4 14.1 13.2
  • Plus EITC and Federal Taxes
10.5 15.2 17.7 15.8 14.1 15.3 15.9 13.0 12.9 12.4 11.6
Reduction in Poverty Rate 3.8 2.2 1.4 1.6 3.5 3.5 4.1 5.1 4.9 4.6 4.5

Note: The first measure of poverty, labeled cash income plus all social insurance, includes social security but not meanstested 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 a positive adjustment to income 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 HHS.

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