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 report, however, focuses directly on changes in the poverty rate, both under the official poverty rate and under expanded measures that take into account cash benefits, non-cash benefits and taxes. These measures also show the degree to which welfare and related programs are effective in moving people out of poverty. The data, shown in Figure SUM 2 illustrate two primary points. First, cash welfare and non-cash welfare benefits reduce the number of poor families. Second, under any of the poverty measures presented in Figure SUM 2, 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.
Three different concepts of income are used in Figure SUM 2, which shows alternative measures of poverty rates for all persons between 1979 and 1999. (The table underlying this graph is presented in Chapter III, under the Economic Security Risk Factor, ECON 4). The three measures in the graph are as follows:
- The bold line shows the official poverty rate, based on total cash income, including earned and unearned income. The official poverty rate was 11.8 percent in 1999.
- The dotted line with unfilled circles shows what poverty would be if means-tested cash assistance (primarily AFDC and SSI) were excluded from cash income. Under this measure, income includes earnings and other private cash income, plus social security, workers’ compensation, and other social insurance programs. Poverty under this measure would be almost one percentage point higher, 12.7 percent in 1999. This indicates that many more families would be poor if they did not receive welfare benefits.
- The lowest line shows how poverty would be lower if the cash value of non-cash benefits (food and housing) and taxes (including refunds under the Earned Income Tax Credit) were counted as income.(2) Under this definition, poverty rates would fall by more than two percentage points, to 9.8 percent in 1999.
Figure SUM 2. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-1999
Source: Congressional Budget Office tabulations of March CPS data. Additional calculations by DHHS. See ECON 4 in Chapter III for underlying table and further notes.
The combined effect of means-tested cash assistance, food and housing benefits, and EITC and taxes was to reduce the poverty rate in 1999 by 2.9 percentage points, from 12.7 percent to 9.8 percent (the difference between the top and bottom lines in Figure SUM 2). The net effectiveness of means-tested benefits (including cash assistance, food and housing benefits, and the EITC and other taxes) in reducing the poverty rate has averaged about three percentage points during most of the past decade. Net reductions in poverty rates were somewhat lower during the recession of the early 1980s, and somewhat higher in the mid 1990’s, largely due to expansions in the EITC.
As economic conditions improved during the mid-1990s, poverty rates decreased under all three concepts of income. Poverty rates continued to decline after enactment of PRWORA in 1996. In fact, a comparison of SUM 1 and SUM 2 suggests that deprivation decreased at the same time as the large declines in caseloads and welfare dependency. In 1998, the final poverty rate was 10.4 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 3.8 percent. The combined effect of welfare reform and the strong economy has been to reduce dependence on welfare at the same time as reducing poverty. 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.
2 The effects of non-cash benefits (food and housing) and taxes are shown separately in ECON 4 in Chapter III. Prior to 1993, taxes increased poverty. Since 1993, taxes, including the refunds through the Earned Income Tax Credit, have caused additional reductions in poverty.