Indicators of Welfare Dependence: Annual Report to Congress, 2002. Economic Security Risk Factor 4. Poverty Rates with Various Means-tested Benefits Included

03/01/2002

Figure ECON 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-2000

Figure ECON 4. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-2000

Source: Congressional Budget Office tabulations of March CPS data. Additional calculations by DHHS.

  • The official definition of poverty – which includes means-tested cash assistance (primarily TANF and SSI) in addition to pre-tax cash income and social insurance – was 11.3 percent in 2000, as shown in the bold line in Figure ECON 4. Without cash welfare, the 2000 poverty rate would be 12.0 percent, as shown by the top line in the figure above.
  • Adding other, non-cash, public assistance benefits to this definition has the effect of lowering the percentage of people who have incomes below the official poverty rate. Adding in the value of food and housing benefits reduces the poverty rate to 10.1 percent in 2000.
  • When income is defined as including benefits from the Earned Income Tax Credit (EITC) and federal taxes, the percentage of the total population in poverty decreases to 9.5 percent in 2000. Taxes have had a net effect of reducing poverty rates since the significant increases in the size of the EITC in 1993 and 1995.
  • The combined effect of means-tested cash assistance, food and housing benefits, EITC and taxes was to reduce the poverty rate in 2000 by 2.5 percentage points, as shown in Table ECON 4. Net reductions in poverty rates were somewhat lower during the recession of the early 1980s, and somewhat higher in the mid-1990s, following expansions in the EITC.

Table ECON 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 1998 2000
Cash Income Plus All Social Insurance 12.8 16.0 14.5 13.7 16.3 14.9 14.8 13.5 12.0
  • Plus Means-Tested Cash Assistance
11.6 15.2 13.6 12.8 15.1 13.8 13.7 12.7 11.3
  • Plus Food and Housing Benefits
9.7 13.7 12.2 11.2 13.4 12.0 12.1 11.3 10.1
  • Plus EITC and Federal Taxes
10.0 14.7 13.1 11.7 13.3 11.5 11.5 10.4 9.5
Reduction in Poverty Rate 2.8 1.3 1.4 2.0 3.0 3.4 3.3 3.1 2.5

Note: Whereas ECON 3 used experimental measures that adjust both poverty thresholds and income, the measures in ECON 4 illustrate the effect of analyzing different measures of income against the official poverty threshold. The four measures of income in ECON 4 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. It does not include means-tested cash transfers; (2) “Plus Means-Tested Assistance” shows the official poverty rate, which takes into account means-tested assistance, primarily AFDC/TANF and SSI; (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; and (4); “Plus EITC and Federal Taxes” is the most comprehensive poverty rate shown. 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 of March CPS data. Additional calculations by DHHS.

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