Indicators of Welfare Dependence: Annual Report to Congress, 2002. Measuring Deprivation

03/01/2002

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 should be considered. This chapter focuses on the poverty rate, the most common measure of deprivation; additional measures of poverty and need are also included under the Economic Risk Factors found in Chapter III.

As shown in Figure SUM 2, poverty rates for all individuals have declined between 1996 and 2000, under both the official poverty rate and other measures that adjust income to take into account cash benefits, non-cash benefits and taxes. The three measures in the graph are based on analyzing three different concepts of income against the poverty threshold:

The bold line shows the official poverty rate, based on total cash income, including earned and unearned income. The official poverty rate was 11.3 percent in 2000.

The dotted line with unfilled circles shows what poverty would be if means-tested cash assistance (primarily AFDC/TANF and SSI) were excluded from cash income. This measure includes earnings and other private cash income, plus social security, workers’ compensation, and other social insurance programs, as income. Poverty under this measure would be higher than the official measure, or 12.0 percent in 2000.

The lowest line shows that poverty would be lower if the cash value of selected non-cash benefits (food and housing) and taxes, including refunds under the Earned Income Tax Credit (EITC), were counted as income.2 Under this definition, poverty rates in 2000 would be nearly two percentage points lower than the official measure, or 9.5 percent.

Figure SUM 2. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-2000

Figure SUM 2.  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. See ECON 4 in Chapter III for underlying table and further notes.

Using any of the three alternative measures, poverty rates decreased between 1996 and 2000. Furthermore, a comparison of Figures SUM 1 and SUM 2 suggests that economic deprivation decreased at the same time as the large decline in caseloads and welfare dependence. Between 1996 and 2000, the “after non-cash benefits and taxes” measure of poverty fell by two percentage points, from 11.5 to 9.5 percent. Over the same time period, the dependence measure also declined, from 5.2 percent to 3.3 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.


2 The effects of selected non-cash benefits (food and housing) and taxes are shown separately in Figure 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 reductions in poverty.

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