Indicators of Welfare Dependence: Annual Report to Congress, 2003. Measuring Deprivation

03/01/2003

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.

When compared to 1996, the year of passage of the Personal Responsibility and Work Opportunity Reconciliation Act, poverty has declined substantially. The official poverty rate for 2001 was 11.7 percent, compared to 13.7 percent in 1996. This change in the poverty rate indicates that 3.6 million fewer people are in poverty and 2.7 million fewer children are in families with incomes below poverty than in 1996. There was a small increase in the overall
poverty rate between 2000 and 2001, but the poverty rate for children was essentially unchanged (see Table ECON 1 in Chapter II). For African-American children, the 2001 poverty rate is the lowest level ever reported, and the rate for Hispanic children is the lowest level reported in over 20 years (data not shown). The declines in poverty and child poverty since 1996 mirror the dramatic decreases seen in the welfare caseload.

Figure SUM 2 shows poverty estimates under both the official poverty rate and two 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 solid line with filled squares shows the official poverty rate, based on total cash income, including earned and unearned income. The official poverty rate was 11.7 percent in 2001.
  • The dotted line 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 12.5 percent in 2001.
  • 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.3 Under this definition, poverty rates in 2001 would be nearly two percentage points lower than the official measure, or 9.8 percent.

Figure SUM 2. Percentage of Total Population in Poverty with Various Means-Tested Benefits Added to Total Cash Income: 1979-2001

Figure SUM 2

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.

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 2001, the “after non-cash benefits and taxes” measure of poverty fell by almost two percentage points, from 11.5 to 9.8 percent. Over the same time period, the dependence measure also declined, as shown in Figure SUM 1.

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