Indicators of Welfare Dependence: Annual Report to Congress, 2008. Economic Security Risk Factor 4. Poverty Rates with Various Means-tested Transfers Counted as Income

12/20/2008

Figure ECON 4.
Percentage of Total Population in Poverty with Various Means-Tested Transfers Counted as Income: 1979-2006

Figure ECON 4

Note:  The four measures of income are as follows: (1) “Pre-transfer cash income plus social insurance cash transfers” is earnings and other pre-transfer (“private” or “market”) cash income, plus social security, workers compensation, and other social insurance cash transfers.  It does not include means-tested cash transfers; (2) “Plus means-tested cash transfers” is the official Census Bureau income definition, which includes means-tested cash transfers, primarily AFDC/TANF and SSI; (3) “Plus food and housing benefits” counts the cash value of means-tested food and housing benefits as income; and (4) “Plus EITC and federal taxes” is the most comprehensive income measure used.  It adds the refundable Earned Income Tax Credit (EITC) to income, while subtracting federal payroll and income taxes.  The fungible value of Medicare and Medicaid is not included in any of the income measures.

Source:  Unpublished tabulations from the Current Population Survey, Annual Social and Economic Supplement, 1980-2007, analyzed by the Congressional Budget Office.


  • Figure ECON 4 shows the percentage of the population in poverty with various means-tested transfers counted as income for the years 1979 to 2006.  The official poverty rate – using the official income definition, which includes means-tested cash transfers (primarily TANF and SSI) in addition to pre-transfer cash income and social insurance cash transfers – was 12.3 percent in 2006.  Without cash welfare, the 2006 poverty rate would be 13.0 percent.
  • Adding non-cash, means-tested transfers to the official income definition has the effect of lowering the percentage of people with incomes below the official poverty line.  Including the value of food and housing benefits in total income would reduce the poverty rate to 11.0 percent in 2006.
  • When income is defined to include the Earned Income Tax Credit (EITC) and the effect of federal taxes, the percentage of people in poverty would decrease to 10.0 percent in 2006.  Federal taxes and the EITC have had the net effect of reducing poverty rates following the EITC expansions in 1993 and 1995.
  • Table ECON 4 shows the percentage of the population in poverty with various means-tested transfers counted as income for selected years.  The combined effect of means-tested cash transfers, food and housing benefits, the EITC, and federal taxes was to reduce the poverty rate in 2006 by 3 percentage points.  Net reductions in poverty rates were smaller during the 1981 to 1982 recession, and higher in the mid-1990s, largely due to expansions in the EITC.

Table ECON 4.
Percentage of Total Population in Poverty with Various Means-Tested Transfers Counted as Income:  Selected Years

  1979 1983 1986 1989 1992 1995 1998 2000 2002 2005 2006
Note:  The four measures of income are as follows: (1) “Pre-transfer cash income plus social insurance cash transfers” is earnings and other pre-transfer (“private” or “market”) cash income, plus social security, workers compensation, and other social insurance cash transfers.  It does not include means-tested cash transfers; (2) “Plus means-tested cash transfers” is the official Census Bureau income definition, which includes means-tested cash transfers, primarily AFDC/TANF and SSI; (3) “Plus food and housing benefits” counts the cash value of means-tested food and housing benefits as income; and (4) “Plus EITC and federal taxes” is the most comprehensive income measure used.  It adds the refundable Earned Income Tax Credit (EITC) to income, while subtracting federal payroll and income taxes.  The fungible value of Medicare and Medicaid is not included in any of the income measures.

Source:  Unpublished tabulations from the Current Population Survey, Annual Social and Economic Supplement, 1980-2007, analyzed by the Congressional Budget Office.

Pre-transfer cash income plus social insurance cash transfers 12.8 16.0 14.5 13.8 15.6 14.9 13.5 12.0 12.8 13.3 13.0
    Plus means-tested cash transfers 11.6 15.2 13.6 12.8 14.5 13.8 12.7 11.3 12.1 12.6 12.3
    Plus food and housing benefits 9.7 13.7 12.2 11.2 12.9 12.0 11.3 10.1 10.9 11.2 11.0
    Plus EITC and federal taxes 10.0 14.7 13.1 11.8 13.0 11.5 10.4 9.5 10.0 10.3 10.0
Reduction in poverty rate 2.8 1.3 1.4 2.0 2.6 3.4 3.1 2.5 2.8 3.0 3.0

 

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