Which Federal Programs Best Reduce Poverty?

As many as 1 in 5 Americans would be in poverty without Social Security and tax credits for the working poor.

When the federal government announced its official numbers on poverty this week, they came appended with a second set of figures – the “Supplemental Poverty Measure” (SPM). Though unlikely to get much attention, this alternative measure is in fact a far better gauge of who’s poor in America. More significantly, it shows that federal programs to fight poverty actually work.

The Supplemental Poverty Measure has two principal advantages over the “official” poverty rate. First, it calculates the poverty threshold differently, taking into account real data on consumer expenditures for food, shelter and other needs. The official poverty threshold, on the other hand, is still simply calculated by the Census Bureau as “Three times the cost of a minimum food diet in 1963” – a laughably outdated way for the government to decide if someone is poor. In 2015, that “official” poverty threshold was $24,036 for a two-adult, two-child family.

Second, the SPM takes into the account the impact of all major federal programs on the poverty rate – which means you can see exactly how many people a particular program reaches and what the poverty rate would be if the program didn’t exist. The “official” measure, on the other hand, doesn’t count the value of benefits such as housing vouchers or tax credits in determining whether someone is poor.

A look at the 2015 Supplemental Poverty Measure tells a bad news/good news story about poverty in America.

The bad news is that under the alternative measure, more Americans are in poverty than the official figures show. Under the SPM, 45.7 million people were living in poverty in 2015, compared to 43.5 million under the official measure. This translates into a poverty rate of 14.3% under the SPM, versus 13.5% “officially.”

poverty-rates-official-and-spm

Significantly, the SPM shows a much higher rate of poverty among people over age 65. According to the official measure, seniors are the lowest-poverty group with just 8.8% in poverty. According to the SPM, however, their poverty is comparable to that of working-age individuals at 13.7%. This largely reflects the fact that many seniors face high out-of-pocket health care expenses, which the alternative poverty measure takes into account.

While the retiring Baby Boom generation is stereotypically considered to be the “wealthiest” group demographically, the SPM shows that many seniors are in fact struggling to make ends meet, largely due to high health care costs.

The good news, on the other hand, is that federal programs are having enormous positive impact on reducing the poverty rate.  Because the SPM takes into account the specific effect of particular programs, policymakers can use this measure to see exactly which programs have a vital role in lifting households out of poverty.

The following chart shows that the federal government’s largest and most important anti-poverty programs are Social Security, tax credits, the Supplemental Nutrition Assistance Program (SNAP, once known as food stamps), and Supplemental Security Income (SSI) for disabled individuals.  Meanwhile, cash assistance under the federal welfare program – Temporary Assistance for Needy Families (TANF) – is far down the list.

poverty-rates2

Social Security, for example, was responsible for lifting 26.6 million people out of poverty. In the absence of the program, the poverty rate under the SPM would have been 8.3% percent higher – or 22.7%.  Similarly, refundable tax credits for the working poor – such as the Earned Income Tax Credit (EITC) – boosted 9.2 million individuals out of poverty and lowered the poverty rate by nearly 3 percent.

On the other hand, TANF had only marginal effects on reducing poverty – reducing the poverty rate by only 0.2%.  By this measure, federal tax credits have helped 13 times more people climb out of poverty than welfare.

The SPM data show that government programs not only work to reduce poverty, they are absolutely critical.  As many as 1 in 5 Americans would be living in poverty without governmental help.  Second, the government’s largest anti-poverty programs are not cash welfare programs – rather, the biggest and most effective programs are those targeted toward supporting the working poor, i.e., refundable tax credits that supplement workers’ earnings and reward savings. While the welfare reform debate of 20 years ago centered on reforming cash assistance, making TANF the central focus of future welfare policy would be very much a mistake.

Anne Kim

Anne Kim is Senior Writer at the Washington Monthly.