How the Recovery Act Lifted Millions from Poverty

On Monday morning, the Census Bureau released findings that provide a more accurate look at the impact public policy has on poverty. These data demonstrate that policies supported and extended by the President to give a helping hand to those hit hardest by the recession – tax cuts for working families, assistance for basic food costs and school lunches, and help with housing – kept millions of Americans out of poverty last year. 

Additionally, the Center on Budget and Policy Priorities released a new report based on the Census Bureau’s new data which found that provisions passed as part of the Recovery Act directly lifted nearly 7 million Americans out of poverty in 2010 and reduced poverty for 32 million more. This is on top of 6 million people lifted out of poverty by these policies in 2009. And these numbers are conservative estimates that do not reflect the indirect benefits from the jobs created through these policies. 

In contrast to this approach, Republicans in Congress opposed all of these measures and passed a budget that would both cut back on many of these programs and also convert them into block grants, which would prevent them from automatically expanding in hard times. Had we followed that path, many more Americans would be in poverty today. 

A New Measure of Poverty

As the New York Times described last week, many poverty experts explain that the official poverty measure does not account for many changes (“good or bad”) in a family’s resources – whether it’s supplemental nutritional assistance and tax credits, or higher costs for medical and child care. 

The Census Bureau’s new unofficial measure of poverty is designed to give the public additional information on the effect of government policies on poverty, and includes additional factors to help more specifically measure who is poor.  The supplemental measure, unlike the official measure, includes the effect of government programs like the Supplemental Nutritional Assistance Program (SNAP, or food stamps) and tax benefits (such as the Earned Income Tax Credit and refundable Child Tax Credit) on family incomes. It also doesn’t count money spent on necessary expenses like out-of-pocket medical care and the cost of travel to work as income available to families.  While the official measure determines the threshold for poverty based on a multiple of food costs adjusted for inflation, the new measure includes food, clothing, shelter, and utilities costs. 

While no one measure of poverty is perfect, each approach illuminates different aspects of the economic condition of low-income Americans. The Census Bureau’s supplemental measure was developed after many years of hard work, and reflects an approach that was recommended by the National Academy of Sciences. This new poverty measure will provide a much stronger tool than the official poverty rate for understanding the extent of extreme hardship in America and the effectiveness of public programs in relieving that hardship.  

Because it adds in food, clothing, shelter, and utilities costs, resulting in a higher poverty threshold, and subtracts necessary expenses from the resources families have available, the Census Bureau’s report more fully reflects the challenges facing low-income families, and shows that more Americans are in poverty than the comparable official poverty estimate released in September. 

The President’s Policies for Working Families and Emergency Measures Kept Millions out of Poverty

Because the new measure, unlike the official measure, includes the effect of government programs and changes in the tax code, the Census findings show that millions of Americans were kept out of poverty by programs to help those hardest hit by the recession, which the President expanded and extended.  The new measure shows that more than 6 million Americans were lifted out of poverty by the Earned Income Tax Credit, 5.2 million by the Supplemental Nutrition Assistance Program (SNAP), 2.8 million through housing assistance, and more than a million through the national school lunch program and Supplemental Nutrition Assistance for Women, Infants and Children (WIC)—all programs that are omitted from the traditional official poverty measure. 

Many of these critical anti-poverty programs, as well as others that play an important role like unemployment insurance, were expanded on an emergency basis by legislation signed into law by the President.  A new report out today by the Center on Budget and Policy Priorities (CBPP) quantifies how these policies have reduced poverty and financial distress for millions of Americans. 

The analysis focuses on provisions of the Recovery Act – some of which were later extended or expanded by Congress as a result of the President’s leadership, including in the December tax deal last year – that provided direct relief to low- and middle-income families. Unlike the Census report, it explicitly examines the effect of policy changes that the President signed into law, rather than the effect of entire, existing programs.  The analysis finds that these provisions kept 6.9 million people above the poverty line in 2010 and lessened poverty for 32 million more.  This is in addition to the more than 6 million lifted out of poverty in 2009 according to earlier CBPP analysis. 

Those kept out of poverty include: 

  • 1.6 million through expansions in the Earned Income Tax Credit and Child Tax Credit;
  • 1.5 million through the new Making Work Pay Tax Credit (replaced in 2011 by the payroll tax cut);
  • 3.4 million through expansions in the both duration and level of unemployment insurance benefits; and
  • 1.0 million through expansions in SNAP benefits. 

The benefits had a wide reach across the country.  The 7 million Americans lifted out of poverty included 2.5 million children and 200,000 seniors.  The 7 million also includes 3.1 million non-Latino whites, 1.3 million non-Latino blacks, and 2.0 million Latinos. 

The CBPP analysis shows that the Recovery Act also enhanced the living standards of millions of middle class working Americans in 2010.  As a result of these policies, 4.0 million people were able to keep their family disposable income above the equivalent of $50,000 a year for a two-adult, two-child family (adjusted for family size) and 7.8 million above the equivalent of $30,000. 

And the impact of the Recovery Act on low-income Americans does not account for its full effect on the American economy – boosting growth and helping to create millions of jobs. 

During these tough times, the President understands that we need to do even more to help people who are struggling. That’s why the President is urging Congress to pass the American Jobs Act, which independent forecasters project will create as many as 2 million jobs next year and provide pathways back to work for the long-term unemployed. And that’s why he’s announced administrative actions to help homeowners and students lower their debt burdens.   

A Contrast with the Republican Alternative

In contrast, Republicans in Congress opposed or created obstacles to all of these policies over the last few years. And House Republicans passed a budget that would cut back on many of these critical programs going forward.   In fact, this budget gets two-thirds of its savings from cuts to programs that support lower-income Americans

In particular, the Budget passed by House Republicans earlier this year would reduce SNAP (food stamp) funding by nearly 20 percent over the next ten years and cut Medicaid spending by 34 percent over the next ten years. Both programs would be converted into block grants, which would compound the effects of these cuts by also preventing them from automatically expanding in hard times to accommodate the increased needs. 

The math makes it clear that if we’d followed this path in the most recent recession, many more Americans would be in poverty today.

Jason Furman is Assistant to the President and Principal Deputy Director of the National Economic Council, Danielle Gray is Deputy Assistant to the President and Deputy Director of the National Economic Council and Mark Zuckerman is Deputy Assistant to the President and Deputy Director of the Domestic Policy Council

Related Topics: Economy, Poverty
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