A Roadmap to Reducing Child Poverty (2019) / Chapter Skim
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4 How the Labor Market, Family Structure, and Government Programs Affect Child Poverty
4 How the Labor Market, Family Structure, and Government Programs Affect Child Poverty
Pages 97-132
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From page 97... ...
FORCES THAT SHAPE CHILD POVERTY Three broad sets of forces affect child poverty: demographics, the economy and its labor markets, and government policy. Demographic factors include parental age, education, race, and ethnicity; number of children in the family; and family structure, such as single or married parent.
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From page 98... ...
The Census SPM threshold is not available for years prior to 2009. 3 Market income was calculated by taking total SPM resources and removing total taxes (tax credits and taxes paid)
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From page 99... ...
Shaded areas indicate recession periods as determined by the NBER Business Cycles Dating Committee. SPM market income-based poverty rate includes labor market income but no other sources of income in its measure of family resources.
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From page 100... ...
The lack of long-term declines in market-based poverty also implies that policy changes since the 1990s that were aimed at reducing poverty by increasing work and earnings -- including the welfare reform of the 1990s, the EITC, and expanded access to child care, to name three changes -- have not reduced child poverty rates, on net and in combination with changes in the economy. Disentangling the effects of these policy changes from changes in the economy over the period is difficult.
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From page 101... ...
Linking FIGURE 4 -2: someShare of children with married parents, 1975–2015 we would expect the of these demographic changes to child poverty, increasing incidence of single parenthood to push up rates of child poverty, 100 Mothers with college degrees 90 Percentage 80 70 Mothers without college degrees 60 50 1975 1980 1985 1990 1995 2000 2005 2010 2015 Year FIGURE 4-2 Share of children with married parents, 1975–2015. NOTES: Calculations based on Current Population Survey Annual Social and Economic Supplement 1976–2016.
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From page 102... ...
. Using poverty rates across different subgroups, such as married/single-parent families or working/nonworking parents, these decomposition studies calculate how overall child poverty rates would have changed if each group had experienced the observed poverty trend but the overall composition of the population (e.g., the share of children living with a single parent)
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From page 103... ...
finds that a large fraction of the trend in child (official) poverty between 1975 and 1993 is explained by changes in family structure (single parenthood, number of family members, multigenerational households)
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From page 104... ...
undertake a decomposition to examine the comparative roles of employment and earnings. They find that between 1991 and 2000, labor market factors reduced poverty.
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From page 105... ...
Because the large major SOURCE: Autor (2014) ity of poor parents have completed less schooling than higher-income parents, this stagnation has meant that market income has not reduced child poverty over this period as much as it might otherwise have.
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From page 106... ...
.11 The eight-fold growth in real spending between 1960 and 2010 is striking, and it is many times larger than the 15 percent increase in the number of children in the population. It is little wonder that the trend in child SPM poverty, which is based on a conception of resources that subtracts taxes paid, adds tax credits such as the EITC and includes income from transfer programs such as the Supplemental Nutrition Assistance Program (SNAP)
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From page 107... ...
In later decades, however, the benefits paid through the tax system have continued to grow; for example, between 1980 and 2000 there was a 10-fold increase in the inflation-adjusted value of refundable tax credits (see NOTE: In billions of 2017 dollars. Appendix D, Table 4-1)
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From page 108... ...
Children in all three groups have also experienced larger declines in SPM poverty rates than 13 These declines are larger than the overall decline in market child poverty rates shown in Figure 4-1 because the demographic composition of American children has changed; the share of White children has decreased and the share of those at greater risk for poverty has grown. Put another way, the changing racial/ethnic composition of American children obscures longterm progress within all three racial/ethnic groups.
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From page 109... ...
Although both market-income and SPM poverty rates are quite different for these three groups -- highest for single parents and lowest for married parents -- all three groups show similar trends, with a particularly large decline in SPM poverty for single-parent families. In short, from 1993 onwards the tax and transfer system was increasingly effective at reducing child poverty rates for all racial/ethnic groups and all family types, with especially large effects during the 2000–2016 period.
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From page 110... ...
, and in 2000 it lowered deep poverty rates by only 7 percentage points. During the NOTE: The SPM poverty measure is anchored in 2012 living standards,child back to 1967 using the Consumer Price but Great Recession, market-income deep adjusted poverty rose sharply, the Index, and does not adjust for underreporting.
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From page 111... ...
NOTE: The SPM poverty measure is anchored in 2012 living standards, adjusted back to 1967 using the Consumer Price Index, and does not adjust for underreporting. SPM market income-based poverty rate includes labor market income but no other sources of income in its measure of family resources.
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From page 112... ...
During the Great Recession, market-income near poverty increased sharply, and the safety net partially offset this increase. By the end of the period, the fraction of children with total family resources below 150 percent of SPM poverty was nearly identical to rates based solely on market income, which suggests that, on balance, taxes and transfers had little net impact on the near-poverty thresholds among children.
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From page 113... ...
EITC = Earned Income Tax Credit, SNAP = Supplemental Nutrition Assistance Program, CHIP = Children's Health Insurance Program, TANF = Temporary Assistance for Needy Families, SSI = Supplemental Security Income. SOURCE: of 2017 dollars.al.
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From page 114... ...
is a partially refundable tax credit for each child a working family is allowed to claim. Prior to the 2018 tax reform, the credit amounted to $1,000 per child; the 2018 reforms doubled that amount.20 The Child Tax Credit provides important benefits to some low-income families with children, but a substantial share of its federal funding goes to families much higher in the 17 See Chapter 9 for recommendations for incorporating public health insurance expendi tures into the poverty measure.
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From page 115... ...
, known as the Additional Child Tax Credit (ACTC) , is limited to 15 percent of earned income above $3,000.
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From page 116... ...
EFFECTS OF INCOME TRANSFERS AND TAX BENEFITS ON CHILD POVERTY IN 2015 The degree to which federal programs reduce child poverty is a function of whether program benefits are counted as resources in the SPM poverty measure and, if they are counted, their overall size and the extent to which their benefits are targeted at the families of poor children.23 We use the TRIM3 microsimulation model to estimate how much rates of child 22See https://fns-prod.azureedge.net/sites/default/files/pd/SNAPsummary.pdf. 23The largest transfer program omitted from SPM resources is Medicaid, which as we saw above is the child program with the highest federal expenditures.
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From page 117... ...
. In contrast to their effects on 100 percent SPM poverty, tax credits play only a minor role in reducing deep poverty.
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From page 118... ...
Other benefits include Temporary Assistance for Needy Families, solely state-funded assistance, means-tested veterans benefits, means-tested education assistance, the Low Income Home Energy Assistance Program, the National School Lunch Program, and the Special Supplemental Nutrition Program for Women, Infants, and Children. EITC = Earned Income Tax Credit, CTC = Child Tax Credit, SNAP = Supplemental Nutrition Assistance Program,Estimates are for 2015 and adjust Security Income, NOTE: Poverty defined as below 100% of the TRIM3 SPM poverty line.
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From page 119... ...
Other benefits: See note to Figure 4-9. EITC = Earned Income Tax Credit, CTC = Child Tax Credit, SNAP = Supplemental Nutrition Assistance Program, SSI = Supplemental Security Income, UC = Unemployment Compensation, WC = Workers' Compensation.
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From page 120... ...
Other benefits: See note to Figure 4-9. EITC = Earned Income Tax Credit, CTC = Child Tax Credit, SNAP = Supplemental Nutrition Assistance Program, SSI = Supplemental Security Income, UC = Unemployment Compensation, WC = Workers' Compensation.
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From page 121... ...
And while some state and even local governments in the United States spend significant amounts on child-specific programs, these amounts, too, are not included = United States NOTE: UK = United Kingdom, US in the following figures. Peer anglophone nations can be divided into those that spend relatively SOURCE: OECD, Social Expenditure database (https://data.oecd.org/socialexp/family-benefits-public-spending.htm )
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From page 122... ...
. Government Spending and Its Effect on Child Poverty Rates How has this public spending affected child poverty rates in peer English-speaking countries?
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From page 123... ...
The combined reduction in poverty they bring about is shown by the gray and blue bars. Poverty rates after accounting for taxes and transfers are represented by the white portion of the bars.
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From page 124... ...
Between 2000–2001 and 2007–2008, absolute povertya fell by 50 percent. In 2000–2001, the early years of the policy, absolute child poverty rates were about the same in the United Kingdom and the United States.
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From page 125... ...
NOTES: The blue portion represents reductions in child poverty from social insurance and universal programs. Additional reductions from means-tested transfers, minus direct taxes (including refundable tax credits)
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From page 126... ...
Market incomes sufficient to raise family income out of deep poverty are more common in the United States than in other countries. In the United States, the 11.5 percent deep-poverty rate based on market income is somewhat lower than the corresponding rates in Canada and Australia and substantially lower than those in Ireland and the United Kingdom.
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From page 127... ...
analyses commissioned by the committee from the LIS Cross-National Data Center. NOTE: Deep poverty defined as below 50% of poverty. The light blue portion represents reductions in child poverty from social insurance and universal programs.
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From page 128... ...
Additional reductions from means-tested transfers, minus direct taxes (including refundable tax credits) are represented by the gray portion.
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From page 129... ...
. Why were poverty rates so high in the 1980s?
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From page 130... ...
. Reducing Overpayments in the Earned Income Tax Credit.
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From page 131... ...
. Reforming the Earned Income Tax Credit and Additional Child Tax Credit to End Waste, Fraud, and Abuse and Strengthen Marriage.
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