New Census Data Show How the Safety Net Reduces Poverty

November 6, 2013 by
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Source: US Census Bureau

Refundable tax credits, access to health insurance, Social Security income, nutrition assistance, housing vouchers, and low-income heating assistance are lifting families in Maine and across the nation out of poverty, new Census Bureau data show.

The Bureau provides both “official” and “supplemental” measures of poverty, and there are important and revealing distinctions between them that help to explain why Maine succeeds better than other states at preventing families from slipping into poverty. The “official” poverty measure uses only pre-tax gross income. The “supplemental” measure accounts for the effects of taxes and transfers and factors in the impact of taxes, refundable tax credits, cash income assistance, nutrition assistance, housing vouchers, and low-income heating assistance. For example, the nationwide impact of refundable tax credits—the earned income tax credit and the child tax credit—on the number of children living in poverty is enormous. The national supplemental poverty rate for children—18%—would rise to 24.7% if refundable tax credits were excluded from the calculation.

According to the Bureau’s supplemental poverty measure released today, 11.2% of Mainers lived in poverty between 2010 and 2012. That’s significantly lower than Maine’s official poverty rate of 13.1% over the same period. The supplemental poverty measure identified 148,000 Maine people living in poverty, whereas the official poverty measure calculated 173,000 Mainers living in poverty.

Maine’s strong social safety net, small percentage of the population living without health insurance, low cost of living, and relatively progressive state and local tax codes combine under the supplemental poverty measure to yield a lower estimate of the number of people living in poverty.

At the national level, the opposite is true: the supplemental poverty rate is 16%, which is higher than the official rate of 15%,

In both the supplemental and official measures of poverty, the Census Bureau calculates whether or not an individual lives in poverty by comparing their income to a poverty threshold, which is an estimate of the expenses required to meet basic needs depending on family configuration and geographic location.

The supplemental poverty measure accounts for the fact that out-of-pocket medical expenses place a major burden on low- and moderate-income families. According to the Census Bureau, the tax deduction for out-of-pocket medical expenses accounts for a big difference between the official and supplemental estimates at the national level. It adds more than 10 million people to the ranks of the poor. In Maine, with a somewhat healthier population and smaller percentage of the population living without health insurance, this effect isn’t as large.

Another important difference between the supplemental and official measures of poverty is that the supplemental measure’s calculation accounts for differences in the cost-of-living in different parts of the country, family size, and whether a family pays a mortgage, rents, or owns their home free and clear.

The bottom line, as shown in the graphic above from the Census Bureau, is that in Maine and all across the nation, progressive tax credits and safety net programs like Social Security and nutrition assistance are lifting families and children out of poverty. This is good news, and Maine is doing better than most states.

Unfortunately, it still isn’t good enough. Maine’s safety net may be relatively robust in some respects, but a large and growing problem with poverty, especially child poverty, persists. More than four years after the recession ended, poverty remains high and shows no sign of abating. According to the official poverty measure, more than 1 in 5 Maine kids under 18 and 1 in 4 Maine kids under five years old live in poverty.

Today’s supplemental poverty measures suggest that these poverty rates for Maine children might be somewhat lower after accounting for the effects of taxes and transfers, but they are still shamefully high.

Legislators have the opportunity to do more to address Maine’s poverty problem as soon as they return to Augusta in January. Legislation carried over from last session that would increase Maine’s meager earned income tax credit and make it refundable remains in play, and it has some bipartisan support. LD 455 would increase Maine’s earned income tax credit from 5% of the value of the federal credit to 10% of the value of the federal credit and—most importantly—make it refundable. That way, families in need—many of whom have children—could receive the full value of the credit regardless of their income tax liability. Making these improvements to Maine’s earned income tax credit would cost the state about $17 million per year, and nearly all of that money would be immediately spent on life’s essentials, providing a boost to the local economy.

Today’s data from the Census Bureau shows that well-designed and targeted tax and transfer programs designed to reduce poverty are working. Maine lawmakers should ramp up these tried-and-true poverty fighting efforts.

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