Mis-measuring and mis-managing poverty

November 20, 2022. Let's define poverty. In class, I defined poverty as an absence of opportunity, ranging from an opportunity to survive another day to the opportunity to better one's self. The former means real, life-threatening misery; the latter describes the American Dream.

Phil Gramm and John Early make a strong argument against the progressive political rhetoric and mis-measurement of poverty in the United States. Immediately below, find the full article. Below that file, read some of he key excerpts, followed by some selected comments from the readers.

What the Child Poverty Rate Is Missing - WSJ.pdf

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House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer assured us in July 2021 that expanding the child tax credit would “cut the nation’s child poverty rate in half.” Shortly thereafter, President Biden proclaimed that the expanded credit would “cut child poverty in half this year.” The official census numbers are out, and in 2021 the poverty rate among children under 18 was 15.3%. It fell a mere 0.7 percentage point from 16% in 2020 and was still 0.9 point higher than the pre-pandemic low of 14.4% in 2019, even though government spent an extra $2.6 trillion on transfer payments in 2020-21.

As we pointed out on these pages, the Democrats’ rosy promise wouldn’t be recorded in the official Census Bureau poverty numbers, because the income numbers used to calculate the official poverty rates don’t count refundable tax credits as income to the recipients. No matter how much money the government pours into any of these tax credits, it will never raise the official income measure given the way the census defines income.

The omission of refundable tax credits from the official poverty rate calculation isn’t unique. The Census Bureau fails to count two-thirds of all government transfer payments to households in the income numbers it uses to calculate not only poverty levels but also income inequality and income growth. In addition to not counting refundable tax credits, which are paid by checks from the U.S. Treasury, the official Census Bureau measure doesn’t count food stamps, Medicaid, the Children’s Health Insurance Program, rent subsidies, energy subsidies and health-insurance subsidies under the Affordable Care Act. In total, benefits provided in more than 100 other federal, state and local transfer payments aren’t counted by the Census Bureau as income to the recipients.

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If the Census Bureau had included the missing $1.9 trillion in transfer payments, child poverty would have been only 3.2% in 2017, compared with the official rate of 17.5%. Government transfer payments that were distributed in 2017 had already cut child poverty by 82%.

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The official poverty estimate by the Census Bureau not only overstates the level of poverty, but it distorts the policy debate. Politicians use the overstated poverty numbers as a rationale for additional transfer payments. The new transfer payments aren’t counted as household income, so there is no improvement in the official poverty rate. This process is repeated over and over. In the past 50 years the real value of taxpayer funding for transfer payments to the poorest 20% of American households has risen from an average of $9,677 to $45,389.

Selected reader comments