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The Lift: Recovery Act Moderates 2009 Poverty Results

Jared Bernstein explains that for all the bad news in America's poverty rate, the Recovery Act helped a lot of Americans stay above water.

Today we learned from the Census Bureau that, as was widely expected, the nation’s poverty rate went up last year, from 13.2% in 2008 to 14.3% in 2009.  These are more than just statistics: they’re a stark reminder of the hardship faced by so many American families.

But while we know that recessions always lead to higher poverty rates – and the recession that greeted our administration was no exception – the increase in 2009 was notable in that poverty rose less than expected. What’s more, middle-class incomes held steady, and full-time workers’ median earnings actually went up 2%. The evidence reviewed below points to the Recovery Act as the reason for these outcomes.

Before we examine the new data, let’s back up for a little historical context. While the recession that began in late 2007 was particularly tough on middle- and low-income families, many of these families struggled even as the economy expanded in the 2000s. Yes, the economy grew in those years, but growth was so skewed toward the well-to-do that poverty actually rose, from 11.3% in 2000 to 12.5% in 2007. The incomes of middle class families flat-lined during the last expansion.

As the recession took hold, poverty continued to rise and middle incomes took a further hit. Addressing these immediate income problems, while getting the economy back on track was our first priority as our administration took office at the start of last year. And one major policy mechanism to do this was the Recovery Act.

As President Obama recently pointed out, “…the most important anti-poverty effort is growing the economy and making sure there are enough jobs out there.” Here, the Recovery Act has made a real difference, saving or creating, according to the non-partisan Congressional Budget Office, as many as 3.3 million jobs so far (and two million by the end of 2009). It’s helped to pull the economy back from the abyss, and been instrumental in changing huge negatives—we lost over two million jobs in just the first quarter of last year alone—into positives: we’ve added over three-quarters of a million of private sector jobs this year.  

Clearly, there are not, as the President called for, “enough jobs out there,” and we’re working to build on recent gains with new, targeted jobs policies. Creating good job opportunities is the single best way to help the poor.

Yet the fact remains: especially in a tough job market but even in better times, families often need a safety net to catch them when they fall, or when their incomes aren’t high enough to keep food on the table and a roof over their heads. The data released today, along with earlier research, show the Recovery Act helped here as well.

According to Census Bureau analysis, some of the programs that were particularly helpful to families facing hardship included food assistance, Unemployment Insurance benefits, and Social Security payments for the elderly, whose poverty rates actually fell last year (from 9.7% in 2008 to 8.9% in 2009). 

  • The value of food stamps, or SNAP (Supplemental Nutrition Assistance Program), is not counted in the official poverty measure, which excludes non-cash benefits. But if we were to include it, the Census Bureau says we’d find that SNAP lifted 3.6 million people (including 1.7 million kids) out of poverty last year, compared to 1.4 million the year before.
  • Unemployment Insurance benefits kept 2.3 million working age people out of poverty in 2009, compared to about 600,000 in the prior year.
  • Finally, Social Security really showed its poverty-reduction muscle last year, keeping the incomes of 14 million elderly Americans above the poverty line in 2009.

It should be noted that each one of these programs was significantly expanded by the Recovery Act, which in 2009 put almost $8 billion into higher SNAP payments, over $40 billion into increased Unemployment benefits, and $13 billion into one-time, extra $250 Social Security payments. 

Many other Recovery Act-funded programs helped as well, including $37 billion in Making Work Pay tax cuts for working families, over $12 billion in expansions of the Child Tax Credit and Earned Income Tax Credit for low-wage workers, and investments in child care, affordable housing, and education and training opportunities.

The TANF emergency fund created by the Recovery Act, part of which was designed specifically to help low-income parents find work, has by now helped a quarter of a million people find jobs, often moving from welfare or unemployment into a job.

Arloc Sherman, a policy analyst at the Center on Budget and Policy Priorities, took a close look at the poverty-reducing impact of several Recovery Act investments, most of which are not captured by the official poverty measure.  He found that these investments prevented 6 million Americans from falling into poverty in 2009 -- including 2 million children and half a million seniors -- and reduced the severity of poverty for 33 million more.

Today’s Census data simply put numbers behind what we all know: the Great Recession has meant tough times for most American families—none more so than the most economically vulnerable families at the lower end of the income scale. 

But the analysis also reveals that the Recovery Act has helped mitigate the rise in poverty, providing work and support for millions of Americans in their time of need. The challenge now is to continue to build on the momentum in the private job market, to create the opportunities for families across the income scale to work hard and get ahead.

Jared Bernstein is Chief Economic Advisor to the Vice President