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January 16 2014

Why Is the Poverty Rate Still So High? Part II

Rachel DiCarlo Currie

The War on Poverty reached its half-century mark this month, and the anniversary has triggered a deluge of commentary about America’s relative success or failure. Yesterday I examined the severe limitations of the Census Bureau’s official poverty rate, which -- in the words of AEI scholar Nick Eberstadt -- has become "utterly incapable of tracking material deprivation in the United States with any accuracy." Today I want to explore some of the problems with America’s current mix of means-tested welfare programs, and also discuss the enormous value of marriage in promoting upward mobility.

While the Census data suggest that poverty is worse today than it was in the late 1960s, they measure only pre-tax money income, and thus fail to consider the effects of non-cash government benefits and refundable tax credits. When researcher Arloc Sherman of the Center on Budget and Policy Priorities adjusted the figures to include food stamps, rent subsidies, the Earned Income Tax Credit, and the refundable portion of the Child Tax Credit, he estimated that America’s poverty rate had dropped from 18.9 percent in 1964 to 10.9 percent in 2011. (By comparison, the official numbers would have us believe that poverty went from 19 percent to 15 percent over the same period.) According to Sherman’s analysis, the poverty rate in 2011 was significantly lower than the poverty rate in 1969 (12 percent), even though official unemployment was almost three times higher in 2011. (As I mentioned yesterday, income levels rise even more if we include the value of Medicaid, Medicare, and the Children’s Health Insurance Program, also known as CHIP.)

Meanwhile, economists Bruce Meyer of the University of Chicago and James Sullivan of Notre Dame have stressed that, if we really want to understand how U.S. poverty has evolved over time, we should be measuring it in terms of consumption rather than income. By their reckoning, the inflation-adjusted consumption poverty rate "declined by 26.4 percentage points between 1960 and 2010, with 8.5 percentage points of that decline occurring since 1980." 

To appreciate just how much money the federal government spends on means-tested welfare programs each year, it’s useful to compare the cash value of those programs with the amount of money required to completely eradicate official, Census-measured poverty. "If converted to cash," Heritage Foundation scholar Robert Rector noted last week, "current means-tested spending is five times the amount needed to eliminate all official poverty in the U.S." (emphasis added). Such a mountain of spending has clearly helped to reduce material deprivation and raise living standards among America’s poor. Yet it has also played a major role in exacerbating family breakdown, skewing economic incentives, and reducing the labor-force-participation rate, as AEI’s Charles Murray and many other scholars have persuasively shown.

Moving forward, the key policy question for U.S. lawmakers is this: How can we make our government anti-poverty system more effective at boosting upward mobility and promoting the cultural values that underpin prosperity?

Take Medicaid, a program whose supposed "efficiency" derives from extremely low reimbursement rates. Over the past several years, an increasingly large share of doctors and dentists have simply stopped taking new Medicaid patients because of the payment issue. This phenomenon offers a reminder that not all health insurance is created equal, and that having insurance doesn’t necessarily mean having access to quality care. In fact, the Oregon Health Insurance Experiment recently found that Medicaid coverage (1) had "no significant effect" on health conditions such as hypertension and high cholesterol and (2) actually worsened the problem of excessive emergency-room usage. Writing in the Wall Street Journal last November, journalists Ramesh Ponnuru and Yuval Levin suggested establishing a flat, universal tax credit for health insurance and transforming Medicaid into "a means-based addition to that credit," which would help lower-income Americans "buy into the same insurance market as more affluent people -- and so give them access to better health care than they can get now."

Any means-tested welfare program with income thresholds and phaseout levels imposes steep effective marginal tax rates (EMTRs) on its beneficiaries. Medicaid is no exception. "When a taxpayer’s income rises above the eligibility limits set for Medicaid or CHIP," declared a 2012 Congressional Budget Office report, "the loss of health insurance benefits sharply increases." Obamacare was supposed to mitigate this problem by offering premium subsidies to individuals whose rising income forced them to give up Medicaid or CHIP coverage. Yet as University of Chicago economist Casey Mulligan has observed, Obamacare has its own thresholds and phaseouts, which will dramatically raise EMTRs for many Americans. 

One more point about Medicaid and Obamacare: Both contain marriage penalties, as does Temporary Assistance for Needy Families (TANF), the program that replaced Aid to Families with Dependent Children following passage of the 1996 Welfare Reform Act. "Marriage penalties in transfer programs will exacerbate marriage tax penalties and may swamp any marriage tax bonuses low-income cohabiting couples enjoy," noted a 2005 Urban Institute study. As analysts Gregory Acs and Elaine Maag explained: "For low-income families, the potential loss of cash welfare benefits under TANF may be a greater financial barrier to marriage than any bonus or penalty resulting from federal taxes."

The connection between marriage and poverty reduction is well established. In 2012, only 6.3 percent of married-couple families lived below the Census poverty line, compared with nearly 31 percent of female-headed families with no husband present. Indeed, there is now overwhelming evidence that marriage is among the most powerful tools for boosting upward mobility.

From a 2010 report by Heritage’s Robert Rector: "Being married has roughly the same effect in reducing poverty that adding five to six years to a parent’s education has. Interestingly, on average, high school dropouts who are married have a far lower poverty rate than do single parents with one or two years of college."

From University of Virginia sociologist Brad Wilcox, director of the National Marriage Project: "Young adults are at least 44 percent more likely to have graduated from college if they were raised by their married parents."

From a 2013 summary of the Equality of Opportunity Project, led by economists at Harvard and UC-Berkeley: "Some of the strongest predictors of upward mobility are correlates of social capital and family structure. For instance, high upward mobility areas tended to have higher fractions of religious individuals and fewer children raised by single parents."

From Creating an Opportunity Society, the 2009 book by Brookings Institution scholars Ron Haskins and Isabel Sawhill: "Those who finish high school, work full time, and marry before having children are virtually guaranteed a place in the middle class. Only about 2 percent of this group ends up in poverty."

Politicians hoping to rebuild the marriage culture in lower-income communities might start by demanding the abolition of all marriage penalties in means-tested welfare programs. They might also support the expansion of marriage-education projects. Unfortunately, such ideas don’t carry much political appeal. Instead, Democrats from President Obama to New York City Mayor Bill de Blasio have chosen to advocate universal preschool. Yet the evidence that this would produce real long-term academic and social gains is somewhere between thin and nonexistent.

Just look at Head Start, the most famous early-childhood program of all, which will turn 50 next year. In 2012, President Obama’s own Department of Health and Human Services (HHS) published a massive study documenting the effects of Head Start on two different cohorts of children, including one group that entered Head Start at age 3 and another that entered at age 4. Its findings were a huge blow to supporters of universal pre-K: 

There were initial positive impacts from having access to Head Start, but by the end of 3rd grade there were very few impacts found for either cohort in any of the four domains of cognitive, social-emotional, health and parenting practices. The few impacts that were found did not show a clear pattern of favorable or unfavorable impacts for children.

In other words, if the goal of Head Start was to achieve sustainable progress that lasted through elementary school and beyond, then the program has been a colossal failure. Brookings scholar Russ Whitehurst, a trained psychologist, has reluctantly conceded that the HHS Head Start study and a separate study of Tennessee’s Voluntary Pre-K Program indicate that these initiatives "are not working to meaningfully increase the academic achievement or social/emotional skills and dispositions of children from low-income families. I wish this weren’t so, but facts are stubborn things."

When evaluating the wisdom of nationwide preschool, it’s worth considering, not only the cost and likely results of such a program, but whether the money might be used more effectively on something else. As Manhattan Institute scholar Kay Hymowitz has written: "The billions of dollars required for universal preschool might be better spent on expanding the child tax credit, for example, or more logically, improving the early years of kindergarten through the 12th grade." 

I would add this: In a country where nearly 41 percent of all births now occur outside marriage, if we could somehow cut the nonmarital-birth ratio in half -- i.e., bring it back down to its 1983 level (20.3 percent) -- that would do far, far more to combat poverty and promote upward mobility than universal preschool would.

More on the connection between family structure and social mobility next week.

Rachel DiCarlo Currie is a senior fellow at the Independent Women’s Forum.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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