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Reducing Poverty: The Progress We Have Made and the Path Forward Jason Furman Chairman, Council of Economic Advisers Center on Budget and Policy Priorities Washington, DC January 17, 2017 OUTLINE 1. Recent Developments in Poverty and Policy 2. Poverty Over the Last Fifty Years 3. The Role of Tax & Transfer Programs in the Short Run 4. How To Raise Market Incomes 5. The Agenda Going Forward 1 OUTLINE 1. Recent Developments in Poverty and Policy 2. Poverty Over the Last Fifty Years 3. The Role of Tax & Transfer Programs in the Short Run 4. How To Raise Market Incomes 5. The Agenda Going Forward 2 The Safety Net—and Its Temporary Expansion—Cushioned Much of the Blow From the Great Recession Change in Poverty Rate from 2007 to 2010, Without and With Tax Credits and Benefits 6 Change in Poverty Rate, Percentage Points 4.8 5 4 3 2 1 0 0.4 Without Tax Credits and Benefits Source: Wimer et al. (2013), updated November 2016. With All Tax Credits and Benefits, Including Recovery Act 3 In 2015, Income Increased for Households Across Distribution, With Largest Gains at Bottom and Middle Growth in Real Household Income by Percentile, 2014-2015 Percent 9 7.9 8 7 6.3 5.5 6 5.2 5.4 5 4.1 4 2.9 3 2 1 0 10th Source: Census Bureau; CEA calculations. 20th 40th 50th (Median) 60th 80th 90th 4 Largest Decline in Official Poverty Rate Since the 1960s Change in Official Poverty Rate, 1960-2015 Percentage-Point Change from Prior Year 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 2015: -1.2 p.p. -1.5 -2.0 -2.5 -3.0 1960 Source: Census Bureau; CEA calculations. 1970 1980 1990 2000 2010 5 Poverty Declined for All Groups Changes in Poverty Rates by Race/Ethnicity, 2014 to 2015 Percentage Points 0.0 -0.5 -1.0 -1.5 -1.2 -0.6 -1.0 -1.0 -0.7 -0.5 -0.8 -2.0 -2.5 -3.0 -3.5 Source: Census Bureau; CEA calculations. -2.1 Official Poverty Measure -2.2 Supplemental Poverty Measure -3.0 6 President Obama Has Overseen the Largest Federal Investment in Inequality-Reducing Transfers of Any President Since the Great Society Change in Spending on Major Anti-Inequality Programs by Term, 1968-2016 Percent of Potential GDP 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 Note: Major anti-inequality programs defined as Medicaid/CHIP, SNAP, the refundable portion of the EITC and CTC, SSI, TANF and other family support, educational assistance, Pell grants, housing assistance, the refundable portion of the Premium Tax Credit, and cost-sharing reductions. Source: Office of Management and Budget; Congressional Budget Office; CEA calculations. 7 Tax-and-Transfer Changes Since 2009 Have Resulted in Large Increases in Income for the Poor and Reduced Inequality Change in After-Tax Income by Income Percentile: Changes in Tax Policy Since 2009 and ACA Coverage Provisions, 2017 Percent Change in After-Tax Income 20 15 10 5 0 -5 -10 -15 Source: Department of the Treasury, Office of Tax Analysis. 8 OUTLINE 1. Recent Developments in Poverty and Policy 2. Poverty Over the Last Fifty Years 3. The Role of Tax & Transfer Programs in the Short Run 4. How To Raise Market Incomes 5. The Agenda Going Forward 9 Little Progress in Official Poverty Measure Over the Last Five Decades Trends in the Official Poverty Measure, 1959-2015 Percent 24 20 16 12 8 4 0 1955 Source: Census Bureau; CEA calculations. 1965 1975 1985 1995 2005 2015 10 The Official Poverty Measure Exists in Measurement Limbo Between Market Income and Actual Income The official poverty measure includes: • Pre-tax income • Cash transfers (e.g. cash welfare or payments from unemployment insurance or Social Security) But it excludes critical parts of the safety net: • Tax payments • Tax credits (e.g., the EITC) • Non-cash transfers (e.g., SNAP) 11 Using Supplemental Poverty Measure, Poverty Rate Has Declined 41 Percent Since 1967 Official vs. Anchored Supplemental Poverty Rates, 1967-2015 Percent 30 25 2015 Supplemental Poverty Measure (Anchored 2012) 20 15 10 Official Poverty Measure 5 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Wimer et al. (2013), updated November 2016. 12 No Progress on Market-Income Poverty—All of the Gains Have Been Post-Tax-and-Transfer Trends in Market-Income and Post-Tax-and-Transfer Poverty, 1967-2015 Percent 30 25 Percentage Points 30 Market-Income Poverty 2015 25 20 20 15 10 Supplemental Poverty Measure (Post-Tax-and-Transfer) Difference (Due to Taxes and Transfers) 15 10 5 5 0 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Wimer et al. (2013), updated November 2016; CEA calculations. 13 Summary of Key Facts on Poverty Trends 1. Market-income poverty, though varying over the business cycle, has remained essentially flat over the past fifty years. 2. The antipoverty impact of government safety net programs has grown over time. 3. Government safety net programs are particularly important for reducing deep poverty. 4. Taxes and transfers directly reduce cyclical swings in poverty. 14 OUTLINE 1. Recent Developments in Poverty and Policy 2. Poverty Over the Last Fifty Years 3. The Role of Tax & Transfer Programs in the Short Run 4. How To Raise Market Incomes 5. The Agenda Going Forward 15 Role of Selected Programs in Reducing Poverty Reduction in Poverty Rate by Program, 2015 Percentage Points 8 7 Percentage Points 40 Social Security 35 Refundable Tax Credits SNAP Supplemental Security Income 6.5 6 30 5 25 4 20 3 2.9 2.7 0.8 1 0 15 2.2 2 1.1 1.1 0.8 1.3 1.4 10 1.0 0.2 Under 18 Source: Census Bureau. 18–64 65+ 36.0 All People 5 0 8.3 2.1 Under 18 4.0 18–64 65+ All People 16 Expansion of Tax Credits in Addressing Poverty Federal AFDC/TANF v. EITC & CTC Expenditures, 1976–2014 Billions of 2012 Dollars 90 80 70 EITC & CTC 60 50 40 30 20 AFDC/TANF 10 0 1976 1980 1984 1988 1992 1996 Note: Adjusted for inflation using the chain price index for personal consumption expenditures (PCE). Source: Office of Management and Budget; Ziliak (2015). 2000 2004 2008 2012 17 The Large Decline in the Value of the TANF Block Grant Adjusted for Inflation and Population Value of Federal TANF Block Grant and Assistance Expenditures, Adjusted for Inflation and Population Growth, 1996-2014 Billions of 2014 Dollars 30 Number of Families 80 70 Real Value of Federal TANF Block Grant 25 60 20 50 Families Receiving TANF per 100 in Poverty (Right Axis) 15 10 5 0 1996 2000 2002 2004 30 20 Real Value of Federal TANF Assistance Expenditures 1998 40 10 2006 Note: Adjusted for inflation using the chain price index for personal consumption expenditures (PCE). Source: Department of Health and Human Services; Ziliak (2015); Floyd, Pavetti, and Schott (2015). 2008 2010 2012 0 2014 18 OUTLINE 1. Recent Developments in Poverty and Policy 2. Poverty Over the Last Fifty Years 3. The Role of Tax & Transfer Programs in the Short Run 4. How To Raise Market Incomes 5. The Agenda Going Forward 19 22 States & DC Have Raised Their Minimum Wages Real Value of Federal and State Minimum Wages, 1968-2017 2015 Dollars 11 2017 10 Average Real Value of State/Federal Minimums 9 8 7 Real Value of Federal Minimum 6 5 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Note: Average State and Federal minimums (available 1974-2017) are weighted by statewide weekly worker hours as recorded in the CPS and described further in Autor, Manning, and Smith (2016). For the combined trendline, the Federal minimum is recorded in place of State minimums where the former binds. All values inflation-adjusted using the CPI-U. 20 Source: Autor, Manning, and Smith (2016); Bureau of Labor Statistics; Congressional Budget Office; CEA calculations. The Result Has Been Growth in Earnings Without a Discernable Effect on Employment Dollars 18 Average Hourly Earnings, Leisure & Hospitality Oct-16 Increased Minimum Wage 16 Thousands 6,500 Total Employment, Leisure & Hospitality Oct-16 I 6,000 No Change 5,500 14 5,000 No Change 12 10 Increased Minimum Wage 4,500 2009 2010 2011 Source: Black et al. (2016). 2012 2013 2014 2015 2016 4,000 2009 2010 2011 2012 2013 2014 2015 2016 21 Investments in Preschool Can Have Long-Run Benefits Net Benefit Per Child of Perry Preschool Rises Over Lifecycle Thousands of 2015 Dollars 120 100 80 60 Social Program Savings Education Savings Earnings Gain Program Cost 40 20 0 -20 -40 Age 0 to 27 Age 28-40 Age 41-65 Note: Estimates based on Heckman et al. (2010) using undiscounted 2006 dollars converted to 2015 dollars using CPI-U-RS. Additional costs and benefits, such as education beyond age 27, vocational training, savings from crime reduction, health benefits, and maternal earnings, have not been quantified in this chart. Source: Heckman et al. (2010); CEA calculations. 22 Evidence on Moving to Opportunity (MTO) Average Annual Earnings in Adulthood Among Children Younger Than 13 When Their Family Participated in MTO Dollars 20,000 31% Increase 15% Increase 15,000 $11,270 $14,747 $12,994 10,000 5,000 0 Source: Chetty, Hendren, and Katz (2016). Control Non-Restricted Restricted 23 A Wide Range of Programs for Children Have Long-Run Benefits • Head Start: increased high school completion and college attendance; reduced crime and teen parenthood; and improved health status and mortality rates • By one estimate, yielded benefit-cost ratio in excess of seven • Medicaid: increased high school graduation, college completion, and earnings for women; reduced hospitalization and mortality risk for black children later in life • SNAP: improved high school graduation rates by 18 percentage points; reduced obesity, high blood pressure, and diabetes in adulthood; girls grew up to be more economically self-sufficient • EITC: lowered prevalence of low-birth weight among single mothers, raised elementary and middle school scores for children, increased college enrollment 24 OUTLINE 1. Recent Developments in Poverty and Policy 2. Poverty Over the Last Fifty Years 3. The Role of Tax & Transfer Programs in the Short Run 4. How To Raise Market Incomes 5. The Agenda Going Forward 25 Conclusion: The Agenda Going Forward 1. First, do no harm 2. Going forward higher market incomes will be critical—which depends on a stronger overall economy and policies to help raise wages, connect workers to jobs and enhance their skills to succeed in those jobs 3. Further steps are needed to improve the safety net— and to make it even more countercyclical 4. We also need to think harder about the people who fall through the cracks in the existing social safety net 26 Reducing Poverty: The Progress We Have Made and the Path Forward Jason Furman Chairman, Council of Economic Advisers Center on Budget and Policy Priorities Washington, DC January 17, 2017