New Data Confirms Cash Assistance Helps Lift Families from Poverty

Today, the Census Bureau released its annual statistics on income, poverty, and health insurance. The data offer striking evidence that policy can effectively reduce poverty and address racial inequities, even in the context of the most devastating health and economic crisis of our lifetimes. The data released today, along with other analyses of hardship over the last year, underscore the particular value of providing cash to families to combat poverty and economic insecurity. Cash assistance, whether in the form of a stimulus check, enhanced unemployment benefits, or the Child Tax Credit, allows families to meet a wide range of needs in ways that make the most sense for them. When made inclusive and accessible, cash assistance can also effectively advance racial equity.

The Census Bureau data provide ample evidence of the hardship families have experienced over the last year. Overall, real median household income decreased from 2019 to 2020, the first statistically significant decrease since the Great Recession, as millions of workers lost their jobs and many responded by transitioning to part time work. The official poverty rate, which does not take into account important supports and transfers, rose across most demographic groups to 11.4 percent overall.

But the data also provide strong evidence that policy has worked effectively to improve families’ circumstances and reduce racial and economic inequality over the past year. The Census Bureau found that when considering post-tax income—that is, income after accounting for state and federal income and payroll taxes and also stimulus checks and tax credits—median income actually increased from 2019 to 2020. Overall, post-tax median income increased 4 percent, and it increased even more for Black and Hispanic families (9.4 percent and 6.6 percent respectively) and for families with incomes in the lowest quintile of the income distribution (8.7 percent). As a result, when considering post-tax income the Gini index, which measures the degree of income inequality, showed inequality declining significantly between 2019 and 2020.

Using the Supplemental Poverty Measure (SPM), which takes into account families’ expenses as well as many government programs that assist families, the Census Bureau found that poverty fell, from 11.8 percent in 2019 to 9.1 percent in 2020. The SPM poverty rate is at its lowest level since it started being calculated in 2009, and for the first time it is also lower than the official poverty rate. The main driver of this change has been the COVID stimulus payments, the Census Bureau found. While Social Security continued to be the most important anti-poverty program in 2020, lifting 26.5 million people out of poverty, the first two rounds of stimulus checks lifted 11.7 million people out of poverty and the expanded unemployment benefits lifted 5.5 million people out of poverty. Importantly, families who disproportionately experience poverty, including families of color, saw the largest percentage point declines in poverty between 2019 and 2020. SPM poverty rates fell from 18.9 percent to 14.6 percent for Black people, from 18.8 percent to 14 percent for Hispanic people, from 11.3 percent to 8.8 percent for Asian people, and from 10.5 percent to 8.1 percent for White people.

The data released today only reinforce the findings from other research that has shown that federal, state, and local relief has been very effective at blunting the impact of the pandemic-fueled economic crisis on families over the last 18 months, even as many families continue to struggle. According to the Center on Poverty and Social Policy at Columbia University, federal COVID relief has effectively reduced poverty rates every month for the last 18 months. Monthly poverty fell most when additional cash transfers were provided, including enhanced unemployment assistance, stimulus checks, and the enhanced child tax credit (discussed in more detail below). Not all families have been eligible for federal relief, but research has found  that state and local governments and the philanthropic sector have been effective in supporting undocumented immigrants and other workers who were excluded from federal unemployment assistance and stimulus checks. The Urban Institute evaluated philanthropic cash transfers in the Washington, D.C. metropolitan area and found that through partnerships with community-based organizations they quickly and effectively delivered much-needed relief to many Black and Latinx families who were disproportionately excluded from federal relief.

Many of the additional supports that have been so critical for families during the pandemic have continued to some extent through 2021, and the evidence is clear that they are necessary if progress in reducing poverty and inequality is to continue. Looking forward, the Urban Institute projects poverty to fall dramatically in 2021 thanks to government assistance.  Without government assistance programs, including the stimulus checks, unemployment assistance, the advance child tax credit, and state assistance, 23.1 percent of people would experience poverty in 2021, as defined using the Supplemental Poverty Measure. With these supports the Urban Institute projects poverty to fall to 7.7 percent overall and to fall sharply for Black, non-Hispanic and Hispanic individuals and children. Poverty among children is projected to decline 81.4 percent. Poverty among Black non-Hispanic people is projected to decline 74.3 percent, and among Hispanic people is projected to decline 67.8 percent, compared to 63.4 percent for White non-Hispanic people and 53.8 percent for AAPI, non-Hispanic people.

As Congress considers extending some of these investments into the future, it is worth examining the growing evidence of the efficacy of one policy in particular: the Child Tax Credit. Under the American Rescue Plan Act, enacted in March of this year, Congress expanded the Child Tax Credit (CTC) on a temporary basis, making the CTC fully available to families with no or low incomes for the first time, raising the annual benefit levels to $3,600 for children up to age six and $3,000 for children ages six to 17, and making the CTC available via advanced periodic payments for 2021. Over 35 million families began receiving checks of $250 for each child ages 6-17 and $300 for each child ages 0-5 starting in July. The third round of payments is set to be delivered to families on September 15th, and surveys have consistently found that families with low incomes have used the first two payments to meet basic needs, including to pay for food, utilities, housing, and school related costs. How families are spending the money is, in and of itself, important evidence that the payments are reducing hardship, but there is already even more conclusive evidence of their power to improve families circumstances:

  • The Center on Poverty and Social Policy has found that monthly child poverty rates fell dramatically in July after the first child tax credit payments hit families’ bank accounts, from 15.8 percent to 11.9 percent. Three million children were lifted out of poverty thanks to the Child Tax Credit alone.
  • The U.S. Census Bureau’s Household Pulse survey found that food hardship declined significantly among families with children after the first round of child tax credit payments. Specifically, the share of adults in households with children experiencing food insufficiency, defined as sometimes or often not having enough to eat, declined across families with children of all races and ethnicities, even as households without children did not see declines in food insufficiency during the same time period. The Center on Poverty and Social Policy’s analysis of the survey finds that that effects of the CTC on food insufficiency were particularly significant for Hispanic and White families, though initial evidence from subsequent rounds of the Pulse survey suggest that food insufficiency among Black families declined more after the second payment of the CTC.

Our experimentation with policy solutions during the depths of the global pandemic, and the decades of evidence leading up to this crisis, have shown that we know how to address poverty and family economic insecurity. Investing in families moving forward will pay dividends, as research has shown that when children grow up in families that are more economically secure, they have better educational, employment, and health outcomes over the long term. By permanently expanding the Child Tax Credit so that it functions more like a child allowance, or a guaranteed income for families with children, and providing cash supports to all families who need it, we can promote the economic well-being of all families now and into the future.