Fact of the Week:  If Income Gains Had Been Broadly Shared – and not Concentrated in the Hands of the Richest 1 Percent – Poverty in America Could Have Been Eliminated by 1985


January 8, 2016

House Speaker Paul Ryan (R­­­­-WI) is interested in reducing poverty, and is moderating a forum on “Expanding Opportunity” this Saturday (January 9) in South Carolina, in which at least seven of the Republican presidential candidates will take part. We await with interest their proposals to reduce poverty and expand opportunity. If their remarks are similar to positions taken over the years, the candidates are likely to call for more economic growth as the best way to combat poverty.
However, our Fact of the Week shows that unshared economic growth does not reduce poverty. Contrariwise, when growth is shared across the income spectrum, poverty goes way down.

In this, we are indebted to the experts at the Economic Policy Institute (EPI). Here’s what they show:

From 1959 through 1973, the poverty rate was cut in half (from 22.4 percent to 11.1 percent). If that same relationship between economic growth and the poverty rate continued after 1973, poverty would have been eliminated by 1985. Instead, we no longer had broadly shared growth. From 1979 through 2007, income for the top 1 percent grew nearly 245 percent. Income for the bottom fifth grew only 29 percent over the same period.  And the official poverty rate increased – from 11.7 percent in 1979 to 12.5 percent in 2007.

These figures stop before the Great Recession, which put a big dent in everyone’s income, including the top 1 percent. The recession was officially over by 2009, but the recovery was profoundly unshared. The well-known inequality researcher Emmanuel Saez showed nearly 35 percent income growth for the top 1 percent from 2009-2012, and less than 1 percent for everyone else. (Poverty continued to suffer from the residual impact of the Great Recession, and was 15 percent in 2012; it’s declined a bit since then.) And EPI further estimates that rising inequality from 1979 to 2013 increased poverty by 7.1 percentage points.

This is just part of the poverty story. The data above use the official poverty rates, which do not count in-kind benefits like SNAP/food stamps or housing subsidies, and also do not count the value of the Earned Income Tax Credit and Child Tax Credit. When those benefits are counted, poverty is reduced. The Center on Budget and Policy Priorities shows that the poverty rate declined from 26 percent in 1967 to 16 percent in 2014, taking such programs into account.

Yes, we acknowledge it’s somewhat confusing to switch back and forth between poverty rates that don’t count important benefits and alternative models that do. But looking at both approaches shows that both shared economic growth and strong antipoverty programs like SNAP and low-income tax credits are needed to reduce poverty. The EPI analysis suggests that if the top 1 percent had not snarfled up all the post-recession economic gains, we would have made a lot more progress in reducing poverty.

So if you hear candidates say that their policies will increase economic growth, and that will reduce poverty, be skeptical. If they claim they’ll get more economic growth by reducing corporate or high-end individual tax rates, the evidence shows that those actions will further concentrate income among the richest 1 percent, and that driver of rising inequality is increasing poverty. This kind of rising tide may lift the ocean liners, but those in dinghies or clinging to flotsam at sea are getting swamped.

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Earned Income Tax Credit
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