How to Ignore Childhood Poverty Without Having to Say You’re Sorry
The WSJ editors misread the latest Census Bureau report.
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
November/December 2023 issue.
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The Census Bureau reported that Americans are poorer under Bidenomics, and the President quickly changed the subject to blame Republicans for rising child poverty on his watch.
The annual census data tell the real story of Bidenomics: A gusher of unprecedented and unnecessary social-welfare spending helped to produce the highest inflation in 40 years that has made Americans poorer.
Median household income adjusted for inflation fell last year by $1,750.
After-tax median real income last year fell $6,220 as some, but not all, Covid transfer payments lapsed.
The child poverty rate did jump to 12.4% from 5.2% in 2021, but that is roughly the same as before the pandemic.
—Editorial Board, “The Census Exposes Bidenomics: Its annual report shows how inflation has gutted real household incomes,” Wall Street Journal, Sept. 13, 2023.
When I couldn’t read in fourth grade, my parents sent me to an optometrist. That didn’t help. But I finally got some help from a reading specialist.
But I doubt that either an optometrist or reading specialist would be able to correct the Wall Street Journal editors’ misreading of the recent U.S. Census Bureau report, “Income, Poverty, and Health Insurance Coverage in the United States: 2022.” After all, the editors didn’t have any problem seeing the figures in the report showing that the real median income of U.S. households (the middle income of households corrected for inflation) declined in 2022. What clouds the editors’ vision is something else. It’s their ideological obstinance and determination to rid the economy of what they deride as “unnecessary social-welfare spending,” even when it comes at the searing cost of pushing over five million children back into poverty.
Let’s start by taking a closer look at what the census report actually “exposes” about the real story of Bidenomics, and then turn to how the policies that the editors support more than doubled the childhood poverty rate.
Bidenomics and the Real Median Income
So, what does the latest census report say about Bidenomics? Using the Census Bureau’s data based on money income, median real household income fell by $1,750 (or 2.3%) in 2022. That decline in real income was widespread. It hit the richer half of households harder than the poorer half. And inequality decreased from 2021 to 2022, according to those figures. (See glossary on terminology related to income, poverty, and taxes.)
The Census Bureau’s broader measure of income, post-tax income, however, tells a different story than the money income data. Post-tax income adds to money income the effect of federal and state taxes and temporary cash payments like rebates or stimulus checks administered by government agencies. These include a fully refundable child tax credit and other measures that were adopted or expanded to counteract the pandemic crisis during 2020 and 2021—the very programs Congress failed to renew. And, as the Census Bureau reports, in 2022 households were left with “substantially less federal assistance than they received in prior years.” And that loss of support did far more to make people worse off than the decline in money income. Using post-tax income, median real household income fell by 6.8% (or $6,220) from 2021 to 2022. That’s more than 3.5 times the decline in real household median income measured by money income.
A Glossary on Tax Credits and Poverty
- Money Income—Counts pre-tax income but not the value of in-kind transfers.
- Post-Tax Income—Consists of money income plus the net of federal and state taxes and credits, payroll taxes, and temporary cash payments administered by tax agencies, like rebates or stimulus payments.
- Fully Refundable Child Tax Credit—The 2021 American Rescue Plan expanded the child tax credit (a reduction in the income taxes a taxpayer owes) from $2,000 to $3,600 for children under six. Low-income parents who paid less than that in income taxes would still receive the full value of the tax credit.
- Expanded Earned Income Tax Credit—The Earned Income Tax Credit is a wage-subsidy program for low-income workers. The American Rescue Plan expanded the program in 2021 by nearly tripling the maximum benefit for workers without children and by increasing the income cap.
- Stimulus Checks—Economic Impact Payments distributed by the federal government in three rounds in 2020 and 2021 as part of the Covid-19 pandemic relief packages.
- Supplemental Poverty Measure—Is defined as cash income plus in-kind government benefits (such as food stamps and housing subsidies) minus nondiscretionary expenses (such as taxes, medical out-of-pocket expenses, and work expenses).
Post-tax data also show that low-income households suffered the largest loss of income relative to their income. Much of that income loss was caused by the expanded Earned Income Tax Credit, a fully refundable child tax credit, and economic impact payments (stimulus checks) no longer being available in 2022. In 2021, the income supports counted in post-tax real income did much more to improve the income of poor households than in 2022, after many of those income supports were not renewed. For instance, the real income of a household near the bottom of the income distribution, at the 10th percentile, was 17% higher than pre-tax income in 2021. But in 2022 their post-tax and pre-tax incomes were not significantly different. That loss of income support pushed up the level of inequality in 2022. As measured by the Gini coefficient, the comprehensive measure of inequality favored by economists, post-tax inequality increased by 3.2% in 2022, instead of the 1.2% decline in money income inequality that the Wall Street Journal editors report.
The census report makes it clear that the failure to renew these pandemic-era support programs made the drop in median real household income far worse, increased inequality, and punished the least well-off. Nonetheless, the editors dismissed those support programs as “a gusher of unprecedented and unnecessary social-welfare spending.” And the editors claimed that these programs “helped to produce the highest inflation in 40 years that has made Americans poorer.” Now that’s a real whopper nowhere to be found in the census report. Singling out government spending as the chief cause of the elevated global inflation rates that have sapped households’ real income is hardly a convincing explanation in today’s economy, which is beset with shortages and supply-chain disruptions, plus monopolistic pricing by large corporations. U.S. stimulus spending relative to the size of the economy was about twice the average of the E.U. economies—what the editors would surely call a gusher of government spending. But the U.S. inflation rate in 2021 was only 1.7% higher than the 5.3% rate across the European Union. In addition to the manifold benefits of the pandemic-era spending documented in the census report, that large-scale government stimulus spending also supported a robust economic recovery that added back the jobs that were lost during the pandemic downturn nearly three times faster than it took the long, sluggish recovery from the Great Recession to replace a smaller number of lost jobs.
While rapid growth and labor shortages created sizeable wage gains, especially for low-wage workers, overall wages failed to keep up with inflation and real wages fell through 2022. As inflation slowed in 2023, however, median and average real hourly wages have increased steadily but are still lower than they had been in 2020 and 2021.
Pushing Kids into Poverty in the Name of Economic Opportunity
For the Wall Street Journal editors, a disastrous rise in childhood poverty rates in 2022 might not be relevant to assessing the state of the economy. But any honest report on the state of the economy needs to account not only for the effects of private spending but also public spending, including social spending, and the consequences for poverty rates of not renewing that spending.
The census report does that. While the official poverty rate, which is based on pre-tax money income, remained nearly unchanged from 2021 to 2022, in 2022 the Census Bureau’s broader calculation, the Supple-mental Poverty Measure (SPM), registered the first increase in the poverty rate in 13 years. With pandemic-era income and tax relief supports, the SPM childhood poverty rate fell from 12.6% in 2019 to 9.7% in 2020, and then to 5.2% in 2021, the lowest rate on record. In 2022, the SPM childhood poverty rate more than doubled to 12.4%.
The cause was the same as that for the dramatic drop in post-tax real income in 2022: the failure to renew the pandemic-era programs that had lifted so many households and children out poverty. The numbers in the Census Bureau report make that clear, but so do the words in the report:
Refundable tax credits had a smaller impact on poverty rates in 2022 compared to 2021 reflecting the expiration of expansions to the Child Tax Credit and [other] Credits. ... In 2021, the fully refundable Child Tax Credit kept over twice as many people out of poverty (5.3 million individuals) as it did in 2022.
When Congress convened a lame-duck session in November 2022 to reconsider renewing the pandemic-era supports, especially the fully refundable child tax credit, the Wall Street Journal editors blasted the attempt. In their editorial “The Parable of the Child Tax Credit,” they argued that the child tax credit had caused only “a small decline in poverty.” Their evidence was the relative stability of the official poverty rates. They never mentioned the dramatic decline in the SPM rate in 2021, especially the childhood poverty rate, even though the census report documenting the decline was published in September 2022. Instead, they complained that the fully refundable child tax credit exempted too many recipients from paying income taxes, which made it “an engine for higher taxes” for those who did. Finally, they warned that, “American voters still want opportunity and upward mobility more than income redistribution.”
What do the editors say now that the most recent census annual data have documented the disastrous effects of the failure to renew the policies that had lifted so many children out of poverty? Don’t expect an apology. Doubling childhood poverty is just collateral damage in the editors’ campaign to rid our economy of what they call “unnecessary social-welfare spending.”
Ending Childhood Poverty Really Is a Policy Choice
While not the editors’ choice, ending childhood poverty is a policy choice. Renewing the fully refundable child tax credit would be a good first step, especially since it contributed to reducing inequality, as documented in the census report.
But much more needs to be done if we are to guarantee that no child grows up in poverty in the United States and if we are to no longer tolerate the gaping differences between rich and poor not seen in other advanced capitalist economies. That requires addressing the yet larger differences in wealth holdings, which don’t get addressed in the Census Bureau report on income, poverty, and health insurance. To do that we need to tax the wealthy, including a wealth tax, and to use the revenues collected to fund social spending on an unprecedented scale. That’s sure to raise the hackles of the editors.
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