Kate Marshall & Elliott Parker: The problem of poverty
“There will never cease to be poor in the land,” the Old Testament says, asking us to “open wide your hand to your brother, to the needy and to the poor.” Most religions recognize the need to care for the poor, and the difficulty of making poverty disappear. Most governments, at least those in developed economies, make a significant effort to try.
How significant is poverty in our land?
The federal government uses the Orshansky measure to define the poor as those earning a cash income less than three times the cost of a frugal but nutritionally-adequate diet, without adjusting for any benefits received. The threshold is about $1,000 per month for an individual, or about $2,000 for a family of four. For comparison, the gross pay of a full-time minimum wage worker is about $1,300 per month.
The Census Bureau estimates 45 million people, or 14.5 percent of Americans, fall below this threshold, while another 15 million are the “near poor” with incomes below 125 percent of the threshold. Poverty ranges by state from Utah (8.3 percent) to Mississippi (22.5 percent). Poverty rates are highest in Appalachia and in the Old South.
Nevada used to have a poverty rate not much higher than Utah’s. Since 2007, however, Nevada saw a larger share of population enter poverty than any other state. Our current poverty rate of 17.4 percent threatens to make us, once again, into the Mississippi of the West.
Poverty is not just a problem for minorities. Though the proportions of Hispanics and African-Americans in poverty are higher, non-Hispanic whites account for half of those in poverty.
High school dropouts and female-headed households with no husband present have a high poverty rate, as do those under 18. More than half a million Americans — roughly 1 percent of the poor — are homeless.
The best anti-poverty program is a job, but it’s easier said than done. In fact, a quarter of those in poverty are employed, as are most of the near poor.
Public sector jobs, be it either military or civil service, used to be one way out of poverty, but these jobs have been declining for years. Moreover, private sector jobs have moved away from the neighborhoods the poor can afford, and in cities without public transportation this makes finding work difficult for those who can’t afford a car.
President Johnson once said education was the only valid passport from poverty. Similar to other states, only 58 percent of low-income students in Nevada graduate from high school, compared to 70 percent for students who aren’t poor. We usually spend less per student in poor neighborhoods, even though the needs are greater.
The poor are also much less likely to graduate from college. A recent study found 77 percent of students from high-income families graduate by age 24, up from 35 percent since 1970. By contrast, only 9 percent of low-income students graduate, only slightly up from 6 percent.
Without education or skills, the available jobs don’t always offer a clear path to a better life. Had the minimum wage kept up with inflation since 1968, it would now be almost $11 per hour, almost enough for a single breadwinner to keep a small family out of poverty. Even the average Nevadan is struggling. Adjusting for inflation, the income of the median household has fallen by 27 percent in Nevada since 2000, compared to a fall of 9 percent nationwide.
The poor often pay higher rent for what they get, much more than the mortgage they would pay for owning their property, because they can’t get affordable credit. Most of the poor are underbanked, and pay higher fees and interest rates for financial transactions. It’s no wonder many of the poor feel trapped by their circumstances, with no future to look forward to.
How much do we open our hands to the poor?
Americans spend about 2 percent of Gross Domestic Product (GDP) on charitable donations. Half of this goes to churches and schools, but the largest charities tend to be those focused on helping the poor.
Taxpayers currently spend about $600 billion, about 3.5 percent of GDP, to help the poor through a variety of government programs. This is roughly the same as we currently spend on National Defense.
Half of this spending is for Medicaid, which pays medical expenses for 31 million children, 11 million parents, and 14 million disabled or elderly Americans, many of whom need long-term care. It costs roughly $450 per person per month.
The second biggest program is the Earned Income Tax Credit, which goes to 27 million of the working poor or near-poor. It averages about $190 per month per recipient. The cost in lost tax revenue is about the same or less as other popular breaks, such as the child tax credit, the mortgage interest tax deduction, or special tax provisions targeted towards specific corporations (also known as corporate welfare).
SNAP (i.e., food stamps) is the third biggest program, which costs about $170 per month for 46 million people. Spending on food stamps doubled during the Great Recession, though it’s starting to come back down now. Next, supplemental social security income provides an average of $760 per month to almost 6 million elderly and disabled Americans. Then we have a scattering of uncoordinated small programs, such as housing assistance and Pell grants for college.
If we just gave the poor enough cash to raise their incomes to the poverty line, it has been estimated it would cost taxpayers about $180 billion per year. Excluding Medicaid, however, the federal government spends roughly $300 billion on poverty programs, enough to raise the incomes of both the poor and near-poor to 125 percent of the poverty threshold. Still, poverty rates remain stubbornly high in the United States, especially compared to most other developed market economies.
Why is fighting poverty so expensive, and how could we do it better? We will address these questions next week.
Kate Marshall recently completed two terms as Nevada State Treasurer. Elliott Parker is professor of economics at the University of Nevada, Reno.