Jan. 20

A weekly publication of               1/20/2014

Did you know... 

In 1968, when the minimum wage was at its peak value, one minimum-wage job could keep three people out of poverty. Today’s minimum, which works out to $15,080 a year (assuming a full 40-hour work week), will lift a single person out of poverty. However, it’s nearly $1,000 below the poverty threshold for a one-adult, one-child household.

Dear Pat,

I spent 4 days last week in several workshops listening and talking about poverty. The themes that ran through each workshop were basically the same. What is poverty? What are the causes of poverty? What are the pathways out of poverty? What is the public’s perception of the people who live in poverty?

In future newsletters I will attempt to address all four of the above questions. But let’s start with the last question first.  

There seemed to be a recurring opinion of a few attendees at each conference - 

If people want to escape poverty, all they need to do is get themselves motivated and get a job. The economy is getting better and there are jobs available for those who want them.

Is it really that simple? 

The following article by Neil Irwin and published in June in The New York Times helps to shed some light on the topic.

Growth has been good for years. So why hasn’t poverty declined?
by Neil Irwin

The surest way to fight poverty is to achieve stronger economic growth. That, anyway, is a view embedded in the thinking of a lot of politicians and economists.

“The federal government,” Paul Ryan, the House Budget Committee chairman, wrote in The Wall Street Journal, “needs to remember that the best anti-poverty program is economic growth,” which is not so different from the argument put forth by John F. Kennedy (in a somewhat different context) that “a rising tide lifts all boats.”

In Kennedy’s era, that had the benefit of being true. From 1959 to 1973, the nation’s economy per person grew 82 percent, and that was enough to drive the proportion of the poor population from 22 percent to 11 percent.

But over the last generation in the United States, that simply hasn’t happened. Growth has been pretty good, up 147 percent per capita. But rather than decline further, the poverty rate has bounced around in the 12 to 15 percent range — higher than it was even in the early 1970s. The mystery of why — and how to change that — is one of the most fundamental challenges in the nation’s fight against poverty.

The disconnect between growth and poverty reduction is a key finding of a sweeping new study of wages from the Economic Policy Institute. The liberal-leaning group’s policy prescriptions are open to debate, but this piece of data the researchers find is hard to dispute: From 1959 to 1973, a more robust United States economy and fewer people living below the poverty line went hand-in-hand. That relationship broke apart in the mid-1970s. If the old relationship between growth and poverty had held up, the E.P.I. researchers find, the poverty rate in the United States would have fallen to zero by 1986 and stayed there ever since.

“It used to be that as G.D.P. (Gross Domestic Product) per capita grew, poverty declined in lock step,” said Heidi Shierholz, an economist at E.P.I. and an author of the study. “There was a very tight relationship between overall growth and fewer and fewer Americans living in poverty. Starting in the ′70s, that link broke.”

Now, one shouldn’t interpret that too literally. The 1959 to 1973 period might be an unfair benchmark. The Great Society social safety net programs were being put in place, and they may have had a poverty-lowering effect separate from that of the overall economic trends. In other words, it may be simply that during that time, strong growth and a falling poverty rate happened to take place simultaneously for unrelated reasons. And there presumably is some level of poverty below which the official poverty rate will never fall, driven by people whose problems run much deeper than economics.

But the facts still cast doubt on the notion that growth alone will solve America’s poverty problem.

If you are committed to the idea that poor families need to work to earn a living, this has been a great three decades. For households in the bottom 20 percent of earnings in the United States — in 2012, that meant less than $14,687 a year — the share of income from wages, benefits and tax credits has risen from 57.5 percent of their total income in 1979 to 69.7 percent in 2010.

The percentage of their income from public benefits, including Medicaid, food stamps, Social Security and unemployment insurance, has fallen in that time.

The fact that more of poor families’ income is coming from wages doesn’t necessarily mean that they’re getting paid more, though. In fact, based on the E.P.I.'s analysis of data from the Census Bureau, it appears that what income gains they are seeing are coming from working more hours, not from higher hourly pay.

Indeed, if you adjust for the higher number of hours worked, over the 1979 to 2007 period (selected to avoid the effects of the steep recession that began in 2008), hourly pay for the bottom 20 percent of households rose only 3.2 percent. Total, not per year. In other words, in nearly three decades, these lower-income workers saw no meaningful gain in what they were paid for an hour of labor. Their overall inflation-adjusted income rose a bit, but mainly because they put in more hours of work.

The researchers at E.P.I. also looked at demographic factors that contribute to poverty, including race, education levels and changes in family structure (such as the number of one-parent versus two-parent households). This look at the data also shows rising inequality as the biggest factor in contributing to the poverty rate, dwarfing those other shifts.

Debates over what kind of social welfare system the United States ought to have are always polarizing, from the creation of the Great Society in the 1960s to the Clinton welfare reforms of the 1990s to the Paul Ryan budgets of this era. Conservatives tend to attribute the persistence of poverty, even amid economic growth, to the perverse incentives that a welfare state creates against working.

But the reality is that low-income workers are putting in more hours on the job than they did a generation ago — and the financial rewards for doing so just haven’t increased.

That’s the real lesson of the data: If you want to address poverty in the United States, it’s not enough to say that you need to create better incentives for lower-income people to work. You also have to devise strategies that make the benefits of a stronger economy show up in the wages of the people on the edge of poverty, who need it most desperately.

And we need to stop blaming the poor for being poor.

Friday, January 23, 8am – 12pm, NHFPI 2016 Budget Conference: Building a Better Budget, Meeting Today's Needs, Preparing for Tomorrow, Grappone Conference Center, 70 Constitution Ave, Concord, NH 03301, United States

Click here to see more events in New Hampshire!

From our friends at the NH Fiscal Policy Institute:

NH’s Tax System Asks Far Less of the Wealthy than of the Poor 

More than five years after the end of the Great Recession, many Granite Staters are still struggling. The typical household’s income has yet to recover the ground it lost during the economic downturn, while wages for individuals and families at the bottom of the income distribution are still where they were two decades ago.

A key set of policies – New Hampshire’s state and local tax system – puts economic security still further out of reach. It requires upper-income taxpayers to dedicate much smaller shares of their incomes to meeting their tax responsibilities than it demands of low- and moderate-income taxpayers. In fact, a new report shows that, on average, the wealthiest families in New Hampshire pay an effective state and local tax rate that is less than one-third of the rate faced by families just trying to make ends meet.

The report, entitled Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, was published by the Washington, DC-based Institute on Taxation and Economic Policy (ITEP), a non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. Drawing upon data from the Internal Revenue Service, the US Census Bureau, and other sources, it examines how state and local tax systems affect non-elderly individuals and families at different income levels. In particular, the report shows that:

  • The individuals and families that comprised the poorest fifth of taxpayers in New Hampshire, on average, paid 8.3 percent of their incomes in state and local taxes in 2012. In other words, these taxpayers – whose average income was $15,600 – faced an effective state and local tax rate of 8.3 percent.
  • Taxpayers in the middle of the income distribution – individuals and families with incomes ranging from $44,000 to $70,000 – paid a somewhat smaller share of their incomes – 6.6 percent – in taxes that same year.
  • The most affluent Granite Staters – that is, the very richest 1 percent of taxpayers – experienced an effective tax rate of just 2.6 percent on average. Taxpayers in this category had an average income of slightly more than $1.3 million in 2012.

The unfair distribution of taxes in New Hampshire can be attributed to two main factors: (1) the mix of taxes that are – and are not — levied in the state and (2) the specific design of those taxes that are in place.

For instance, New Hampshire, unlike most states, does not now impose a general sales tax; the adoption of such a tax, by itself, would likely make the state’s tax system even more inequitable. Such taxes tend to fall most heavily on low- and moderate-income residents, who typically spend most of their incomes. Conversely, if New Hampshire were to enact a broad-based income tax, its tax system would likely become more progressive.

While property taxes obviously play an important role in New Hampshire, the manner in which they are structured may exacerbate the regressive nature of the state’s overall tax system. Many states offer a basic “homestead” exemption that shields a certain amount of a home’s value from taxation; while all homeowners may receive the exemption, it is usually more meaningful to low- and moderate-income taxpayers, as that amount represents a larger share of their homes’ values or reduces their taxes more relative to their total incomes. New Hampshire uses this approach in only a limited fashion, permitting exemptions for specific categories of homeowners, such as veterans or disabled residents.

This is the fifth edition of ITEP’s Who Pays? report. Each of the prior editions, the earliest of which dates to 1996, arrived at similar conclusions about the regressive nature of New Hampshire’s state and local tax system.


Does someone you know share this newsletter with you? Want to make sure that you have a copy in your inbox each week? Sign up here to receive GSR and not miss a week of New Hampshire news about kids.

MaryLou Beaver
New Hampshire Director
Every Child Matters Education Fund

You can help win the fight for our kids by making a tax-deductible donation to ECM in any amount at www.everychildmatters.org.

Every Child Matters is a nonprofit, nonpartisan organization whose mission is to make children a national political priority. For more information, visit www.everychildmatters.org
1023 15th St. NW Suite 401 Washington, DC 20005

To unsubscribe from receiving these e-mails, click here