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The Truth About Poverty In America

Poverty: Recent reports suggest that America has made no progress at all in its “War on Poverty” since the 1960s. Headlines claim “one in eight” Americans live in poverty. But is that true? It depends on how you define poverty.




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And the answer matters a lot, since it determines so much of U.S. economic policy, from food stamps to minimum wages, and from taxes to welfare work requirements.

It’s true: Official poverty data from the U.S. Census show little change since the 1960s. The rate in 1966, for instance, was 14.7%. As recently as 2014 it was even higher: 14.8%. The rate has since declined to a still-high 12.3%.

A damning statistic that shows the failure of America’s welfare safety net?

Hardly. A recent report by the American Enterprise Institute (AEI) shows why the federal government’s poverty rates are deceptive. There are many technical reasons, but they all boil down to this: They measure only poverty as it relates to income, not to consumption.

Poverty: The Welfare Effect

This is important, because much of our welfare efforts go toward bolstering consumption, not incomes. Adjusting official income levels for what people consume, rather than what they earn, yields a very different poverty rate: 2.8%, according to the AEI report. Almost nonexistent.

How can that be? An officially poor family of four has income of about $25,000 or less. That’s not much. But that measure fails to take into account taxes. The poor mostly don’t pay taxes. In fact, many get money back through the Earned Income Tax Credit and other income-support programs. Food stamps, housing support and other aid likewise enable officially poor households to boost their incomes, in most cases significantly.

The fact is, when the very same households that the federal government considers to be poor are questioned, they report roughly $2.40 in spending for every $1 of income that Census says they have. So that family of four earning $25,000 is likely consuming as much as $60,000 a year in goods and services.

How Much Do Poor Consume?

Heritage Foundation poverty analysts Robert Rector and Rachel Sheffield in a 2016 data report noted that “poor” in America doesn’t mean what it means elsewhere. Based on a 2009 government survey of spending, the average poor person in the U.S., for instance, lives in a bigger house than the average nonpoor person in France, Germany or England. Moreover, nearly 85% of poor homes in the U.S. have air conditioning, and nearly two-thirds have cable or satellite TV. Half own computers, and 43% have internet access. More than half own a video game system.

This is not to say that the poor have it easy, or that we should ignore their plight. But we have to understand that claims America has grinding poverty as in the developing world are false. And, as the last two years have shown, the best anti-poverty program of all is a job.

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