Children and parents stand next to a message in sidewalk chalk reading, "Child checks help families thrive."

A gathering of parents and children calls for making the Child Tax Credit expansion permanent.

(Photo: Bryan Bedder/Getty Images for ParentsTogether)

Census Data Show Poverty Is a Policy Choice

The substantial weakening of welfare state programs that had protected families from economic deprivation in 2021 resulted in poverty increases across all major racial and ethnic groups last year.

Economic relief measures enacted in response to the pandemic strengthened the U.S. social safety net and made a historic dent on poverty in 2021. New Census Bureau data show that the expiration of these key programs caused a significant increase in poverty last year, with the number of children in poverty more than doubling.

Bold policy initiatives such as economic impact/stimulus payments and the expansion of the Child Tax Credit (CTC) helped to shelter millions of people from poverty during a time of social and economic uncertainty at the beginning of the Covid-19 pandemic. For example, the Census Bureau’s most accurate measure of poverty—the Supplemental Poverty Measure—showed that poverty declined by more than 30% between 2019 and 2021, reaching a historic low of 7.8% in 2021. During the same three-year period, child poverty declined by more than half, reaching a historic low of 5.2% in 2021. Importantly, gains during this period were observed across all racial and ethnic groups.

New poverty data for 2022 show that all these gains in poverty reduction have now disappeared. More than 40 million people in 2022 fell below the poverty line, an increase of over 15 million (see Figure A). The substantial weakening of welfare state programs that had protected families from economic deprivation in 2021 resulted in poverty increases across all major racial and ethnic groups last year, further deepening the disadvantages of historically marginalized individuals and families.

Families with children were disproportionately affected by the expiration of the enhanced Child Tax Credit and other relief measures. The supplemental child poverty rate more than doubled between 2021 and 2022, marking a significant regression in child welfare with nearly 9 million children falling below the poverty line. In 2021, the expanded CTC had helped lift close to 3 million children from poverty. In 2022, the expiration of the CTC and other economic security initiatives meant that over 5 million more children were counted as poor relative to the year before. Poverty also continued to affect children of color unevenly, with Black, Hispanic, and American Indian and Alaska Native child poverty rates more than twice as high as their white, non-Hispanic peers.

To isolate the role of government benefits and taxes in reducing poverty, Figure B shows the number of people in poverty on a pre- and post-tax-and-benefit basis. There was essentially no change in overall poverty on a pre-tax basis, with the number of people in poverty hovering between 78.2 to 78.4 million. In contrast, post-tax-and-benefit poverty counts rose sharply between 2021 and 2022, in line with the removal of the expanded CTC and economic impact payments.

Figure B also demonstrates that rising prices played little-to-no role in the large increase in poverty. While high inflation curtailed many families’ incomes in 2022, labor market gains completely offset inflation at the bottom of the income distribution, as household pre-tax incomes through the bottom 30th percentile changed little between 2021 and 2022. Overall pre-tax poverty did not change last year, and poverty only increased using a broader measure of economic hardship that includes post-tax income.

There is also reason to think that the magnitude of the poverty increase was substantially larger than these figures suggest. Census models estimating the mechanical reduction in poverty due to the Child Tax Credit significantly understate the size of payments received by families near poverty thresholds in 2021. As a result, poverty in 2021 may have been lower than we thought, raising the measured magnitude of the poverty increase in 2022.

Although the strong labor market of 2023 will surely help to improve living standards and reduce poverty, it will nevertheless fall short of undoing the damage of letting key social assistance programs expire. Today’s data indicating a sharp increase in 2022 reveal how much poverty the country tolerates is a policy choice.

© 2023 Economic Policy Institute