Study Shows That Poverty Rate Is Highest In A Decade In Spite Of Record Spending

A recent study by the Cato Institute shows that the federal government is making little headway in its “war on poverty”. Despite spending hundreds of billions of dollars, the study shows that the national poverty rate has not declined.

The Institute’s policy analysis, The American Welfare State. How We Spend Nearly $1 Trillion a Year Fighting Poverty—and Fail begins with this ominous warning:

News that the poverty rate has risen to 15.1 percent of Americans, the highest level in nearly a decade, has set off a predictable round of calls for increased government spending on social welfare programs. Yet this year the federal government will spend more than $668 billion on at least 126 different programs to fight poverty. And that does not even begin to count welfare spending by state and local governments, which adds $284 billion to that figure. In total, the United States spends nearly $1 trillion every year to fight poverty. That amounts to $20,610 for every poor person in America.

Since Barack Obama took office in 2009, federal welfare spending has increased by 41 percent. Spending on federal welfare is now spread out over 126 programs and tops $668 billion for fiscal year 2011.

In spite of over this massive spending, the poverty rate that remains high at 15.1 percent, about where it stood in 1965, when President Johnson declared a federal War on Poverty. The first year after Johnson declared war on poverty, the national poverty rate was 14.7 percent, according to Census Bureau figures. Since then, the poverty rate has remained 11 and 15 percent, only falling into the 11 percent range briefly during the late 1970’s.

The federal poverty rate is the percentage of the population below the federal poverty threshold, which varies based on family size. The study acknowledges that some of the rise in spending is due to the recession and the cyclical nature of anti-poverty programs, it also finds that much of the increase is deliberate due to the government’s expansion of eligibility for welfare programs.

In fiscal year 2008, anti-poverty spending was $475 billion. In fiscal year 2009, when Obama took office, it had risen to $590 billion.

“But the dramatically larger increase also suggests that part of the program’s growth is due to conscious policy choices by this administration to ease eligibility rules and expand caseloads,” the Cato report says. “For example, income limits for eligibility have risen twice as fast as inflation since 2007 and are now roughly 10 percent higher than they were when Obama took office.”

By the administration’s own projections, federal welfare spending is unlikely to decline even after the economy recovers – further evidence that not all of the increase in spending is recession-related. “All this spending has not bought an appreciable reduction in poverty,” the study says. “The poverty rate has remained relatively constant since 1965, despite rising welfare spending.”

The study counts a welfare program as any federal program that is means-tested and provides some kind of cash or in-kind benefit. Means-tested programs are federal programs that only make benefits available to people at or below a certain income level. In-kind benefits are things like healthcare, housing, or other non-cash benefits that are given in lieu of money.

Included in this expanded definition of welfare spending are traditional welfare programs such as food stamps and cash welfare benefits, as well as in-kind, means tested programs like Medicaid, energy assistance grants for low-income people, and the refundable portions of the Earned Income Tax Credit.

The study faults the way poverty programs are designed, saying that the increase in spending and largely unchanged poverty rate showed that the issue is not a matter of money, but a matter of what the programs aim to achieve.

“The vast majority of current programs are focused on making poverty more comfortable – giving poor people more food, better shelter, health care, and so forth – rather than giving people the tools that will help them escape poverty.”

Instead, the study recommends refocusing anti-poverty efforts on keeping people in school, discouraging out-of-wedlock births, and encouraging people to get a job – even if that job is a low-wage one.

It would make sense therefore to shift our anti-poverty efforts from government programs that simply provide money or goods and services to those who are living in poverty to efforts to create the conditions and incentives that will make it easier for people to escape poverty.