Just Taxes Blog by ITEP

The Vital Role of Public Programs in Moving People and Families Out of Poverty 

September 15, 2020

2020 has been anything but an ordinary year. A pandemic with no end in sight has devastated our communities and led to a global recession, the deepest since the Second World War.

Today, the Census Bureau released income and poverty data for calendar year 2019, which provides a glimpse of the economy prior to the current economic and public health crisis. Because these data are indicative of last year’s economy, they do not allow us to examine the effects of COVID-19 and the current recession on families across the country. However, experts anticipate a sharp increase in poverty this year that will exacerbate racial disparities.

More families across our nation are struggling to meet their most basic needs. High unemployment, the struggle to put enough food on the table, and an inability to make rent or mortgage payments are widespread. Absent federal intervention, outcomes would have been worse. Over the past few months, federal and state relief measures have mitigated hardship. By putting cash in the hands of those who need it most, lawmakers were able to stabilize some families’ budgets and prop up our fragile economy. With time we will surely glean many lessons from 2020. But the sheer power of targeted assistance is already apparent.

Just as recent interventions have helped alleviate poverty, the 2019 Census data also demonstrates the power of federal programs to alleviate poverty and help support low-income families. For example, refundable federal tax credits, including the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), lifted 7.5 million people out of poverty in 2019.

In total, 34.0 million people lived in poverty in the United States in 2019, but millions more would have been in poverty if not for crucial government investments. The programs that lifted the largest number of people out of poverty in 2019 included: Social Security (26.5 million), refundable tax credits (7.5 million), and the Supplemental Nutrition Assistance Program (SNAP), which lifted 2.5 million people out of poverty.

These investments not only support working-age adults but seniors and children, as well. Just over two-thirds of those lifted out of poverty by Social Security were seniors, and 53.5 percent of the individuals lifted out of poverty by refundable tax credits were children.

Refundable tax credits generally target assistance to the bottom 60 percent of taxpayers, boosting incomes and helping families to pay for the increasing costs of essentials, including housing, healthcare and child care.

The Need for More Congressional Action

Lawmakers can and should be doing more to continue targeted relief for those who need it the most. The CARES Act relief, while impactful, was not without flaws. It was ultimately temporary aid with significant gaps.

Given the proven effectiveness of both cash assistance and refundable low-income tax credits in reducing poverty and providing much-needed support to low-income people, federal lawmakers should enact another round of significant direct aid to people and families and aid to state and local governments and small businesses.

Congress should also focus on expanding low-income credits, as approved by the House in the HEROES Act, to reach people currently receiving little if any benefit, including childless adults receiving only a minimal EITC and very low-income families currently deemed “too poor” to qualify for the CTC. Moreover, Congress should enact the HEROES Act provision that would allow recipients to use their 2019 income when claiming their 2020 EITC—acknowledging that 2019 was a more normal year for earnings—in instances where earnings fell dramatically from 2019 to 2020 due to the pandemic and its economic fallout.

Steps that State Lawmakers Can Take

Fortunately, state lawmakers also have many tools at their disposal that will allow them to drastically improve the lives and wellbeing of those most impacted by this economic and public health crisis. While we all continue to wait for Congress to take meaningful action, state lawmakers can consider the following steps:

1) Continue to make a clear and united case to federal policymakers for effective assistance to help states and localities in the short- and medium-term. For a number of reasons, the federal government is better positioned to pursue short-term economic stimulus than the states. And while leaders at the federal level have approved vital emergency spending, assistance for state and local governments has remained distressingly inadequate. The magnitude and expected duration of this crisis will require additional federal support and leadership.

2) Use targeted, effective policies administered via state tax codes. While state lawmakers have less ability to stimulate the economy, they do determine the level of state resources and where those resources ultimately flow. State lawmakers can focus their energy on those who are the most in need by using their tax codes as poverty-fighting tools. Astonishingly, tax policies in virtually every state make it harder for those living in poverty to make ends meet. By aiding those at the bottom—who disproportionately pay more as a percent of their incomes in state and local taxes—lawmakers can pursue policy solutions that lift struggling individuals and families up and out of poverty.

There is no doubt that revenues to meet these needs are tight right now. Both states and localities are struggling to balance their budgets and provide key services. Therefore, it is more vital than ever that states make every dollar count. Targeted, refundable tax credits are effective in putting money in the hands of those who need it most. Lawmakers should call on the most fortunate households to pitch in to help their vulnerable neighbors. States cannot run deficits to fund their needs, but they do have the ability to raise taxes on rich households and ask more of those who are getting by relatively unscathed.

More here on ways to add flexibility and expand the EITC during the pandemic.

3) Lay the groundwork for bigger, bolder reforms. The events of the past few months have laid bare the stark divide between those with and without the means to weather economic shocks. State lawmakers should set the stage for ambitious policy proposals that will do more to curb income inequality, alleviate poverty, and correct the upside-down nature of state and local tax systems. For instance, lawmakers can make important strides in expanding the eligible populations of state Child Tax Credits and state Earned Income Tax Credits.

This morning’s Census release is a reminder that—even in good times—public policy can be an effective tool for curbing income inequality and alleviating poverty. The current economic and public health crisis is challenging families, communities, and industries in ways no one could have predicted. In such times, it should be reassuring that we have programs in place that are tried-and-true mechanisms for delivering resources to families who need it most, and lawmakers should seek to build on these programs when debating how best to direct aid in these turbulent times.


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