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Introduction
Next week the United States Census Bureau will release its annual report on “poverty” stating, as it has for many years, that there are some 31 million to 32 million poor Americans, a number greater than in 1965 when the War on Poverty began. Evidence mounts, however, that the Census Bureau’s poverty report dramatically understates the living standards of low income Americans.
Here is a sample of facts that will not be mentioned in next week’s poverty report.
* 38 percent of the persons whom the Census Bureau identifies as “poor” own their own homes with a median value of $39,200.
* 62 percent of “poor” households own a car; 14 percent own two or more cars.
* Nearly half of all “poor” households have air-conditioning; 31 percent have microwave ovens.
* Nationwide, some 22,000 “poor” households have heated swimming pools or Jacuzzis.
“Poor” Americans today are better housed, better fed, and own more property than did the average U.S. citizen throughout much of the 20th Century. In 1988, the per capita expenditures of the lowest income fifth of the U.S. population exceeded the per capita expenditures of the median American household in 1955, after adjusting for inflation.1
Better Off Than Europeans, Japanese
The average “poor” American lives in a larger house or apartment than does the average West European (This is the average West European, not poor West Europeans). Poor Americans eat far more meat, are more likely to own cars and dishwashers, and are more likely to have basic modern amenities such as indoor toilets than is the general West European population.
“Poor” Americans consume three times as much meat each year and are 40 percent more likely to own a car than the average Japanese. And the average Japanese is 22 times more likely to live without an indoor flush toilet than is a poor American.
The Census Bureau counts as “poor” anyone with “cash income” less than the official poverty threshold, which was $12,675 for a family of four in 1989. The Census completely disregards assets owned by the “poor,” and does not even count much of what, in fact, is income. This is clear from the Census’s own data: low income persons spend $1.94 for every $1.00 in “income” reported by the Census. If this is true, then the poor somehow are getting $0.94 in additional income above every $1.00 counted by the Census. Indeed, the gap between spending and the Census’s count of the income of the “poor” has grown larger year by year till, now, the Census measurement of the income of poor persons no longer has any bearing on economic reality.
Ignoring Billions of Dollars
A key reason that the Census undercounts the financial resources of the “poor” is that, remarkably, it ignores nearly all welfare spending when calculating the “incomes” of persons in poverty. Thus, as far as the Bureau is concerned, billions of dollars in in-kind benefits to poor Americans have no effect on their incomes. Out of $184 billion in welfare spending, the Census counts only $27 billion as income for poor persons. The bulk of the welfare system, including entire programs that provide non-cash aid to the poor, like food stamps, public housing, and Medicaid, is completely ignored in the Census Bureau’s calculations of the living standards of the “poor.” The missing welfare spending that is excluded from the Census Bureau poverty reports comes to $158 billion, or over $11,120 for every “poor” U.S. household.
The Census Bureau’s poverty reports should be replaced by a new survey that counts income and assets accurately. With accurate counting, the number of poor persons would be shown to be only a small fraction of the Census Bureau’s current estimate of 31.8 million.
Behavioral Effects of Welfare
However, the fact that there are fewer Americans living in material poverty than the official Census poverty report indicates, does not mean that the War on Poverty has been a success. Welfare spending seriously diminishes work effort and earned income. The largest effect of increased welfare spending is not to raise income but merely to replace self- sufficiency with dependence. Welfare also undermines family structure. In 1965 the black illegitimate birth rate was 28 percent; today it is 64 percent. Properly measured, the number of persons in material poverty has shrunk since 1965, but at the unnecessary cost of producing a burgeoning underclass. The current welfare system has created entire communities where work is rare, intact families virtually unknown, and dependence on government a way of life passed on from generation to generation.
How the Census Bureau Understates Income
The most comprehensive survey of welfare spending is provided by the nonpartisan Congressional Research Service (CRS) of the Library of Congress. The CRS tracks state, local, and federal welfare spending in 75 “means-tested” programs, which are programs with benefits restricted to persons with low or limited income.2 The CRS figures include programs targeted to low income persons such as Aid to Families with Dependent Children (AFDC), food stamps, and public housing. By contrast, the CRS does not include programs available to the general population, such as Social Security.
In fiscal 1988, the CRS recorded $173 billion in means-tested welfare spending at all levels of government.3 There was an additional $11.2 billion in Medicare spending on poor persons that year which was not included in the CRS total.4 The CRS means-tested figures plus Medicare benefits for poor persons yield a total welfare spending of $184.2 billion in 1988.
During the presidency of Ronald Reagan, Americans were inundated by media reports of draconian cuts in welfare spending. But, the CRS data show otherwise.5 Today, welfare spending is at an all-time high. Adjusted for inflation, welfare spending at the state, local, and federal levels rose consistently through the 1980s. As Table 1 shows, welfare spending in constant 1988 dollars rose from $156.6 billion in 1980 to $184.2 billion in 1988. The total comes to $5,790 for every poor person in the U.S., or $23,160 for a family of four.
The Missing Billions
The Census Bureau considers a household as “poor” if its income falls below a specified “poverty income threshold.” In 1988 the poverty income threshold for a family of four was $12,675. That year, the Census Bureau estimates there were 33.3 million people who were poor before receiving welfare benefits; after receiving welfare benefits the number of poor persons fell to 31.9 million.6 In other words, according to the Census Bureau, $184 billion in welfare spending reduced the number of poor persons in the U.S. by only 1.4 million, or $131,570 in spending for each person lifted out of poverty. How is this possible?
The answer is simple: In counting the incomes of poor persons the Census Bureau actually excludes almost all welfare assistance. Some 75 percent of welfare spending in the U.S. is in the form of “non-cash” assistance. Yet the Census Bureau ignores all non-cash benefits in determining the income of poor persons. Non-cash programs such as food stamps, public housing, energy assistance, school lunch and breakfast programs, and the Women, Infants, and Children’s (WIC) food program are excluded from the Census Bureau’s poverty calculations entirely.
Thus, the Census Bureau counts most persons receiving non-cash welfare as poor even if the total value of the welfare assistance received greatly exceeds the poverty income thresholds.
Example: In 1988, many indigent elderly couples in New York state received income support from the Supplemental Security Income program and public housing assistance worth, on average, $12,290. These couples also received Medicaid benefits costing an average of $7,548. Despite the fact that they received welfare benefits with an average value of $19,838, compared to the official poverty income threshold in 1988 of $7,704 for elderly couples, the Census Bureau counted such elderly persons as “poor.”7
Example: In Massachusetts in 1988 a welfare mother with three children could receive welfare benefits in the form of AFDC, food stamps, public housing, Medicaid, and school lunch and breakfast programs costing the taxpayers $18,765 per year. The poverty income threshold for such a family that year was $12,092. But the family would still be counted as poor by the Census Bureau.
Contradicting Itself
The misleading income figures used in the Census Bureau’s annual poverty reports even contradict other Census data. Each year the Census Bureau undertakes a detailed survey of family expenditures to determine spending on rent, food, clothing, transportation, medical care, entertainment, and other items. While the Census Bureau poverty survey estimated that the average annual income of the poorest 20 percent of U.S. households in 1986 was $5,904, the Bureau’s Consumer Expenditure Survey showed that these same households were spending an average of $11,477 that year. Thus the Census Bureau found that low income households spent $1.94 for every $1.00 of income reported in the Bureau’s own income estimates. 8 A small part of this discrepancy might be explained by some retired or temporarily unemployed individuals spending their savings. But a major part is due to excluded welfare income.
Underestimating the Welfare State
Table 2 analyzes the discrepancy between CRS and Census Bureau figures on welfare spending. According to CRS and other government sources, welfare spending was at least $184 billion in 1988. But the Census Bureau counted only $27 billion in welfare assistance when measuring household income. Part of this difference can be explained by welfare spending on persons in nursing homes and other institutions. These Americans are not included in the population surveyed by the Census in compiling its incomes and poverty data. Excluding welfare spending on persons in institutions, total welfare spending still equalled at least $155.6 billion, so the total funds “lost” by the Census Bureau poverty reports amounted to $128.7 billion in 1988.
Why the “Poor” Will Always Be With Us
The Census Bureau not only counts the number of poor persons in the U.S.; it also calculates the “poverty gap.” This is the total amount of government assistance that would be needed to raise the income of all poor Americans up to the poverty income threshold. In 1986, the last year for which data are available, the poverty gap — before persons received any welfare benefits — was $64.9 billion. 9 After taking welfare benefits into consideration, the Census Bureau put the poverty gap at $48.8 billion.10 Thus, according to the Bureau, $126.2 billion spent on non-institutionalized persons in 1986 shrank the poverty gap by just $16.1 billion. Every $1.00 reduction in poverty, in other words, required at least $7.80 in welfare spending.
Besides the exclusion of non-cash aid in measuring the impact of government assistance, two other factors help explain why enormous welfare spending appears to make such a small dent on poverty. First, up to 10 percent of all cash welfare spending is diverted to administrative costs. Second, the government distributes up to half of all welfare spending to persons who have low incomes but are not below the poverty line.
The implications of these figures are sobering. The total pre-welfare poverty gap in 1990 is approximately $70 billion. Given the Census Bureau’s current methods of measuring income, if the government expanded the existing welfare system, which provides 75 percent of benefits in non- cash assistance and targets nearly half of all aid to non-poor persons, it would require a staggering $546 billion in welfare spending — or 46 percent of the total federal budget — to eliminate “poverty” in the U.S. As long as the Census Bureau continues to count poverty with its current methods, the U.S. inevitably will have a large number of “poor” persons every year for the foreseeable future.
Examining “Poverty” in America
In addition to the serious deficiencies of the Census Bureau’s measurement of income, the government’s view of what constitutes “poverty” would be surprising to most Americans. Government data on the possessions of officially poor households starkly contradict the general public understanding of what it means to be “poor.”
Example: Nearly a third of all “poor” American households have microwave ovens.11
Example: Sixty-two percent of “poor” households own a car, truck or van. Fourteen percent own two or more cars.12
Example: According to government figures, over 22,000 “poor” households have a heated swimming pool or a Jacuzzi.13
Today, officially “poor” households are more likely to own common consumer durables such as televisions and refrigerators than the average family in the 1950s. In 1930, nearly two-thirds of U.S. households did not own a radio; over half had no form of refrigeration. Among the poor today, less than one percent lack a refrigerator.14
Seventeen percent of U.S. households in “poverty” have automatic dishwashers, well above the rate for the general West European population in 1980.15 Among America’s “poor” there are 344 cars per 1,000 persons.16 This is roughly the same ratio as exists for the total population of the United Kingdom. A poor American is 40 percent more likely to own a car than the average Japanese; 30 times more likely than the average Pole; and 50 times more likely than the average Mexican.17
Housing Conditions of the “Poor”
According to the 1987 U.S. Census Housing Survey, 38 percent of poor households own their own homes, with a median value of $39,205.18 Nearly 50 percent of officially poor households are air conditioned. 19
The homes of these households, whether owned or rented, also are on average quite spacious by historic or international standards. By American standards, “crowded” housing means more than 1.5 persons occupy each room. Less than 2 percent of “poor” U.S. households were “crowded” in 1987, according to this definition, and only 7.5 percent of poor households had more than one person per room.20
On average, officially poor U.S. households have 0.56 persons per room, which means they have more space than that available to the average American household in 1970, and the average West European household in 1980.21 By contrast, the average Japanese lives in a home with 0.8 persons per room, the average Mexican lives in a house with 2.5 persons in a room, while the average citizen of India lives in a house with 2.8 persons per room.22
Nearly all officially poor U.S. households, moreover, are equipped with basic modern plumbing, including running hot and cold water, indoor flush toilets and indoor baths. While 30 percent of all Americans were without indoor toilets, in 1950, less than 2 percent of poor Americans lacked them by 1987.23 As Table 7 shows, America’s poor are less likely to lack indoor plumbing than the general population in Western Europe. The average Japanese is 22 times more likely to lack an indoor toilet than is an American officially classified as “poor.”
The houses and apartments of America’s “poor” are in far better condition than generally assumed. The median age of such housing units is only seven years greater than the median age for the overall U.S. housing stock.24 The overwhelming majority of this housing is in sound condition. According to the 1987 American Housing Survey of the U.S. Census, only 2.4 percent of housing units owned or rented by households deemed “poor” had significant structural defects such as crumbling foundations or missing roof material.25 Some 9 percent of poor households reported being uncomfortably cold at least once during the previous winter due to inadequate insulation, inadequate heating capacity, or equipment failure.26 This was roughly double the rate for the general population.
Food Consumption Of Low Income Americans
On a per capita basis, low income households in 1988 spent 80 cents on food for every $1.00 spent by the median American household.27 And out of every food dollar spent by low income persons, 32 cents was spent in restaurants.28
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US household wealth reaches high of $77 trillion
Associated Press
Posted on December 9, 2013 at 2:02 PM
Updated Monday, Dec 9 at 4:02 PM
WASHINGTON (AP) — A surging stock market and a steady recovery in home prices drove Americans’ wealth to a record last summer.
The nation’s wealth rose 2.6 percent from July through September to $77.3 trillion, the Federal Reserve said Monday. Household wealth has been rising gradually since bottoming at $57.2 trillion in 2008. Early this year, America finally regained all the wealth it had lost to the Great Recession.
Rising personal wealth has been a pillar of the slow but steady U.S. economic recovery. When Americans feel richer, they typically spend more and fuel economic growth.
Household wealth, or net worth, reflects the value of homes, stocks, bank accounts and other assets minus mortgages, credit cards and other debts.
From July through September, rising stock prices boosted Americans’ net worth by $917 billion. Higher home values added $428 billion more.
The Fed’s figures don’t go beyond September. But stock prices have continued to rise since last quarter ended, which means household wealth has, too. Since Oct. 1, the Standard & Poor’s 500 stock index has risen nearly 6 percent. Home prices in many areas have continued to rise, though more slowly than they did earlier in the year.
The Fed’s report also showed that Americans are willing to borrow more. This suggests that many are growing more confident in their jobs and in the broader economy.
When adjusted for inflation, net worth remains about 1 percent below its pre-recession peak. But the gains in stock and home prices during the current October-December quarter will likely lift inflation-adjusted household wealth to a record.
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