The Census Bureau released its annual report on income, poverty, and health insurance coverage for the U.S. population on August 26, 2008. According to the report, median household income increased by 1.3 percent in 2007, while the overall poverty rate dipped slightly and the number and percentage of people without health insurance decreased.
While the overall numbers were positive, not everyone shared in the economic gains. The number and percentage of children in poverty increased, and households in the lowest 40 percent of the income distribution had no significant income gains.
The poverty line or poverty threshold was developed in the 1960s, based on the cost of an economy food plan and the fact that families then spent about a third of their income on food. Although pretax cash income understates the resources available to low-income families because it fails to consider the value of food stamps and the value of refundable tax credits like the EITC, the poverty line is way below what it takes for a family to cover basic living costs today. Doing so has become even more difficult as costs of the most important household expenses—food, transportation, and housing—have increased over the past year.
In July, the Urban Institute released a series of essays that proposed new and revised programs that would help low-income working families (those with incomes below twice the poverty level) cover expenses and get ahead. In this Q and A session, the authors respond to questions about the implications of the new income, poverty, and health insurance statistics.
What do the new income statistics imply for the ability of low-income workers to provide decent housing in safe neighborhoods for their families?
Gregory Acs and Margery Austin Turner: A family can afford to pay about 30 percent of its income on housing, according to widely accepted standards. Data released today on the incomes of U.S. families in 2007 suggest that many low-income working families are likely to have trouble paying the rent and meeting their mortgages.
A family of four (two adults and two children) living at 2007’s poverty line ($21,027) can afford $526 a month in rent—far less than fair-market rents for a two-bedroom apartment in most metropolitan areas. Indeed, this family would have to spend 34 percent of its income to rent in Mobile, Alabama; 45 percent in Phoenix, Arizona; 53 percent in Chicago, Illinois; and 68 percent in New York City, New York.
Although median household income rose by about $700 between 2006 and 2007, the average income for households between the 20th and 40th percentile of the income distribution—the typical income range for low-income working families—did not grow at all, coming in at $29,442 in 2007. For households at this income level, an affordable housing payment would be $735 a month, so fair-market rents for a two-bedroom apartment would be technically unaffordable in Phoenix, Chicago, and New York.
For families owning their own homes, $720 a month translates into a home loan of about $116,000 (at 6.5 percent interest on a 30-year loan). Further, the family would also have to pay property taxes and mortgage insurance (unless it had over 20 percent equity in the house). Although single family homes sell for below $116,000 in some parts of the country, the median home price nationwide is about $220,000 and ranges from about $160,000 in the Midwest to $340,000 in the West. Thus, home ownership is likely out of reach for many low-income working families.
What’s the best way to help low-income working families pay high housing costs? One solution is a housing tax credit that can make up half the difference between what affordable, decent housing costs and what a minimum wage worker (using $7.25 an hour) can make working full-time, year-round. Families earning between $15,080 and $40,000 would be eligible for the full credit under this plan. Thus, a family of four in Phoenix with an annual income of $29,442 paying fair-market rent could receive a $2,430 housing credit. If, instead, the family owned an affordable home (as defined above), it would receive a credit of $2,148—far larger than the mortgage interest deduction they could claim.
What do the new figures on health insurance coverage imply for access to health care in this country?
Linda Blumberg and Cynthia Perry: Health insurance shields families from financial risk associated with health care expenses and improves access to timely health care—protections that are especially important for low-income families, whose incidence of health problems is higher than average.
Children living in families below the poverty line are eligible for public health insurance through Medicaid or SCHIP. But most states provide no public insurance coverage to poor adults without children, and more than half of all states limit eligibility for parents to levels less than the poverty line. In short, many poor adults do not qualify for Medicaid coverage. For families with incomes below the poverty line, premiums for health insurance purchased through an employer or the nongroup market, when available, can be prohibitively expensive, and premium prices are rising.
Although the percentage of Americans without insurance fell slightly from 2006 to 2007, the share getting private insurance coverage fell, and the share getting public insurance rose. Without the limited safety net of the current Medicaid/SCHIP programs, the rate of uninsurance would likely have been higher, particularly for low-income adults. In all, 45.7 million people still have no insurance. Thirty percent of the uninsured live in households with incomes less than $25,000.
Comprehensive health care reform based on five key components would better support the nation’s families:
- State-based purchasing pools to provide a guaranteed source for purchasing health insurance;
- Income-related subsidies for premiums and out-of-pocket costs;
- Premium subsidies to offset the excess risk plans face in the purchasing pool because those who enroll might have more health problems than the population as a whole;
- A requirement that all individuals enroll in health insurance coverage of some type (public or private), a so-called individual mandate; and
- Strategies to slow the rate of increase in health care spending and to provide care more efficiently.
How does the change in the poverty level relate to the recent surge in unemployment? If we can lower unemployment, will that solve the poverty and income problem? Or do we need more?
Harry Holzer and Karin Martinson: Despite modest improvements over the previous year in median earnings and household income, the data released for 2007 show that the nation’s poverty rate remains well above its level in 2000 while the median household income remains below its inflation-adjusted level for that year.
These statistics mostly do not reflect the current economic slowdown, which began in late 2007 but has grown more serious in 2008. Thus, they demonstrate, even when the labor market is relatively strong, earnings for lower- to middle-income workers can stagnate, and they will likely decline over the next few years as the downturn’s effects spread.
The ability of poor adults to rise out of poverty goes hand in hand with their ability to earn more. In a labor market where earnings stagnate, poor workers’ advances will depend mostly on whether they get any additional education or training to upgrade their job skills and increase their access to higher-paying jobs. But the public dollars available for training have fallen dramatically over time.
A good solution is for the federal government to help states build “advancement systems” that provide training, access to growing labor-market sectors with higher-wage jobs, work supports such as child care and transportation, and financial supplements to low-wage workers.
Since people have to leave TANF at some point and get jobs, can’t we just solve much of the poverty problem by expanding the economy?
Pamela Loprest and Karin Martinson: A better job market, with more jobs and lower unemployment, will definitely help many workers in poor families find jobs more easily. We saw this in the late 1990s in the early years of TANF implementation. But even during a boom time, a significant number of TANF recipients will have a difficult time finding or holding down full-time jobs without any intervention or support because they have major personal challenges that limit their ability to work. These challenges range from mental or physical health problems or disabilities to substance abuse, domestic violence, low literacy, learning disabilities, a criminal record, or the need to care for a disabled child.
While many facing these challenges do work, studies show that these individuals are less likely to be employed or steadily employed, especially those with multiple challenges. And some can manage only part-time work, which on its own can leave families in poverty. While in most states, TANF benefits can be received only for a limited time, an end to benefits does not come with a guarantee of full-time work. Past studies show that a significant number of former TANF recipients are not working and face multiple serious challenges to work.
When people lose their jobs, doesn’t unemployment compensation keep them from falling into poverty?
Margaret Simms: Unemployment insurance compensates workers who lose their jobs through no fault of their own—when an enterprise closes, downsizes, or lays off employees. But less than 40 percent of all workers who lose their jobs ever see unemployment compensation. And if they do, it provides, at best, half of prior earnings. Then too, low-wage workers are less likely to receive payments and, when they do, the amounts are too low to keep many out of poverty.
For example, the typical worker in a family whose income totaled less than twice the poverty level would have earned $372 and $425 a week in 2006 but gotten an average of $220 a week in unemployment compensation. If he or she was the sole breadwinner in a family of four, the family would be about 50 below the poverty line, making it hard to pay bills without tapping savings, which low-income families are less likely to have. In two-earner families, unemployment insurance can make the all-important difference between staying out of and sinking into poverty.
Three changes in unemployment insurance would make it more helpful to low-income workers. First is allowing workers to leave a job to relocate with a spouse, care for a family member, or escape domestic violence and still be eligible. Second is counting most recent earnings and time worked, rather than total wages received, before leaving a job when calculating eligibility. Last is boosting dependent payments so that workers with children have a little more to cover basics. It’s up to states to set the rules and payment levels for unemployment compensation, not Washington, but federal incentive payments would make it easier for states to do better by struggling working families.
With the poverty rate among families with children going up and incomes not increasing much, what are families doing to pay their bills? How can government help them out?
Signe-Mary McKernan and Caroline Ratcliffe: As families struggle to make ends meet, families will draw down any savings they might have to pay their bills. But many low-income families don’t have a savings account, so must turn elsewhere to try to meet their obligations. A third of low-income families without a savings account report that they would use a payday lender or pawn something to cover an emergency.
Increasing the competition for and regulation of small loans could help low-income families weather crises. For example, requiring small loan providers to give consumers standard, clear, and timely disclosures of the total loan cost will help consumers understand their full loan obligation and compare lenders. Developing longer-term small loan products for frequent borrowers and encouraging mainstream banks to offer small loans with a savings component can also help families come through hard times.
So can supporting asset development. Here’s how: most federal spending to promote savings funds tax breaks that most low-income families never see, but programs that promote low-income families’ asset building—such as individual development accounts (IDAs)—have been shown to effectively increase families’ assets, even in a weak economy. In fact, analyses of these programs show low-income IDA participants, given the right signals and incentives, saved even amid financial challenges. Supporting savings incentive programs thus helps low-income families today and tomorrow.
What do the new poverty figures for children mean? How can we help these children?
Shelley Waters-Boots and Jennifer Macomber: The figures for 2007 show the percentage of children in poverty rising to 18 percent, the highest rate since 1998. This means that more children are continuing to grow up in families that often struggle to meet basic needs for food, housing, and affordable quality child care.
For low-income families especially, the high costs of child care may prevent parents from working more to increase their incomes. Additionally, when child care is of high quality, especially in the early years, it is a developmental support that helps low-income children overcome poverty’s effects. High-quality child care can help poor children by improving their cognitive, social, and emotional development and increasing their chances of school success.
In that sense, high-quality child care is a win-win policy proposal—one that provides care and improves children’s life chances. The best way to reach this double goal is through a child care guarantee for all families with incomes below 250 percent of the federal poverty line. In this program, parents working 20 or more hours a week would be guaranteed a voucher for care of their choosing—and poor families would be required to pay only 3 percent of their income toward a copay for care.