Poverty

The Earned Income Tax Credit, Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and the dependent exemption all provide benefits to families with children. In 2009, a single mom (or dad) with two children can receive benefits ranging from $0 to about $7,500 - depending on her income, age of the children, and where the children live. While this assistance is extremely important to many low-income families, they must navigate a bewildering set of rules to take full advantage of the credits. Due to the piecewise implementation of these credits and exemptions, total benefits bounce around erratically as income grows.

Data from the 2007 Survey of Consumer Finances show a disturbing reality. Even prior to the current recession, many families did not have enough assets to see them through a modest spell of unemployment or another financial emergency. In 2007, nearly one in three U.S. families were liquid asset poor. Low-income, young, and nonemployed families are more vulnerable to economic emergencies. For example, two-thirds (68 percent) of bottom income quintile families and 47 percent of second income quintile families are liquid asset poor, while such shortfalls affect only 1 percent of top income quintile families.

This paper reviews the literature on poverty dynamics in the United States. It surveys the most prevalent data, theories, and methods used to answer three key questions: How likely are people to enter, exit, and reenter poverty? How long do people remain in poverty? And what events are associated with entering and exiting poverty? The paper then analyzes the combined findings of the literature, discussing overarching patterns of poverty dynamics, differences among demographic groups, and how poverty probabilities, duration, and events have changed over time. We conclude with a discussion of the policy implications of these findings and avenues for future research.

Between 2007 and 2008, real incomes fell and poverty rose in the United States, Institute Fellow Harry Holzer testified before the Joint Economic Committee of Congress. Even if the recession ends this year, rising unemployment will mean that real income keeps falling while poverty increases for a few more years — and almost certainly by much more than occurred between 2007 and 2008. It will likely take several years beyond 2010 before real income and poverty fully recover from the effects of the downturn.

Slightly more than half of the U.S. population experiences poverty at some time before age 65. Roughly half of those who get out of poverty will become poor again within five years. Who is more likely to enter poverty? How long are people poor? And what events are associated with falling into and climbing out of poverty? This fact sheet summarizes key findings from the poverty dynamics literature to describe how, why, and when people move in and out of poverty.