A second year of emergency pandemic aid from the federal government drove poverty to the lowest level on record in 2021 and cut the number of poor children by nearly half, the Census Bureau reported on Tuesday.
The poverty rate fell to 7.8 percent, down from 9.2 percent the previous year, according to the Supplemental Poverty Measure, a yardstick that includes wages, taxes and the fullest account of government aid.
In addition, the share of children living in poverty sank to another record low of 5.2 percent, down 4.5 percentage points from 2020, an acceleration of a long-term trend. The share of people with health insurance at any point during the year rose slightly, to 91.7 percent.
Real median household income reached $70,800, not significantly different from 2020, as increases in full-time employment were offset by rising inflation and decreases in unemployment insurance, which had been supplemented above normal levels through the summer of 2021.
The “official” poverty rate, generally considered outdated because it omits hundreds of billions spent on programs like tax credits and housing assistance, also did not change significantly from the previous year.
This data covers a year that was profoundly influenced by a set of emergency programs that have largely expired. As the aid expansion has evaporated and inflation has risen, many families have again found themselves under financial strain.
Progressives see the reduction in poverty — even if temporary — as evidence that the federal government has the power to give people a better standard of living, and that it should continue to do so in the future. Many envisioned the expanded child tax credit in particular as a blueprint for a permanent program, but President Biden’s effort to extend it failed amid unified Republican opposition after it expired in December.
“This has been a large-scale experiment that shows that child poverty is a solvable problem in the United States, and that poverty more broadly is,” said Alix Gould-Werth, director of family economic security policy at the left-leaning Washington Center for Equitable Growth. “So in order to see these changes last, we really need sustained public investment.”
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Conservatives argue that large-scale federal aid was needed early in the pandemic, but that the spending grew too much and lasted too long, helping to fuel the price increases that have particularly affected low-income people in 2022.
The census numbers were the second indicator within a week that the emergency aid had reduced hardship. The Department of Agriculture reported last week that food insecurity among households with children had fallen to the lowest level on record. Food insecurity rose, however, among nonparents and older people living alone. That illustrates the impact of the expanded safety net, since families with children received a disproportionate share of the aid.
In 2021, according to the Commerce Department, stimulus checks added nearly $570 billion to Americans’ income (some of which the Census Bureau counted in 2020). Beefed-up unemployment insurance amounted to $339 billion, while the child tax credit, which was expanded to include people with little to no earnings, contributed nearly $128 billion.
Estimates vary about the degree to which fiscal stimulus overall drove the inflation that began soaring a year ago — supply chain snarls and the war in Ukraine also played a role. But much of the aid went to people who were not poor. And because low-income people tend to spend any subsidies quickly, while those with the wherewithal to save the money when it came in probably spent it over time, which fueled price increases into 2022.
“The idea was that pandemic insurance would find and fill the holes. The problem is, you painted a full wall to fill in a few cracks,” said Jonathan Parker, head of the finance department at the M.I.T. Sloan School of Management. Had pandemic aid been aimed only at those in real need, he said, any inflationary impact would have been “much, much less.”
Refundable tax credits, including the expanded child tax credit and the earned-income tax credit, removed 9.6 million from poverty. Stimulus checks shielded another 8.9 million people. Effects were particularly large for people of color. The share of Black children living in poverty, for example, sank to 8.3 percent in 2021, from 17.2 percent the previous year.
Some conservatives argue that the falling poverty rates carry few lessons for the future.
“OK, great, like poverty went down a lot, but it didn’t, really — not on a sustained basis,” said Michael R. Strain, director of economic policy studies at the American Enterprise Institute. “If you think of poverty in a broader sense related to issues around self-sufficiency and earnings and upward mobility, then I think a huge reduction in poverty based on a one-time temporary income transfer isn’t really a reduction in poverty at all.”
But for many recipients, the aid served as a springboard to a better life.
Among those who escaped poverty with government help is Kristina Ennis, 29, a restaurant server in Pittsburgh, who had her first child last year. Maternity leave reduced her income, and the pandemic led to a reduction in hours for her fiancé.
Their income, after taxes and work expenses, would have left them below the poverty line of $25,000. But the safety net provided them with help worth more than $18,000, accounting for stimulus payments, tax credits and food stamps. About a third of the assistance, including the expanded child tax credit, consisted of pandemic-related aid, while the rest came from the permanent safety net.
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Ms. Ennis said the financial pressure left the couple arguing and depressed until tax credits delivered nearly $8,000, easing their debts. She said the aid helped her be a more attentive mother and bought time for her boyfriend to find a better job, which more than doubled his pay. They used part of the money to finance their wedding, which is scheduled for Saturday.
“Seeing that much money come into our account was awesome,” Ms. Ennis said. “I felt like I could finally breathe — it definitely helped get us back on our feet.”
Pandemic-era changes were also evident in the number of people who gained health insurance coverage. Although the share of people with employer-based coverage sank, public coverage more than made up the difference. The American Rescue Plan expanded subsidies for plans purchased on the Obamacare exchanges, increasing sign-ups to a record level, while Congress banned states from pushing people off Medicaid plans during the pandemic. Several states expanded Medicaid on their own. Still, millions are expected to lose coverage when the public health emergency formally ends.
Of all the benefits received by Ms. Ennis, health insurance was the most important. She takes expensive medication for chronic depression that she cannot afford on her own, and recently got treated for the MRSA bacteria, which she said could have turned into a life-threatening condition if she had lacked insurance.
“If I hadn’t had Medicaid, I wouldn’t have gone to the hospital,” she said. “It literally saved my life.”
The expanded child tax credit, which increased the subsidy to $3,600 for every child under the age of 6 and $3,000 for those 7 to 17, and extended it to parents not working, has been well studied by think tanks and academics. Making it permanent, as progressives have advocated, would signify a departure from a trend toward incentivizing work that began in the 1990s with tougher welfare laws.
Some economists have argued that permanently expanding the child tax credit would over the long term lead some parents to work less, increasing poverty. But others have found the potential effects on work force participation to be much more minor, and the impact on children to be beneficial nonetheless.
“Maybe you will have a few people stop working, but regardless, there’s going to be a big decrease in child poverty,” said Jacob Bastian, an assistant professor of economics at Rutgers University. “We should encourage people to work as much as we can, but I don’t think that means doesn’t mean we don’t help people.”
In 2021 alone, surveys show, the child tax credit prompted low-income families to increase their intake of healthy meals, pay for tutoring and extracurricular activities for children and spend more on their own professional development. Even if 2021 marks a low point in the poverty rate — and measures of financial hardship are already on the rise — some effects may persist.
“Even temporary support can have lasting impact,” said Christopher Wimer, who directs the Center on Poverty and Social Policy at the Columbia University School of Social Work. “It’s going to take us 20 years to find out, but there is a great literature that shows — not just suggests, but shows — that improvements in income, especially at early ages, have long-term payoffs for kids.”
Margot Sanger-Katz contributed reporting.