Stimulus spending drove poverty lower again in 2021, Census Bureau reports

The federal government’s exceptional support for households in response to the pandemic lowered a widely followed measure of poverty last year, after doing the same in 2020, the Census Bureau reported Tuesday.

The poverty rate fell to 7.8% in 2021, down from 9.2% the previous year, according to the Supplemental Poverty Measure, a yardstick that adjusts for geographic differences. It also includes wage income, taxes and the fullest account of government aid.

In addition, the share of children living in poverty sank to a low of 5.2%, down 4.5 percentage points from 2020, a continuation of a long-term trend. The rate of people with health insurance at any point during the year rose slightly to 91.7%.

Some of that poverty reduction and increased health coverage probably stemmed from a strengthening labor market that helped people return to work at higher wage levels — but in large part, it reflects the trillions of stimulus dollars approved by Congress, culminating in the American Rescue Plan of March 2021.

Real median household income reached $70,800, not significantly different from 2020, as increases in employment were offset by 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The “official” poverty rate, generally considered outdated because it omits hundreds of billions spent on programs like tax credits and housing assistance, also did not change significantly from the previous year.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 Joe 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.”

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.

“We don’t need to have a permanently expanded safety net,” said Scott Winship, director of poverty studies at the right-leaning

American Enterprise Institute. “Policymakers will step in when more people are in need. We got 2020 right; 2021 we got all wrong.”

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.

Both a recent survey by the Urban Institute and the Census Bureau’s Household Pulse Survey, however, have found food insecurity rising amid falling aid and higher food prices.

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. 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 MIT 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.

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 fiance.

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 one-third of the assistance, including the expanded child tax credit, consisted of pandemic-related aid, while the rest came from the permanent safety net.

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,” 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. 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 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.”