2015 Poverty Measures Released: Antipoverty Relief Delivered through the IRC = EITC & CTC

By:  Francine J. Lipman

“Few topics in American society have more myths and stereotypes surrounding them than poverty, misconceptions that distort both our politics and our domestic policymaking.” Mark R. Rank

The U.S. Census Bureau of the Department of Commerce: Economics and Statistics Administration has released the 2015 poverty measures and the news is eye-poppingly good. The Supplemental Poverty Measure (SPM), the most comprehensive poverty measure, dropped one percent from 2014. Down from 15.3% to 14.3% — nevertheless more than 

Forty-five million people lived in poverty in America in 2015. These people, like Reno pictured above, are disproportionately children, and not surprisingly are people without health insurance, renters, and historically lower wage earners because of inherent discrimination and inequality in wages (or allocation of market income) for women, people of color, and people who are differently-abled.

State poverty statistics were also released and at the high end of the list is Washington D.C. (22.2%), a place that I have recently written about for the ABA Tax Times, California (20.6%), another place I have written about regarding high poverty in the City of (Fallen) Angels, and Florida (19%), in the queue because the ABA-Tax Section Meeting in January will be in Orlando. At the low end of the state poverty statistics are New Hampshire (8.7%), Vermont (8.8%), Minnesota (9.1%), and Nebraska (9.1%).

POVERTY MEASURES 101

While the resulting numbers and data are critically important for better managing fiscal (including tax) policy in the U.S.A., my recent focus (obsession) and forthcoming research paper, “(Anti)Poverty Measures Exposed” details how the Official Poverty Measure (OPM) and SPM are calculated including how antipoverty programs work. As the cliché goes the devil is in the details — as such I have diligently waded through and reverse-engineered the SPM and OPM mechanics. As the economist who devised the current poverty threshold Molly Orshansky has said, “[t]here is no particular reason to count the poor unless you are going to do something about them.”  This project has better informed my understanding of the measurement process, the data, and in turn the issues facing our friends, family, and neighbors.

ANTIPOVERTY POWER OF WORKFARE THAT IS THE EITC & REFUNDABLE CTC

In 2015 about 9.2 million people, including 4.8 million children, were lifted out of poverty with the EITC and the refundable portion of the Child Tax Credit. Without EITC and CTC benefits, the poverty rate would increase by about 3%. While these numbers pale by comparison to the antipoverty miracle of Social Security and SSI benefits, which lift about 30 million individuals out of poverty annually, including about 18 million seniors and 2 million children. SS and SSI benefits decrease the poverty rate by more than 9%.

After the EITC and refundable portion of the CTC, the next most successful antipoverty government program provides only about 1/2 the people lifting antipoverty relief. SNAP (a completely noncash or inkind only benefit, previously known as food stamps)  lifted 4.6 million people out of poverty including 2 million kids. Traditional welfare, which is almost nonexistent in 2015, is now called TANF (formerly Aid to Families with Dependent Children). TANF lifted 664 thousand, including only 77 thousand kids, out of poverty in 2015.

Consistent with federal income tax policy, the federal income tax only pushed about 1.4 million individuals into poverty. These individuals are predominately working age likely childless individuals. This result is consistent with Jason Furman’s, among others’, policy calls for increasing childless worker EITC benefits. By comparison payroll taxes pushed almost 5 million individuals into poverty. One of the reasons Congress enacted antipoverty EITC benefits was to offset regressive payroll taxes. Poverty data seems to indicate that this strategy might be working as the benefits of the EITC appear to more than offset the burdens of federal and state income taxes and FICA payroll taxes.

CENSUS BUREAU TAX CALCULATOR

Some interesting findings regarding this data is that it is not based upon information obtained from individual surveys, but rather is based upon the Census Bureaus’ tax calculator. The Census Bureaus’ tax calculator makes several assumptions including (1) that everyone files a tax return (irrespective of whether or not the taxpayer has a filing requirement);  (2) all computed tax liabilities are paid and all refunds are received; and (3) that everyone has a valid Social Security number authorizing work (required for EITC relief). Those of us who are privileged enough to work on the front lines of tax justice know that none of these assumptions are 100% accurate. Nevertheless the Census Bureau regularly tests the calculator against actual IRS data and the overall impact that these tax calculation variances have on the overall SPM is not significant or about .1%. Notably, you might think that these assumptions would overstate EITC and ACTC benefits, but you would be wrong.

A comparative analysis of the Census Bureau’s tax calculator with 2012 IRS tax data indicates that the tax calculator picked up about 85% of the aggregate federal income tax liability (over estimating lower-income tax liabilities and under-estimating higher income tax liabilities); 84% of the combined CTC and ACTC; and only 71% of the EITC. The shortfall for estimating the EITC was about $18.8 billion of $64.1 in 2012 EITC benefits. Experts have speculated that a substantial share of the discrepancy could be EITC taxpayer errors. The tax calculators assume full compliance with tax laws and no application errors. The Treasury Inspector General of Tax Administration has indicated that about 21-25% of EITC claims are in error including about 70% of errors regarding qualifying children, filing status, and claims regarding nontraditional living situations.

Obvious additional issues with the Census Bureau’s tax calculations include that income and expense data are collected for the prior year, but household demographics (e.g., who is residing in the household) are as of the date of the survey. This inconsistency makes dependent focused deductions and credits difficult to calculate. In addition, respondents might be answering survey questions with gross income amounts that are included as fully taxable when in reality some of the income might be tax-exempt. When respondents do not answer income inquiries the Census Bureau imputes income amounts. Research data indicates that this is done in about 30% of cases and that imputed income data results in too few low-earners and too few high-earners.

Another possible explanation is that the population universe used for determining the SPM and OPM intentionally excludes about 9.1 million individuals, or almost 3% of our gross population. Given demographic data many of these individuals are properly claiming and receiving EITC and CTC benefits. I look forward to delving into the people who are not even counted at all under the OPM and SPM in a future tax justice post.

P.S. If you want to hear more about my findings ABA-Section of Taxation, Diversity Committee has a lunch panel scheduled on September 30 at the ABA – Tax Meeting in Boston, including Temple Law Professor Alice Abreu and Georgetown Research Fellow Michelle Layser, plus on October 24, there is a free webinar during ProBono week sponsored by ABA Sections of Tax and Civil Rights and Social Justice featuring Senior Director of Tax Policy Alexandra Thornton of the Center for American Progress.

“If I could change anything, it would be being poor. I really don’t want to be poor because then you can’t get— because then how can you pay your rent? How can you get food? How can you get a roof over your head if you’re going to be poor?” Kaylie, age 10.

FRONTLINE Poor Kids
Photo Credit: Jezza Nuemann

 

 

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