A measure that accounts for all federal subsidies also showed a reduction of almost half in the number of children below the poverty level.
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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 in poverty sank to another record low of 5.2 percent, down 4.5 percentage points from 2020, a sharp acceleration of a long-term trend.
In large part, those changes reflect the trillions of stimulus dollars approved by Congress, culminating in the Democrats’ American Rescue Plan of March 2021, especially the expanded child tax credit, which temporarily provided an income guarantee to families with children.
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The “official” poverty rate, generally considered outdated because it omits hundreds of billions spent on programs like tax credits and housing assistance, also did not change significantly from the previous year.
The official poverty rate was 11.6 percent last year, but the supplemental rate — which accounts for the impact of government programs — fell to 7.8 percent.
The supplemental rate adjusts for geographic differences. It also includes wage income, taxes and the fullest account of government aid.
Sources: Census Bureau; Columbia University
This data covers a year that was profoundly influenced by a set of emergency programs that have largely expired. Since then, 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.
“Man, I’m just grinning ear to ear,” said Luke Shaefer, who runs a center on poverty at the University of Michigan and sees the expanded child tax credit as a blueprint for a permanent program. “Americans wonder if the government can shape successful policies that address poverty. This offers incontrovertible evidence that it can.”
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.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
But President Biden’s effort to extend the expanded credit failed, and it expired in December in the face of unified opposition from Republicans, who say the benefit is unaffordable and discourages work.
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 hurt low-income people in 2022. Many dismiss the significance of short-term poverty reduction based on huge expansions of government aid.
“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.”
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 fell in 2021 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 minimal or 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 more recently the war in Ukraine, also played a role. But much of the aid went to people who were not poor. And low-income people tend to spend any subsidies quickly, while those with the wherewithal to save the money spent it over time, which propelled price increases into 2022.
Those who are under 18 and living in poverty fell to a low of 5.2 percent in 2021.
Data are the supplemental poverty rates, which adjust for geographic differences. It also includes wage income, taxes and the fullest account of government aid.
Source: Census Bureau
“The idea was that pandemic insurance would find and fill the holes,” said Jonathan Parker, head of the finance department at the M.I.T. Sloan School of Management. “The problem is, you painted a full wall to fill in a few cracks.” Had pandemic aid been aimed only at those in real need, he said, any inflationary impact would have been “much, much less.”
In absolute numbers, about 25.6 million people experienced poverty in 2021, down from 30 million in 2020 and 50 million in 2011.
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; the rate for American Indian and Alaska Native children sank to 7.4 percent from 15.2 percent.
In a reversal of historical trends, children were much less likely than the elderly to be poor. Among people over age 65, who were largely not eligible for the child tax credit, the poverty rate increased.
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 left her fiancé with fewer work hours.
Their earnings, after taxes and work expenses, left them below the poverty line of $25,000. But the safety net provided them with more than $18,000 in aid, including stimulus payments, tax credits and food stamps. About a third of the assistance consisted of pandemic-related aid, while the rest came from the permanent safety net.
Ms. Ennis said financial pressure left the couple arguing and depressed until tax credits delivered nearly $8,000, easing their debts. The relief helped her to be a more attentive mother, she said, and bought time for her fiancé to find a better job, which more than doubled his pay. They used part of the money on a wedding, 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 The share of people with health insurance at any point during the year rose slightly, to 91.7 percent. 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 removing people from Medicaid during the pandemic. Several states expanded Medicaid on their own. Still, millions are expected to lose coverage when the public health emergency formally ends.
Ms. Ennis is among those likely to lose Medicaid, which she calls her most important benefit. She takes expensive antidepressants that she cannot afford on her own and recently got treated for the MRSA bacteria, which she said could have turned life-threatening 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 increased the subsidy to $3,600 for every child under the age of 6 and $3,000 for those 6 to 17, and extended it to parents not working. It was responsible for removing 2.1 million children of the 3.4 million who left poverty. 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. The census report found poverty among year-round, full-time workers to be almost nonexistent, at 2 percent. But others have found the credit’s 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 economist at Rutgers University. “We should encourage people to work as much as we can, but I don’t think that means we don’t help people.”
In 2021 alone, surveys show, the child tax credit prompted low-income families to eat more healthy meals, pay for more 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 beneficial 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. “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.