From President Lyndon B. Johnson’s declaration of a “war on poverty” in 1964 until the end of the 20th century, child poverty declined significantly, falling by nearly 40 percent between 1967 and 2000. But over most of the 21st century, the country’s progress against child poverty was stagnant or slow, only meaningfully declining in the years just before the pandemic.
Even in 2019, when unemployment fell to 3.7 percent, the Census Bureau’s supplementary poverty measure — which takes into account safety net programs and tax credits as well as regional differences in the cost of living, and is broadly considered more accurate than the government’s official poverty measure — found 12.5 percent of children in America lived in poverty.
Most surprising is that declines in poverty, rather than stalling with the decline of the Covid-19 pandemic, accelerated. While economic conditions could have led to one of the largest increases in poverty on record, the federal government stepped in to support families as the economy ground to a halt. While the pandemic brought a new set of hardships, these federal relief efforts prompted child poverty to fall sharply: In 2020, according to the supplemental poverty measure, child poverty fell from 12.5 percent to 9.7 percent — by far the largest single-year drop over the previous half-century.
These declines continued in 2021. In figures released Tuesday, we learned that in 2021 child poverty fell even further, to just 5.2 percent, by far the lowest rate ever recorded. This means that, between 2020 and 2021, an additional 3.4 million children were pulled out of poverty, and over the past two years almost 5.5 million children were, as the child poverty rate fell by nearly 60 percent in just two years.
This is nothing short of remarkable, and it’s no great mystery how it happened. To stave off a recession and prevent a spike in material hardship amid widespread joblessness and economic uncertainty, the federal government temporarily reinvented the traditional US safety net, pushing cash into US households. There were three rounds of economic impact payments (stimulus checks), expanded unemployment assistance, and, in 2021, an expanded child tax credit, which sent modest monthly cash payments to most American households with children from July through December 2021.
While the traditional safety net targets poor families and relies heavily on in-kind benefits rather than money, the pandemic safety net was largely cash-based, unrestricted, and nearly universal.
And it worked.
Over the past two years, tens of millions of people lost work and had their lives disrupted by Covid-19. Yet amid this economic disruption, child poverty plummeted.
During the Great Recession, government action kept child poverty from rising more than it would have without government action. However, child poverty still rose, as household incomes, particularly at the bottom of the income distribution, fell by more than government support increased. In contrast, during and after the pandemic, the traditional safety net was transformed, and child poverty took a historic dive. An analysis from the Center on Budget and Policy Priorities found that, absent government intervention, poverty in 2020 would have experienced its second-largest increase on record, but as a result of the pandemic safety net, poverty in the US experienced the largest single-year decline in more than 50 years.
Analysis by the Census Bureau shows the profound impact of individual elements of the cash-based pandemic safety net. In 2020, the federal government sent two rounds of stimulus checks to adults as well as dependent children; households with children received relatively more resources than those without. These two payments lowered the child poverty rate by nearly 4.5 percentage points, more than the 3.2 percentage point decline for adults, bringing more than 3 million children out of poverty.
In 2021, even more resources were directed toward children through the expanded child tax credit, which sent households with children up to $300 per child per month, from July to December 2021. Census Bureau analysis finds this policy pulled another nearly 3 million children out of poverty. In 2021, for the first time ever, the rate of child poverty fell below that of adults.
The expanded child tax credit has proven particularly effective because it not only reduces child poverty but also targets the most disadvantaged children. As one of us has written, the number of families surviving on virtually no cash income — even as they may have access to in-kind aid like food assistance — has risen sharply in the past few decades. By broadening eligibility to the very poorest, the expanded child tax credit not only pushed income poverty down but also helped prevent the most extreme forms of child poverty.
Because of changes that have been made over the years to the surveys, processing systems, and methodology upon which poverty figures are based, it is important to ground comparisons over time with other measures of well-being, such as food insecurity.
The decline in child poverty in 2021 was matched by declining rates of food insecurity among households with children. These declines may have been driven by the expanded child tax credit, as well as changes to food assistance, known as SNAP, that substantially raised nutritional benefits available to low-income households in October 2021. These programmatic changes raised SNAP benefits by about 27 percent compared to what they would have been.
In 2021, food insecurity fell to a 20-year low — going as far back as the data has been collected — with 12.5 percent of households with children experiencing food insecurity. The gap between the food insecurity rate for households with children and households without, which has historically been quite wide, had also narrowed to its lowest point in two decades. In contrast, we saw marked increases in food insecurity among households with children during the Great Recession.
Food insecurity for Black households with children was at its lowest rate on record (going back to 2008, the earliest year for which we have data), though it is still much higher than for other American households. Food insecurity for Hispanic households with children was also down significantly.
The official food insecurity and income poverty figures track with a number of measures of material hardship and financial stability we have been following over the past two years. Using data from the Census Bureau’s Household Pulse Survey, we found rates of food insufficiency (a more severe measure than the USDA’s food insecurity measure) for households with children declined by 40 percent following the December 2020 relief package and the American Rescue Plan in March 2021.
Following the implementation of the expanded child tax credit — a policy designed specifically to address the higher incidence of hardship faced by households with children — the gap in food insufficiency rates between households with children and those without narrowed to its lowest point throughout the pandemic. The inflation-adjusted bank account balances of millions of low-income JPMorgan Chase customers were up roughly 50 percent from before the pandemic. And based on data from the Federal Reserve’s 2021 Survey of Household and Economic Well-Being, self-reported financial well-being and the share of households able to cover a $400 emergency expense were at their highest levels since the survey began in 2013.
When you put it all together, it appears that, despite all the uncertainty wrought by the pandemic, over the past two years the average US household, and average low-income household in particular, was in a better financial position than it has been for a long time, maybe ever. It was, indeed, a triumph of policy.
The relationship between the safety net and inflation
Critics of the pandemic safety net have argued that while these policies may have temporarily relieved hardship, they are also responsible for excess demand leading to rising inflation and created a disincentive to work that led to labor shortages.
Yet a close look at the data calls both of these claims into question. Much of the American Rescue Plan was spending that was not linked directly to reducing poverty. For example, economic impact payments that went to most households regardless of income did as much to spur consumer demand as to fight poverty. However, the reality is that these programs were long gone before inflation became more entrenched. Inflation began in the goods-producing sector, as supply chain problems and rising shipping costs, combined with increased demand for goods, led prices to soar. Inflation was further spurred by Russia’s invasion of Ukraine and its impact on global energy and food prices. More notably, as relief programs ended, growth in demand did not appreciably slow. A quick look across the globe reveals that inflation has hit most countries in the wake of the pandemic regardless of the share of children who go to bed hungry.
While government pandemic spending has certainly played some role in pushing prices upward, it is important to recognize the uncertainty around the economic recovery. These same policies were responsible for the economy’s rapid recovery and swift employment growth. Following the Great Recession, unemployment remained elevated for years, to devastating effect.
What about the pandemic safety net’s effects on labor supply? Since the Johnson administration first proposed a war on poverty, people have worried that income supports would make work less appealing. And yet in the last two years, labor force participation rates have steadily recovered as the economy adjusted to living with the pandemic and showed no sign of accelerating as income supports expired.
While controlling inflation is surely a priority, the far larger threat we face now is that gains we’ve made in supporting the well-being of low-income households over the past two years will be lost. Recent data from the Pulse Survey shows rates of food insufficiency and financial instability rising, despite low unemployment, as households struggle to keep up with rising prices. Some see this rising hardship and argue that inflation must be controlled, no matter the cost, even though the same households struggling in the face of rising prices will be made much worse off by severe efforts to slow the pace of inflation.
We, on the other hand, see households struggling and argue that — while keeping a close eye on potential inflationary impacts — we should look to the recent policies that led to the historic declines in poverty that we see today.
The path forward
The clearest avenue for action, to relieve the current rise in hardship and ensure the lessons of the pandemic safety net are not lost to history, is to revive the expanded child tax credit. Most wealthy Western nations use a universal child allowance or child benefit — money sent to families with children across the income spectrum — to help defray the big costs that come with raising children and better ensure the healthy development of that nation’s children.
For the final six months of 2021, the US finally joined this group, and the results, as we now know, were staggering. Child poverty, child food insecurity, and other measures of material hardship all fell sharply. Critics feared the payments would provide a disincentive to work, but the policy had no discernible impact on the labor force participation of recipients. The benefits of the policy were extraordinary, and the downsides were negligible. We can, and should, bring it back.
But what about inflation? Can we really send more cash to households while the Fed is trying to rein in spending? Data shows that low- and middle-income families receiving child tax credit payments in 2021 largely spent the funds on necessities, like food and utilities — the same necessities that Americans are now paying higher prices for — so the payments would go a long way toward relieving rising material hardship.
At the same time, a number of economists have noted that the expanded child tax credit is “too small to meaningfully increase inflation across the whole economy.” Perhaps most importantly, the government can help the most vulnerable in our society, even if it means asking others to chip in more to offset those costs. The Inflation Reduction Act begins that process by ensuring that the IRS can collect the tax revenue that high-income Americans actually owe.
As we emerge from this pandemic and look back at the historic progress against poverty we’ve made over the past two years, we stand at a crossroads. Will these historic declines in poverty be a one-time blip, an accident of circumstance? Or, perhaps, these gains will mark the start of a new era, in which policymakers realize the level of poverty and hardship we tolerate in our society is a policy choice, and that it’s possible to have much less of it.
H. Luke Shaefer is the Hermann and Amalie Kohn professor of social justice and social policy and associate dean for academic affairs at the Gerald R. Ford School of Public Policy at the University of Michigan. He is the inaugural director of Poverty Solutions , an interdisciplinary initiative that partners with communities and policymakers to find new ways to prevent and alleviate poverty.
Patrick Cooney is the assistant director of policy impact at Poverty Solutions, overseeing the Partnership on Economic Mobility between the University of Michigan and the city of Detroit.
Betsey Stevenson is a professor of public policy and economics at the University of Michigan, a former member of the Council of Economic Advisers, and the former chief economist for the Labor Department under President Barack Obama.
