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Journal Issue: Health Care Reform Volume 3 Number 2 Summer/Fall 1993

CHILD INDICATORS: Why Is Poverty Increasing Among Children?
Eugene M. Lewit

Public Policy

Increasingly, the social welfare system, designed to act as something of a safety net for poor families and their children, has come under attack as being costly, anti-work and antifamily.16 As a result, the welfare system, which was not designed to completely eliminate poverty among the children in this country, appears to have become even less generous.

Judging the overall impact of the social welfare system on the poverty status of children is problematic as the system itself is a mixture of federal, state, and local programs which provide benefits in cash and in kind (food stamps, school lunches, subsidized housing, and medical care) under an array of different eligibility standards. For example, inflation has eroded the value of cash benefits provided through the Aid to Families with Dependent Children (AFDC) program, the most important cash welfare program for children. In 1980, the median state AFDC grant for a family of four with no income was $579 per month in 1991 inflation-adjusted dollars.17 In 1991, the median grant was $435 for a similar family, and eligibility requirements for the program have narrowed.17 However, the value of food stamps has generally kept pace with inflation, and the Medicaid program for pregnant women and children has substantially broadened its eligibility requirements and scope of benefits.18 (See also the article by Hill, Bartlett, and Brostrom in this journal issue for a brief description of recent Medicaid expansions.)

One way to measure the impact of these sometimes offsetting program changes on the poverty status of children is to compare how many children fall below designated poverty thresholds according to different definitions of family income which include or exclude the value of benefits received and taxes paid.19

Table 2 illustrates the effect of government tax and welfare programs on the percentage of children in poverty. Under a fairly restrictive definition of income which includes all the money income of a family before taxes but excludes any government benefits and capital gains income, 21.6% of children under 18 years of age would have been classified as poor in 1980 and 24.2% in 1991. In 1980, the official poverty rate for children under 18 years of age based on a definition of family income which includes the value of government benefits received in cash was 17.9%—3.7 percentage points less than the rate that excluded the value of cash benefits. Hence, by this comparison, government cash social welfare programs could be said to have reduced the child poverty rate by 3.7 percentage points or to have raised 2.3 million children above poverty in 1980. A similar comparison of child poverty rates according to these same two definitions of income suggests that government programs reduced the poverty rate among children by only 3.1 percentage points in 1991. Because of a slight increase in the number of children between 1980 and 1991, 2.0 million children were raised above poverty in 1991, a decrease of 300,000 children over the 11-year period.19

The official government definition of income used to calculate poverty status is based solely on annual money income before taxes and any capital gains. This definition of income is narrow and makes it difficult to gauge the effects on children's economic well-being of changes over time in taxes and in the value of noncash benefits. In recent years, the overall package of benefits available to poor families has been slightly reconfigured. As noted above, traditional welfare programs have been reduced, but other programs, such as the Earned Income Tax Credit and Medicaid, expanded. Data presented in Table 2 suggest that children benefit from many noncash benefit programs and that counting the value of these programs would raise a substantial number of children above the poverty level. For example, when the definition of family income is expanded to include the value of noncash benefits received minus taxes paid, the poverty rate among children drops to 13.0% in 1980. This suggests that the combination of cash and noncash benefits minus taxes had the effect of raising 8.6% of children, or 5.3 million children, out of poverty in 1980. In 1991, a somewhat reconfigured package of cash transfers and noncash benefits may have had the effect of reducing the child poverty rate by 8.1 percentage points, 0.5 percentage points less than in 1980. It appears that the reduction in the overall generosity of publicly provided support for children in low-income families may account for a small but important increase in the rate of poverty among children and for a decline in the economic well-being of some children.19