Effects of federal programs on children: Absolute poverty, relative poverty, and income inequality

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Abstract

Since the 1996 welfare reform, federal spending on means-tested programs targeting the poorest children has decreased, while programs that benefit children in low-income working families have been expanded substantially. With this background, this study examined changes in the antipoverty and anti-inequality effects of children's programs between 1995 and 2007 using data from the Annual Social and Economic (ASEC) Supplements to the Current Population Survey (CPS). The findings suggest that although the poverty-reduction effects of the federal child programs increased between 1995 and 2007, the programs' effects on the reductions of children's absolute poverty gaps, relative poverty rates, relative poverty gaps, and income inequality all decreased. More importantly, the antipoverty effects of the federal child programs were most weakened for the poorest children (i.e., those in female-headed, immigrant, and nonworking families) between 1995 and 2007.

Research Highlights

► Since 1996, federal programs for the poorest children have diminished. ► However, federal spending on children in low-income working families has increased. ► Inequality-reduction effects of the federal programs decreased among children. ► Antipoverty effects of federal programs were weakened for the poorest children.

Introduction

The United States has been experiencing an unprecedented economic recession lately, and the economic well-being of children, which had already shown signs of deterioration in 2007, has been increasingly at risk. Poverty rate among children in families was 15.6% in 2000 and gradually increased to 17.6% in 2007 and 18.5% in 2008 (DeNavas-Walt, Proctor, & Smith, 2008). The level of income inequality among children has risen. The percentage of children under 18 living in families with a moderate income (between 200 and 399% of the federal poverty thresholds) decreased steadily from 34.5% in 1995 to 31.8% in 2007, whereas the percentage of children living in families with a high income (400% of the federal poverty thresholds or more) increased from 8.9% to 13.4% in the same timeframe (Federal Interagency Forum on Child and Family Statistics, 2009).

The importance of public safety-net programs for the economic well-being of vulnerable children cannot be understated given these circumstances. Budgetary trends show that the federal expenditures on children have dwindled significantly over the recent decades (Carasso, Steuerle, Reynolds, Vericker, & Macomber, 2009; First Focus, 2010, Macomber et al., 2009, Steuerle et al., 2007). The federal government's most recent efforts in the American Recovery and Reinvestment Act (ARRA) of 2009 and the 2011 budget proposal by President Obama attempted to reverse this trend of retrenchment. The AARA boosted expenditures on Supplementary Nutrition Assistance Program (SNAP, formerly the Food Stamp Program, FSP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and Temporary Assistance for Needy Families (TANF). The act also expanded tax credits for working families through the Make Work Pay and Child Tax Credits. Additionally, the $5 billion expansion for a TANF Emergency Contingency Fund (ECF) is expected to provide states with additional resources to help the poorest families with children.

Building upon the investment made in the AARA, President Obama proposed to continue to increase spending on children in the coming years. Under his proposal, discretionary spending on programs that affect children saw a $6.12 billion (equivalent to 7.2%) boost over last year's levels, from 18.97% in fiscal year 2010 (84.79 billion) to 20.34% in fiscal year 2011 ($90.91 billion) of the nonsecurity, discretionary budget. Education and early childhood programs would see an increase of more than $5.3 billion, and poor families with children would receive billions of additional funding for the Child Care and Development Block Grant, Head Start, Early Head Start, and the Early Learning Challenge Fund. The budget proposal would also double the Child and Dependent Care Tax Credit for middle-class families (U.S. Congressional Budget Office, 2010).

Although these program expansions are definitely positive steps forward, it is critical to assess whether these federal interventions will serve the groups of vulnerable children they target. Such an assessment is particularly necessary because the federal policies during the 1990s and 2000s have shifted their focus towards offering stronger work incentives for low-income families with children rather than investing in the most disadvantaged children, consequently leaving them behind with higher levels of poverty and inequality (Nichols, 2006). This shift might have been an unintended consequence of the federal initiatives as the government was reforming the welfare system with make-work-pay initiatives for low-income families with children.

What makes things more complicated is that the shift in federal interventions took place during the period when there were substantial demographic changes in the nation's child population. For example, the percentage of children living with at least one foreign-born parent rose from 15% in 1994 to 22% in 2008. The share of children living in single-parent families rose from 23% in 1980 to 32% in 2007. A smaller percentage of children lived in full-time working families in 2007 than in 2000 (Federal Interagency Forum on Child and Family Statistics 1997, 2008, Federal Interagency Forum on Child and Family Statistics, 2009). Although the development of these children generally would demand more public resources than that of children in more advantaged families, public investment targeting these children has dwindled, particularly funding related to the 1996 welfare reform (Shields & Behrman, 2004).

The primary purpose of this study was to examine how the poverty and inequality of different demographic groups of children were affected by federal policy changes between 1995 and 2007 (that is, before and after the 1996 welfare reform). Using the Current Population Survey's (CPS) Annual Social and Economic (ASEC) Supplements, this study revealed that the effects of antipoverty and anti-inequality efforts of federal programs for children in general decreased from 1995 to 2007 and that the reductions in these effects were particularly severe for the most disadvantaged children such as those in female-headed, immigrant, and nonworking families. The findings serve as an important piece of evidence for policymakers as they make decisions about the funding amounts for programs that serve different groups of children.

Section snippets

Recent shifts in federal children's programs

The nature of federal children's programs has changed markedly within the past two decades. Some federal children's programs, such as school lunch, benefit solely children. Other programs, such as Medicaid, SNAP/FSP, and the Earned Income Tax Credit (EITC), have benefit levels that increase with the inclusion of children in families. Still other programs, such as TANF and the Childcare Subsidy, have eligibility criteria that require the presence of children in families (Carasso et al., 2009,

Conceptual framework

The official annual poverty rates published by the U.S. Census Bureau cannot accurately measure the effects of federal children's programs on the levels of poverty and inequality among children because these rates only measure the share of people who fall below artificially defined poverty thresholds (e.g., the thresholds were set as $19,157 for a family with two adults and two children under age 18 in 2004). Although individuals can fall deeper into poverty without changing the poverty rate,

Demographics of children and child program take-up rates: Changes from 1995 to 2007

Table 2 shows that there were at least a couple of notable changes in the demographics of children between 1995 and 2007. First, the shares of Hispanic children and children of other races increased substantially (both by more than 46%), whereas the shares of White and African-American children decreased (11.80% and 5.19%, respectively). Hispanic children and children of other races represented at around 18.5 percentage points of all children in 1995, but this number increased to 27.2

Discussion and conclusions

The direction of federal spending on children's programs has dramatically changed since the 1996 welfare reform. Whereas expenditures on means-tested income security programs that target the poorest children, such as SSI, AFDC/TANF, and FSP/SNAP, has decreased, expenditures on EITCs, CTCs, and SCHIP, which mostly benefit children in low-income working families, have expanded substantially. Participation rates in these federal programs reflect the shift in the focus of the federal expenditures,

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