Despite a seven-year economic expansion, poverty today remains well above the level of the early 1970s. Average family income has risen in the 1980s, but many families have been left behind.
Between 1979 and 1989, the inflation-adjusted income of the poorest fifth of families with children fell by about 20 percent - to $7,125 - while that of the richest fifth increased by about 10 percent - to almost $77,000.Poverty was high in 1990 because the economy has dramatically changed. Rapid technological changes, the globalization of markets and a variety of other factors helped some but hurt others.
The high current poverty rate cannot be blamed on speculation that government welfare programs discourage most of the poor from working. Indeed, the percentage of the population employed today is much higher than it was in the 1970s and inflation-adjusted welfare benefits are lower.
The recent economic recovery clearly demonstrated that economic growth on its own is not an effective anti-poverty strategy. We have also learned from the successes and failures of anti-poverty programs over the past 25 years that there are no simple solutions. The poor are a diverse group.
The poverty of the elderly widow differs from that of the family whose head seeks full-time work but finds only sporadic employment; the poverty of the woman who works full-time at the minimum wage differs from that of the woman who receives welfare and either cannot find a job or is discouraged from seeking work by welfare's high implicit tax rates.
Poverty is high because economic hardship has become so widespread and has moved up the economic ladder to affect so many workers.
High poverty rates should not be blamed on welfare programs or the poor. A thoughtful anti-poverty agenda must respond to the diversity of poverty and to the economic realities of the 1990s.
We should supplement the incomes of the working poor and provide greater employment and training opportunities for the non-working poor.
Such an anti-poverty agenda has begun to evolve through recent congressional actions. The Tax Reform Act of 1986, the Family Support Act of 1988 and the deficit reduction and child-care legislation of 1990 have all targeted substantial additional resources on poor families.
The Earned Income Tax Credit encourages work by providing a supplement to low-wage workers for each dollar earned. The credit was expanded in 1986 and 1990.
Recent legislation also expanded the Dependent Care Tax Credit, which allows working parents to partially offset child-care expenses. For example, consider a single mother who works for $5 per hour but pays $1 per hour for day care for each of her two children. Under current law, she does not owe any federal income taxes, so she receives no benefit from the tax credit, which can be used only to offset tax liabilities. But the new law, by making the credit refundable to the working poor, provides her with a $1,200 rebate.
Congress has also expanded the Medicaid program so that all poor children will have medical coverage by the end of the decade. Many welfare recipients are now reluctant to leave welfare because entry-level jobs often do not provide medical insurance for their children.
Taken together, the expanded earned income tax credit, the refundable dependent care credit and the Medicaid expansion will substantially raise the reward for taking a job relative to staying on welfare.
We need to move forward and build on successful model programs. If we do nothing but wait for the market to solve the problem, poverty will stay much higher than it needs to be.