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The Welfare State Set to Mismeasure Poverty Again

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A typical headline for an Associated Press news story widely circulated earlier this summer put it bluntly: "U.S. poverty on track for 46-year high." According to the AP report, the national poverty rate soon will hit the highest level since the War on Poverty was declared in the mid-1960s.

The story attributed record poverty to "a weak economy and a fraying government safety net." The weak economy definitely has raised poverty. But what about the safety net? Is it really "fraying"? There is no way to tell from the Census Bureau's numbers because of the deceptive way it measures "poverty," deliberately ignoring most of the support that safety net provides.

The Census Bureau defines a family as poor if annual "income" falls below specified thresholds. (In 2011, the poverty income threshold for a family of four was around $23,000.)

But the Census Bureau excludes 97 percent of all welfare benefits when counting "income." By the agency's misleading measurements, neither food stamps, nor the earned income tax credit, nor public housing nor Medicaid provide "income." As defined by the Census Bureau, these programs have no impact whatsoever on poverty.

In 2011, the federal and state governments spent $927 billion on means-tested welfare programs (not including Social Security, Medicare or Unemployment Insurance) providing cash, food, housing, medical care and targeted social services to poor and low-income Americans.

Roughly 100 million Americans received aid at an average cost of around $9,000 per recipient. Of this spending total, the Census Bureau will count about 3 percent as "income" for purposes of assessing poverty. The uncounted welfare spending exceeds the gross domestic product of nearly every nation on earth. For two decades, means-tested welfare has been the fastest growing category of government spending -- it has increased by 30 percent since President Obama took office.

Given the severity of the recession, it's possible that the increase in need may have outstripped this rapid spending growth. But the available evidence suggests otherwise. The best measure of need is the annual "poverty deficit" -- the amount of money needed to eliminate poverty by raising the income of every poor household up to the poverty income threshold. During the recession, the annual poverty deficit has increased by $35 billion, from $137 billion in 2007 to $172 billion in 2010. Annual means-tested welfare spending jumped by $211 billion, reaching $881 billion in 2010.

So for every dollar of increased need, we've increased welfare spending by $6.

The ratio of total means-tested welfare spending to the poverty deficit provides an excellent tool to illustrate the growth of the welfare state. When President Lyndon Johnson launched the War on Poverty in 1964, federal and state government spent 68 cents on welfare for every dollar of annual poverty deficit. By 1990, this ratio had risen to $2.70 for every dollar. In 2010, it hit a record high of $5.10 to $1.

In other words, government now spends on welfare five times the amount needed to raise all families out of poverty - and is about to spend even more.

Obama has already increased means-tested welfare spending from a traditional level of 4.5 percent to 6 percent of gross domestic product, and he plans to keep it there through 2022. Whatever the flaws of welfare programs -- erosion of self-reliance, family breakdown, intergenerational dependency -- it's impossible to spend $927 billion per year ($9,000 per recipient) and have no substantial effect on living standards and actual poverty.

Yet each year, the Census Bureau counts "poverty" while pretending the welfare state doesn't exist. Government bureaucrats created this official poverty measure at the outset of the War on Poverty as an advertising tool for the welfare state. It exaggerates poverty and so generates demand for more spending.

This fall, when the Census Bureau again reports nearly 50 million Americans live "in poverty," it will again spark appeals for higher welfare spending -- spending which, by definition, cannot ameliorate poverty.

It's a rigged game, and the taxpayer can never win.

Robert Rector, a leading authority on poverty and the welfare system, is senior research fellow in domestic policy at The Heritage Foundation (heritage.org).

First appeared in The Examiner.

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