Without Federal Aid, Poverty Will Rise

A strong post-vaccine recovery that creates opportunities for economically vulnerable people is within sight, but elected officials should take this deal to ensure Americans can keep paying their bills as the world pushes across the pandemic’s finish line.

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Photo: REUTERS/Lucy Nicholson

by Brendan McDermott, Fiscal Policy Analyst

Dr. James X. Sullivan, a professor at the University of Notre Dame, was shocked when he and his colleagues discovered that poverty did not rise when the pandemic began, despite much of the economy freezing to a halt. He told the New York Times that “when we initially saw our results, we thought, ‘How could this be true?’… But when you look at the size of the government response, it makes sense.”

Normally, rising unemployment would increase the number of people living beneath the federal poverty line, which is $21,720 for a family of three. Unemployment certainly surged last spring as the pandemic shutdowns began, from just 3.5 percent in February to 14.7 percent in April. However, Sullivan and his partners at Notre Dame and the University of Chicago say the poverty rate actually fell from 11.0 percent before the pandemic to 9.3 percent in June, thanks to a massive infusion of federal aid.

About $560 billion of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act that Congress passed in March went towards stimulus checks for most Americans and for states to expand Unemployment Insurance (UI) benefits. The law expanded the size of all benefits by $600/week, created a new program that offered benefits for self-employed workers who do not typically qualify, and extended the duration of benefits from 26 weeks in most states to 39 weeks. The University of Chicago and Notre Dame researchers found those stimulus checks and unemployment benefits can explain the entire decline in poverty between March and June.

But the researchers also find the poverty rate began rising in July, reaching 11.7 percent in November, and is still rising. This is below the 15 percent high it reached during the Great Recession, in part because the economy was strong before the pandemic. But the figure may not capture the entire picture: the researchers’ poverty measurement understates the impact of sudden changes to a person’s income, so the rise in poverty might be more severe than their numbers show.

Meanwhile, researchers at Columbia University, whose method of measuring poverty responds more to short-term changes, found that poverty is only rising because federal aid is waning. Without stimulus checks and the unemployment expansions, poverty would have peaked at 20 percent in April, when unemployment was highest, and would have fallen by 2 percentage points by September. But that improvement was more than offset by a 4.3 percentage point decline in the impact of federal aid.

The CARES Act is not making as big of an impact as it used to because Congress let some of the law’s anti-poverty provisions expire. People only received stimulus checks once, and the CARES Act’s enhanced pandemic unemployment benefit of $600/week expired in July. Republicans refused to extend it over concerns, which have proven to be premature, that recipients would not go back to work if their UI benefits were larger than their potential wage.

The last of the CARES Act’s major anti-poverty interventions, the expansions of unemployment insurance eligibility and duration, will expire on the day after Christmas. Nine million Americans will lose their benefits, with 3 million more soon to follow, and the Columbia researchers estimate 4.8 million people will fall into poverty. Even if Congress extends the programs, it will take states so long to update their archaic information technology that many will not pay the benefits on time. The Center for Disease Control’s protections for tenants facing eviction — limited though they were– will also expire at the end of this month, when Moody’s Analytics estimates nearly 12 million Americans will owe an average of $5,850 in back rent and utilities.

Fortunately, congressional leaders are now finalizing a new aid deal built around a framework crafted by a bipartisan group of moderate members of Congress. As it stands, that bill would keep those vital unemployment expansions from expiring for 10 more weeks, boost the size of benefits by $300/week for 10 weeks as well, send most Americans a $600 stimulus check, and maintain the eviction ban along with $25 billion for rental assistance.

The bill Congress will vote on will likely do less to reduce poverty than the initial bipartisan framework would have. Republicans insist the bill must be smaller than $1 trillion, so negotiators are considering cutting the duration of the unemployment insurance provisions by 6 weeks to pay for the addition of stimulus checks. That trade would effectively take benefits from unemployed people who need the money to support themselves and give them to people who are just as well off as they were before the pandemic. Negotiators may also drop $160 billion in aid to state and local governments because Republicans fear it would be a “blue state bailout,” even though that aid would also go to red states and would prevent cuts to social services that low-income people rely on.

While those revisions would seriously undermine the bill’s protections for at-risk Americans, the deal would still offer a vital lifeline for people in or near poverty. A strong post-vaccine recovery that creates opportunities for economically vulnerable people is within sight, but elected officials should take this deal to ensure Americans can keep paying their bills as the world pushes across the pandemic’s finish line.

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