WASHINGTON, D.C. – Buying Americans out of poverty is undermining incentives to work, with families living in poverty relying more on taxpayer-funded welfare checks than income from work, according to a newly released report from the Congressional Budget Office (CBO). Costing well over $1 trillion, America’s social safety net encompasses more than 80 federal programs, and is discouraging beneficiaries from seeking income from work.

The report, which was requested by Ways and Means Committee Chairman Jason Smith (MO-08), shows low-income families are becoming increasingly dependent on government transfers. In 1979, families living below the poverty line earned about 60 percent of their income from work. In 2021, that number dropped to an all-time low of around 25 percent. The report also shows how the dramatic increase in dependency on government transfers for low-income families was accelerated by COVID-era benefits.

Chairman Smith issued the following statement in response to CBO’s analysis:

“This first-of-its-kind analysis provides critical insight into how our nation’s welfare system has alleviated material hardship for many of our fellow citizens but at the same time has failed to promote the dignity of work. By counting the full set of income sources available to those living in poverty – including both employment income as well as federal welfare benefits – we see that there has indeed been a dramatic reduction in the number of families living below the official poverty line. However, low-income Americans are receiving an ever-growing share of their financial resources from government transfers, not work. To improve our nation’s welfare system, we must pursue policies that will lift more Americans out of poverty – including strengthening incentives to seek a job like tying benefits to commonsense work requirements. This will help more of our fellow Americans achieve independence and gainful employment. Afterall, a job is the best anti-poverty program that exists.” 

Chairman Smith asked CBO to compare data from its most recent Distribution of Household Income report with the Official Poverty Measure (OPM) poverty line threshold. The request came after the Ways and Means Work and Welfare Subcommittee held a hearing in October 2023 to examine weaknesses in the OPM.

Background:

• The Official Poverty Measure, produced by the Census Bureau, provides an absolute measure of poverty based on a national threshold. However, the OPM does not include the value of all government transfers in determining the poverty rate. 
• Each year, CBO publishes the Distribution of Household Income report. This new addendum provides an analysis of poverty including all federal taxes, social insurance programs, and means-tested cash and in-kind transfers for a full accounting of household resources.
• Comparing the data in the Distribution of Household Income report with OPM thresholds provides a better picture of the actual poverty rate and the effectiveness of America’s welfare programs to alleviate poverty. 
• CBO’s recent analysis – as requested by Chairman Smith – finds that:
  • The average poverty rate between 1979 and 2021 dropped from 13.3 percent to about 3.5 percent after adjusting for inflation, a full 9.8-point decrease. 
  • Household income for the lowest quintile of households increased by 132 percent from 1979 to 2021, after the effects of government transfers were included. 
  • Low-income families are increasingly dependent on government transfers. In 1979, families living below the poverty line earned about 60 percent of their income from work. In 2021 that number dropped to an all-time low of around 25 percent. 
  • The dramatic increase in dependency on transfers for low-income families was accelerated by COVID-era benefits.
• Poverty reached a historic low in 2019 following enactment of the Trump tax cuts, at 10.5 percent. Expanded economic opportunity meant more Americans were able to enter the workforce and support their families without relying on welfare checks.
• The nation’s more than 80 federal welfare programs, that collectively cost $1 trillion, largely ignore the importance of connecting those in need to meaningful work, resulting in a social safety net that creates dependency, diminishes the human spirit, and traps people in poverty. 
• Federal anti-poverty programs must include strong work requirements to make connections to work and help put Americans on track toward a better life.

Read the report here.

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