By Anne Calef
September 21, 2022
Among the many indicators of well-being that we track, poverty may be the most important. Our region clearly has the aggregate resources to meet every family’s basic needs—Massachusetts has among the highest wages, GDP, and health insurance coverage rates in the country. And the United States is the wealthiest nation in the world. So, tracking poverty is a telling way to test how effectively we are distributing the benefits of these riches.
Analyzing poverty is also important because while some public conversation is now pivoting to focus on closing the racial wealth gap, tackling poverty is a basic precondition to even thinking about wealth building. People who struggle to pay the rent or provide sufficient food for their families have little ability to work on higher-level strategies for building intergenerational economic security—like saving to buy a home or investing in a retirement account. Moving out of poverty is a prerequisite for then working to accumulate wealth.
In this research brief we analyze newly released data from the Census Bureau on poverty nationwide and in Massachusetts. They reveal two clear findings: 1) we continue to make gradual progress on reducing poverty; but 2) the absolute level of poverty remains unnecessarily high.
Every year, the US Census Bureau releases two poverty measures—an “official” measure that is, in short, an inﬂation-adjusted calculation of three times the cost of a minimum food budget in 1963, and the more nuanced Supplemental Poverty Measure (SPM) that was first released in 2009. Rather than making a simple calculation of income, which is what the official measure does, the SPM makes several other adjustments, including adjustments in two key categories: 1) it adds noncash transfers received by households that help them make ends meet (e.g., the Supplemental Nutrition Assistance Program, housing subsidies, and tax credits like the Earned Income Tax Credit); and 2) it adjusts income by local differences in cost of living. Since the official measure doesn’t count non-cash transfers, it often makes it appear as if poverty has been reduced little in recent decades even though the government has invested significantly in poverty-reduction efforts.
In Massachusetts, both the official and SPM rates have declined in recent years, and each is now at around 8 percent for the three-year period covering 2019–2021 (the SPM relies on data gathered over a three-year period to have a sufficient sample size). The official poverty rate dropped nearly two percentage points, as shown below, and the SPM rate dropped 3.6 percentage points. The especially large drop for the SPM largely reflects the influx of non-cash assistance programs that emerged during the pandemic, such as stimulus payments and the expanded Child Tax Credit.
Nationally, the Supplemental Poverty Measure rate for 2021 was 7.8 percent, the lowest on record since estimates were first published in 2009. Massachusetts’ SPM rate also appears to be at an all-time low, but changes to how the Census categorized income and family relations in the late 2010s make it difficult to definitively assert this claim.
An invaluable feature of the Supplemental Poverty Measure is that it allows us to gauge how much different public programs work to alleviate poverty. The official poverty rate only includes cash income that an individual receives from sources such as wages and salaries, Social Security benefits and unemployment benefits. In contrast, the SPM also incorporates non-cash transfer, or in-kind benefits such as housing subsidies, the school lunch program, and tax credits, that account for a significant share of anti-poverty programs. Researchers can back these out to see what the SPM rate would have been if households had not received these supports. The Census Bureau graphic below provides estimates of the effect of these programs, both cash and non-cash, at the national level. Unfortunately, such a breakdown is also not available at the state level.
In 2021, pandemic relief programs played a significant role in lifting millions out of poverty, and this is likely why the SPM dropped even more than the traditional measure did in the first bar graph shown above. Social Security has traditionally been the nation’s most important anti-poverty program, and in 2021 it continued to have the largest effect of all programs, bringing more than 26 million people out of poverty nationwide. However, pandemic relief programs also had a huge impact. The 2021 stimulus payments alone lifted 8.9 million people out of poverty nationally. Expanded Supplemental Nutrition Assistance Program (SNAP) and school lunch programs brought 3.4 million out of poverty, and the expanded, fully refundable Child Tax Credit raised more than 5 million people out of poverty.
While state-level data cannot be broken down as such, it is likely that pandemic programs are similarly responsible for the recent reduction in poverty in Massachusetts. State-level SPM rates released last week cover three-year periods and therefore capture pandemic-era interventions that happened in both 2020 and 2021. The national data shown in the table above, by contrast, only capture pandemic response programs in 2021, meaning it misses the power of the first two economic stimulus payments and much of the period of expanded unemployment insurance payments.
Most coverage of poverty rates focuses on the official poverty rate, despite its many limitations. While this rate shows Massachusetts faring well (sixth in the nation), it fails to account for the high cost of living in our state. When you compare Massachusetts to other states using the SPM Massachusetts slides down the list with a poverty rate greater than 21 other states.
Massachusetts is not alone in seeing its poverty rate stand markedly higher under the SPM. Historically, a handful of high-cost states, including Massachusetts, have had SPM rates that exceed their official poverty rate. This year, however, Massachusetts and many of those states, such as New York, Connecticut, Florida, and Hawaii, had official and SPM rates that were not statistically different. Our sense is that pandemic-era programs counted in the SPM may have roughly offset the high cost of living for the first time, bringing the SPM rate closer to the official one. The only three states whose SPM rate exceeded their official rate at a statistically significant level in 2019–2021 (California, New Jersey, and Maryland) have historically had some of the most extreme differences between the two rates. For example, in 2016–2018 data, California moved from having the 19th highest poverty rate under the official measure to the second highest under the SPM.
While significant progress has been made, it’s important to note that poverty thresholds are still so low- by either measure- that many families above the poverty line still struggle to make ends meet. In 2021, the poverty threshold under the official measure was just $27,479 for a family of four with two adults and two children. Under the SPM, the poverty threshold for a family of four with two adults and two children in Greater Boston was $38,949 if they are renters, and $38,422 if they own their home and have a mortgage. To put this in context, ApartmentList estimates that rent for a 2-bedroom in Greater Boston was $2,106 in August 2022 – or a little over $25,000 a year. A family of four could spend 60 percent of their income on rent and still be above the poverty line.
Many of the policy changes that led to a reduction in poverty were temporary measures implemented during the COVID-19 pandemic. At the onset of the pandemic many people were justifiably worried that economic suffering might spike to unprecedented levels. But we largely avoided these worst-case scenarios because of the unique government response. In fact, we made progress in reducing poverty beyond pre-pandemic levels. But the expiration of these benefits threatens to pull millions back into poverty.
While this is just a first, quick look at data for Massachusetts, many researchers have dug deeper into what these measures mean on the national level. Some resources that we found helpful while putting this brief together include: