Filling the Poverty Gap, Then and Now

The extent to which means-tested transfers, social insurance, and tax credits fill the gap between a family's private resources and the poverty threshold is a periodic barometer of the social safety net. Using data on families from the Current Population Survey I examine how the level and composition of before- and after-tax and after-transfer poverty gaps changed in response to changes in the policy and economic landscapes over the past two decades. The estimates presented here indicate not only dramatic changes in the level and sources of income maintenance programs filling the poverty gap, but also dramatic changes in which demographic groups successfully fill the gap. From the peak-to-peak business-cycle years of 1979 to 1999, the fraction of the gap left unfilled among non-elderly families in poverty has expanded by 25 percent, while the unfilled gap has increased by 50 percent among single female-headed families, families headed by non-whites, and families residing in the Northeast. In a given year the poor in the South fill considerably less of the poverty gap with cash welfare, but make up for much of the shortfall with higher payments of food stamps, SSI, and SSDI. Over time the poor in all regions of the country have substituted SSI, SSDI, and the EITC for cash welfare. Indeed, by 1999 the unfilled gap for families with related children present would be one-fifth larger without the EITC. With the exception of married-couple families, this apparent rate of replacement of disability payments and tax credits for cash welfare is less than one for one, leaving most poor families, especially non-white families and single female-headed families, financially more vulnerable today than in previous decades.