Phil Gramm and John Early write in the WSJ, Government Can’t Rescue the Poor;
The measured poverty rate has remained virtually unchanged only because the Census Bureau doesn’t count most of the transfer payments created since the declaration of the War on Poverty. The bureau measures poverty using what it calls “money income,” which includes earned income and some transfer payments such as Social Security and unemployment insurance. But it excludes food stamps, Medicaid, the portion of Medicare going to low-income families, Children’s Health Insurance, the refundable portion of the earned-income tax credit, at least 87 other means-tested federal payments to individuals, and most means-tested state payments. If government counted these missing $1.5 trillion in annual transfer payments, the poverty rate would be less than 3%.
The 3% poverty rate determined by counting more of the government transfers to low-income families is virtually identical to the number economists Bruce Meyer and James Sullivan found in a 2016 study, which measured actual consumption by poor families. The number also reconciles the current disparity between the low income levels used by the Census Bureau to define poverty and studies such as the Department of Energy Residential Consumption Survey, which find consistently rising spending among poor families on cars, home electronics, cable, household appliances, smartphones and living space. The 3% poverty rate would fall even further if it accounted for transfers within families, some $500 billion of private charitable giving, and the multibillion-dollar informal economy, where income is unreported.Transfer payments essentially have eliminated poverty in America. Transfers now constitute 84.2% of the disposable income of the poorest quintile of American households and 57.8% of the disposable income of lower-middle-income households. These payments also make up 27.5% of America’s total disposable income.
The stated goal of the War on Poverty is not just to raise living standards, but also to make America’s poor more self-sufficient and to bring them into the mainstream of the economy. In that effort the war has been an abject failure, increasing dependency and largely severing the bottom fifth of earners from the rewards and responsibilities of work.
At a very high price we have largely eliminated poverty, but failed in the progressive goal of dignity and self reliance for all.