When President Johnson created the War on Poverty in 1964, an array of new federal assistance programs was born. These include Medicare and Medicaid, food stamps for low-income families, and work-study programs for low-income college students. The effort seemed to help. At that time, the individual poverty rate in the United States was more than 19 percent. When Johnson left office in January 1969, the rate had decreased to around 12.5 percent.
Most of the government’s anti-poverty programs come in the form of so-called transfer payments. These payments take money from one group of people through taxes and spend the money on others in the hopes of “lifting” them out of poverty. But it doesn’t always work that way.
Despite the annual expenditure of hundreds of billions of dollars since the Johnson administration — more than $647.5 billion in 2010 alone, according to government data — there has been no additional progress. While government transfer payments have grown much faster than the overall economy, the results have been inconsistent in the short run. Over the long run the poverty rate has actually gotten worse.
During the Nixon presidency (1969-74), for example, the food stamp program was liberalized, Social Security benefits were indexed for inflation, and the Supplemental Security Income program was created to provide assistance to blind and disabled individuals. This increased transfer payments from 6 percent of gross domestic product under President Johnson to 8.5 percent. But the additional expenditures only lowered the poverty rate marginally, from 12.1 percent early in the Nixon presidency to 11.1 percent in 1973. In the past nearly 40 years, it has never moved below that number.
To the contrary, while expenditures have continued to increase, so has the poverty rate, hitting 15.2 percent in 1983, 15.1 percent in 1993 and 15.1 percent in 2010.
The point is that government spending beyond the levels of 1973 does not seem to have had any lasting effect in lowering the level of poverty.
The Reagan administration (1981-89) cut back the food stamp program and redesigned job training programs. These moves decreased transfer payments from 9.8 percent of GDP to 9.5 percent. The poverty rate went down, from the high of 15.2 percent in 1983 to 12.8 percent in 1989 when he left office, but the decrease was as likely the result of the booming economy as it was of government policy.
During the Clinton administration (1993-2001), transfer payments fell from 11.6 percent of GDP to 10.5 percent following the signing of the Personal Responsibility and Work Opportunity Act of 1996. A cornerstone of the Republicans’ Contract with America, the bill ended welfare as an entitlement program. It added a “workfare” component that encouraged employment among the poor, limited federal welfare payments to two consecutive years, and put a five-year lifetime limit on welfare. To the great dismay of the new law’s critics, the poverty rate also fell, from 15.1 percent to 11.3 percent.
The lesson is that transfer payments help reduce poverty, but only to a point. Beyond that point, while government programs clearly provide relief to some of those who are in need, they do not reduce poverty.
Julie Ni Zhu is a research analyst at the American Institute for Economic Research, Great Barrington, Mass.
