Can government policies improve living standards for the poor and the less well off? If so, which policies are the most effective in doing so? I intend to address these questions in the Canadian context in a series of blogs over the next few weeks.
However, as a lead-in to those posts, today’s blog examines these issues in the American context using recently-released data for the year 2015 from the USA Census Bureau.
The American data show remarkable progress between 2013 and 2015 in reducing poverty, creating full-time year-round jobs, improving health insurance coverage for the non-elderly population and increasing real household incomes in the middle of the income distribution. These improvements come after long periods of stagnation or deterioration in all these indicators.
The data reveal that between 2013 and 2015:
• The official US poverty rate fell by 1.3 percentage points – the largest two-year decline since 1998-2000. Using the US supplemental poverty measure which, like Canadian low income measures, counts refundable tax credits as income, the decline was 1.5 percentage points.
• The number of people with full-time year-round jobs increased by 5,250,000 or 5.0%. In the previous 13 years the increase in such jobs was only 4, 541,000 or 4.5%.
• The real median household income (the income where half of households have a higher income and half a lower income after adjusting for inflation) rose by 3.7%, after declining 8.5% between 2000 and 2013.
Moreover, between 2010 (when the first provisions of the Affordable Care Act, or Obamacare as it is popularly known, began to take effect) and 2015 the percentage of the non-elderly population not covered by health insurance fell from 18.3% to an all-time low of 10.5%. Almost all the 65- plus population has been covered by the federal Medicare program since the mid 1960’s. Between 1999 and 2010 the percentage of the non-elderly population not covered by health insurance rose from 15.3% to 18.3%.
Which policy initiatives contributed to these improved outcomes for the bottom half of the American income distribution?
Health Insurance Coverage
Three elements of the Affordable Care Act (ACA) explain the entire improvement in health care coverage for the non-elderly population since 2010. The first, which took effect in March of that year, permitted parents to cover all their adult children between the ages of 19 and 26 under their own health insurance policies. Previously, this had only been permitted for students in this age group. The other two elements took effect in 2013. The first encouraged states to expand eligibility for their income-tested Medicaid health insurance programs from those with incomes under the poverty line to those with incomes up to 138% of the poverty line. This was done by promising to pay all additional costs of the expanded eligibility through 2016 and 90% of the additional costs in all subsequent years. The second offered persons with incomes between 138% and 400% of the poverty line federal premium tax credits and cost-sharing deductions to subsidize the purchase of approved individual and family health insurance coverage directly from insurance companies for those not covered by employer-sponsored plans at their workplace.
Increases in Medicaid coverage and coverage under non-employer private health insurance plans accounted for all the reduction in the rate of non-coverage among non-elderly Americans between 2013 and 2015. The uncovered rate would have been cut even further had twenty-three states, including two of the three states with the largest uncovered populations (Texas and Florida), chosen not to expand Medicaid eligibility to 138% of the poverty line by January 1, 2015. In the TV series, Friday Night Lights, two low income Texas brothers without health insurance allowed their body shop to be used by car thieves to pay for hospital care for the wife of the older brother, who was experiencing pregnancy complications. This fictional, but plausible, situation illustrates one of potential consequences of being without health care coverage. Unexpected out-of-pocket health care costs are also one of main causes of bankruptcy in the US.
Poverty and Real Median Household Incomes
A classic policy to increase real incomes in the bottom half of the income distribution is to increase the hourly minimum wage more than the rate of inflation. However, changes in the federal minimum wage in the US require approval by the House of Representatives. Since 2010, when the Republicans gained a majority in this chamber of Congress, they have resisted any increases in the minimum wage, leaving it frozen at $7.25 an hour. States can have a minimum wage higher than the federal minimum wage, but 18 states, including some of those with the largest populations such as Texas, Pennsylvania, Georgia, North Carolina and Virginia have rejected this option.
However, since 2013, 18 states, the District of Columbia and several cities have raised their minimum wages above the federal minimum by more than the rate of inflation. These increases contributed to the gains in real median household income and the reductions in poverty noted earlier.
Two extensions of federal income-tested refundable tax credits in 2013 (originally passed as temporary stimulus measures) also reduced post-income tax poverty. These were the Child Tax Credit introduced in 2009 and enrichments to the Earned Income Tax Credit for families with dependent children which took effect that same year. Using the US Supplemental Poverty Measure (SPM), the Census Bureau estimates that these two extensions reduced the overall SPM poverty rate by a full percentage point between 2009 and 2015 and the child poverty rate by 2.5 percentage points.
Of course much of the improvement recorded in poverty rates, and real median household incomes recorded between 2013 and 2015 reflects the strong increases during that period in full-time full year employment which cannot easily be directly attributed to government policy. However the role of enriched federal government refundable tax credits and increases in several state and city real minimum wages also played an important role in these gains. And, as already noted, the sharp declines in the share of the non-elderly population not covered by health insurance can be entirely attributed to provisions designed for that purpose in the Affordable Care Act of 2010.
In short, well-designed government policies such as real minimum wage increases, enriched income-tested refundable tax credits which are an incentive to work and the provisions of the Affordable Care Act to provide health care coverage to low and moderate income households can significantly reduce poverty and improve living standards for the bottom half of the income distribution, especially in the context of strengthening labour markets.
While universal health care coverage has long been a reality in Canada, has the bottom half of the income distribution experienced similar improvements in poverty rates and real median incomes in recent years? If so, what roles have government policies played? Stay tuned as I examine these questions in future blogs using comparable Canadian data up to 2014 from Statistics Canada.