Poverty

George Galster explains how children are harmed by growing up in predominantly poor neighborhoods. He also recommends ways to improve federal and state housing programs to avoid high concentrations of poverty. George Galster is an Urban Institute Affiliated Scholar and the Clarence B. Hilberry Professor of Urban Affairs at Wayne State University.

The Internal Revenue Code has replaced traditional means-tested programs as the principal means for transferring income to low earners. The largest vehicle is the Earned Income Tax Credit (EITC), now supplemented by both the Child Tax Credit (CTC) and the Making Work Pay tax credit (MWP). This paper looks at the system's evolution, the important role played by the tax system in assisting low earners, and the complexities presented by the current approach. It offers principles to guide the design of a worker credit and child benefit that would replace the EITC, CTC, and MWP, along with a specific proposal.

The Earned Income Tax Credit, Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and the dependent exemption all provide benefits to families with children. In 2009, a single mom (or dad) with two children can receive benefits ranging from $0 to about $7,500 - depending on her income, age of the children, and where the children live. While this assistance is extremely important to many low-income families, they must navigate a bewildering set of rules to take full advantage of the credits. Due to the piecewise implementation of these credits and exemptions, total benefits bounce around erratically as income grows.

Data from the 2007 Survey of Consumer Finances show a disturbing reality. Even prior to the current recession, many families did not have enough assets to see them through a modest spell of unemployment or another financial emergency. In 2007, nearly one in three U.S. families were liquid asset poor. Low-income, young, and nonemployed families are more vulnerable to economic emergencies. For example, two-thirds (68 percent) of bottom income quintile families and 47 percent of second income quintile families are liquid asset poor, while such shortfalls affect only 1 percent of top income quintile families.

This paper reviews the literature on poverty dynamics in the United States. It surveys the most prevalent data, theories, and methods used to answer three key questions: How likely are people to enter, exit, and reenter poverty? How long do people remain in poverty? And what events are associated with entering and exiting poverty? The paper then analyzes the combined findings of the literature, discussing overarching patterns of poverty dynamics, differences among demographic groups, and how poverty probabilities, duration, and events have changed over time. We conclude with a discussion of the policy implications of these findings and avenues for future research.