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Andrea Levere Headshot

Ending Poverty Isn't Enough -- We Need to Expand the War for Economic Opportunity

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POVERTY
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Too often we forget the key line preceding President Johnson's announcement of an "unconditional war on poverty." Leading up to his famous declaration 50 years ago, LBJ first noted that "many Americans live on the outskirts of hope... our task is to help replace their despair with opportunity." Poverty was the immediate enemy, but expanding economic opportunity was always the ultimate goal.

The enemy labeled "poverty" was defined in terms of income, with an arbitrary line intended to mark the minimum flow of cash needed to pay for basic recurring expenses. Today that means $11,490 for a childless graduate student, $15,500 for a single mother and $19,530 for a family of three.

Recently, scholars and policymakers have argued convincingly that the old definitions of poverty fail to measure what it really takes to get by. In response, the federal government began releasing the Supplemental Poverty Measure, which takes into account costs such as health care and transportation, as well as income-enhancing programs including Social Security and the Earned Income Tax Credit.

But the problem with both these measures runs deeper than statistical methodology -- it goes back to the assumption that opportunity is determined by income alone. Ending poverty, however, is not enough to move families beyond "the outskirts of hope."

Take a single mother with an income of $15,500. When her income increases to $15,600, statisticians will celebrate that we've moved that mother and her child out of poverty. But is there really much reason to celebrate? This extra $100 will undoubtedly help the mom meet crucial immediate needs -- help her pay rent, keep the lights on, fill prescriptions. But is the mother now financially secure? Is she more likely to invest in her own education? Is her child more likely to make it to college? Is she more likely to save enough to buy a home or build a retirement nest egg? In other words, by ending this family's income poverty, have we replaced despair with opportunity?

Escaping the perpetual financial insecurity of low-wage work requires more than incrementally higher wages -- it requires savings and investments for the future. Income helps families get by, but savings and investments help them get ahead.

To achieve economic security, families need to be financially fit. That starts with access to a bank account and the knowledge to use it. They need financial protection to avoid falling victim to predatory lenders. They need savings to weather financial emergencies. And they need investments to build stability for themselves, and to break the cycle of poverty by nurturing the talents and aspirations of their children.

To win the larger war for economic opportunity, we will need to face down the larger enemy of financial insecurity. That means going beyond policies that attack poverty by raising incomes alone, and helping even very poor families develop the ability to save and build assets.

This is more doable than it sounds.

The five-year American Dream Demonstration in 13 communities across the country showed that given the right incentives and supports, even the lowest-income families will save for college, homeownership and to launch a small business. New York City's $aveUSA pilot program is demonstrating that low-income tax filers will save a portion of their refund to serve as a personal safety net. And in a growing number of communities, programs such as Nevada's new College Kick Start are spurring low-income children and their families to save for college starting at a very young age.

In short, with the right support, low-income families can and do save for both emergencies and long-term investments. But our policies generally fail to provide these families with the incentives they need to achieve economic security -- despite a federal budget that devotes large sums to help workers save and build wealth. CFED estimates that in 2013, the federal government spent more than half a trillion dollars to accomplish these goals through the tax code alone. But the vast majority of those dollars went to the highest income households.

The federal government, for example, spent $411 billion just on the four largest tax benefits last year -- capital gains, pensions, homeownership and inheritances. The Congressional Budget Office reports that the entire bottom 40 percent of earners received less than three percent of these benefits. The top one percent of earners took in more than a third -- $148 billion.

Why should a household that earns $650,000 a year get nearly 500 times as much support to build wealth through these benefits as a family making less than $77,000 a year?

As we continue efforts to fight poverty and improve financial security, turning these upside down tax and budget policies right-side up should be at the top of our nation's political agenda. For all families to benefit from these policies, we must develop products and services, such as universal Children's Saving Accounts, that give low-income families the tools to save for college, buy a home, start a business and invest in our nation's economic growth. Perhaps then we will truly achieve the War on Poverty's ultimate goal: replacing despair with opportunity.