The Wonk Room

‘More And More’ Middle-Class People ‘Will Slip Into Poverty As The Recession Takes Hold’

Today, Reuters highlighted some sobering government poverty data that shows the extreme reach of the current economic downturn:

About 37.3 million Americans were living in poverty in 2007, or about 12.5 percent of the population, according to the government…Figures due out in August will show that rose by about half a percentage point last year, analysts estimate, and more and more [middle class people] will slip into poverty this year as the recession takes hold.

Currently, unemployment is at 7.2 percent, and reaches 13.5 percent when the underemployed (those who want to work full time, but can only find part time jobs) are factored in. Some economists estimate that unemployment will hit 10 percent by the end of this year. If that occurs, “7.5 to 10.3 million more people could fall below the federal poverty line,” which is an annual income of $21,203 or less for a family of four.

This is why measures aimed at alleviating the sting of unemployment and poverty need to be included in the economic stimulus package being crafted in Congress. As Nobel Prize-winning economist Joseph Stiglitz explained, this type of stimulus spending “serves multiple ends“:

Increased unemployment benefits have the largest multiplier effects – cash-strapped families spend every cent given – and meet vital social needs. It is imperative to provide health insurance to the unemployed: without that, a single serious incident can push a family into bankruptcy. Helping the unemployed meet house payments reduces foreclosures, addressing one of the underlying causes of the crisis.

As the Center on Budget and Policy Priorities laid out, these measures also “have a further indirect effect on job creation that unfolds over time, as workers and firms who benefit spend their increased income on a broad variety of goods and services throughout the economy, which in turn preserves or creates jobs and leads to additional spending.”

The proposed stimulus circulating on Capitol Hill includes $43 billion to extend unemployment benefits through 2009, $39 billion to help those who lose their jobs pay the cost of keeping their employer-provided health care, a 13 percent increase in food stamps, and $200 million for local emergency food and shelter programs. This is an excellent start, but addressing poverty can’t stop when the stimulus is gone.

The Center for American Progress has calculated that a $90 billion yearly investment would cut poverty in half, and that the money could be raised primarily “by bringing better balance to the federal tax system and recouping part of what has been lost by the excessive tax cuts of recent years.”

This investment would move to end the “lost potential of children raised in poor households, the lower productivity and earnings of poor adults, the poor health, increased crime, and broken neighborhoods [that] all hurt our nation,” thus making the overall economy more productive.