As Congress prepares for yet another fiscal showdown, new data released today by the U.S. Census Bureau should be a wake-up call that it is time to move away from a wrong-headed austerity agenda and pivot to a focus on creating jobs, boosting wages, and investing in family economic security.
The new data on poverty and income show that despite economic growth, there was no statistically significant improvement in the poverty rate or median household income in 2012.
Behind these topline numbers are data that contain real warning signs for American families and the overall economy if Congress continues down its current path.
Here are three things you need to know about the new data and how they affect the budget and policy choices before us:
- Income inequality has widened since the end of the Great Recession.
- Our safety net is working overtime to compensate for rising income inequality and the proliferation of low-wage work.
- High poverty rates among young children of color have long-term implications for our economic competitiveness.
Let’s examine each trend and its implications for timely fiscal debates.
1. Income inequality has widened since the end of the Great Recession.
Since the end of the Great Recession, the wealthiest households have fully recovered—and even shown income gains—while middle-class and low-income families are still suffering from the lingering effects of the downturn with little to no improvement in their incomes.
While household incomes for the top 5 percent have grown 5.2 percent in the past three years, incomes for workers in the bottom fifth have seen their incomes fall by 0.8 percent, while middle-class incomes have fallen even more.
These latest data are consistent with a new analysis by inequality scholars Thomas Piketty and Emmanuel Saez, showing that the top 10 percent of earners in the United States brought in more than 50 percent of all income in 2012, the largest amount in nearly 100 years. In fact, in the first three years of the recovery, from 2009 to 2012, the top 1 percent captured 95 percent of income gains.
As the wealthiest households have captured a rising share of income, the share of Americans struggling to make ends meet has risen.
The poverty line does not adequately capture the number of Americans struggling to get by, and a threshold of two times the poverty line is more closely aligned with the estimated amount necessary for people to make ends meet. Using this measure, the share of people living in low-income households with incomes below twice the poverty line has risen by 12.1 percent from 30.5 percent in 2007 to 34.2 percent in 2012.
This disturbing trend is related in part to the explosion of low-wage and part-time work. In 2012, more than 40 percent of job growth took place in low-wage sectors such as hospitality, retail, and health and education services. In addition, while the number of people who are involuntarily working part time decreased from 2011 to 2012, last year there were still 8.1 million people working part time even though they wanted full-time work.
In this context, conservatives have taken the prospect of any additional revenue from the wealthiest Americans off the table even as they are proposing cuts to the very services that help struggling families scrape by as they navigate an economy that is not producing enough living-wage jobs. In the meantime, a national movement to raise the minimum wage is emerging, with fast-food workers mobilizing to demand a living wage to pull their families out of poverty.
2. Our safety net is working overtime to compensate for rising income inequality and the proliferation of low-wage work.
The good news in the data is that our safety net is making a difference in lifting families out of poverty and helping them meet basic needs.
If not for unemployment insurance, 1.7 million additional people would have been in poverty last year, and absent Social Security, nearly 15.3 million additional seniors would have lived in poverty, nearly quadrupling the senior poverty rate. While the Supplemental Nutrition Assistance Program is not taken into account in calculating the poverty rate, if it were counted as income, it would have lifted 4 million people out of poverty last year.
The bad news is that our safety net is working harder than it should. Though a full employment economy and rising wages are the surest pathways out of poverty, our system of work and income supports provide vital assistance to help families make ends meet.
It is in this environment that conservatives are debating a Farm Bill that would kick 4 million to 6 million people off of nutrition aid and cost our economy 55,000 jobs as people cut back on their food spending.
3. We’re shortchanging our future workforce.
Low- and middle-income families have been slammed across age and demographic groups, but three years into the recovery, children are facing crisis levels of poverty—particularly very young children of color under the age of 5. In 2012, 42.5 percent of African American children under age 5 and 37.1 percent of Latino children under age 5, lived in poverty.
Research into early childhood development has shown that this is a crucial time for cognitive development. The deprivation and toxic stress associated with persistent poverty can leave a lasting imprint on children’s brains and affect future educational and health outcomes, as well as worker productivity.
This is not only a moral issue; it represents a threat to our future economic competitiveness. Given that half of all births are now children of color, these high rates of poverty among our nation’s future workforce should spur us to invest in our nation’s children and end racial and ethnic disparities.
Unfortunately, our policy priorities are going in the opposite direction. First Focus’s annual “Children’s Budget” report finds that in 2013 alone, sequestration will cut $4.2 billion of funding for children concentrated in the areas of education, early learning, and housing, and Congress is considering a budget plan that would lock in or deepen these cuts for next year. This November, 22 million children will see a cut in their family’s nutrition assistance, and House Republicans are considering cuts to food aid that would drop more than 200,000 children from free school meals.
These data could not be timelier. They reveal an economy where the gains of economic growth are not reaching low- and middle-income families. They show structural threats to our economic competitiveness owing to high rates of poverty among young children of color—who would be badly hurt by Congress locking in or deepening the sequester cuts. And they show the effectiveness of programs such as nutrition assistance, even as House Republicans propose deep cuts to food aid.
It is time to reset the national debate. Austerity that exacerbates poverty and inequality is not the answer; we must focus on creating jobs, investing in family economic security, and promoting shared economic growth.
Melissa Boteach is the Director of the Poverty to Prosperity Program and Half in Ten at American Progress
 Author’s calculations based on Bureau of Labor Statistics, Current Employment Statistics (U.S. Department of Labor, 2013), available at http://www.bls.gov/ces/.
 Author’s calculations based on Bureau of Labor Statistics, Current Population Survey (U.S. Department of Labor, 2013), available at http://data.bls.gov/cgi-bin/surveymost?ln.
 Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, “Income, Poverty, and Health Insurance Coverage in the United States: 2012” (Washington: U.S. Department of Commerce, 2013), available at http://www.census.gov/prod/2013pubs/p60-245.pdf.