How to Radically Reduce Poverty

Can poverty in Milwaukee — and the U.S. — be radically reduced?

Recently the Urban Institute evaluated the effect on poverty of a package of policies that were developed by Milwaukee’s Community Advocates Public Policy Institute under the leadership of David Riemer.

To analyze the package of programs, the Urban Institute used its Transfer Income Model, version 3, called “TRIM3” for short, in which it describes a detailed microsimulation model based on data from the Current Population Survey.  The model simulates all the major individual tax and transfer programs in the United States.

In its report, the Urban Institute estimated that “the full package of policies” developed by Riemer and Community Advocates “would lift roughly three-quarters of low-income people above the poverty line.”

We find that the combined policy package would reduce poverty from 11.4 percent to 3.1 percent (or 3.3 percent if we assume the policies do not have employment effects). This represents a drop of over 70 percent in the number of people experiencing poverty.

In this project, we analyze a group of policies proposed by Community Advocates, a nonprofit organization in Milwaukee, Wisconsin, aimed at greatly reducing poverty in the United States. We analyze the effect of these policies both individually and as a package.

The policy package developed by Milwaukee Community Advocates and evaluated by the Urban Institute evaluated consists of seven components:

1. Create a transitional jobs program to provide work for unemployed and underemployed people between ages 18 and 65.
2. Increase the minimum wage to $13.75 per hour.
3. Expand the earned income tax credit, nearly doubling the maximum credit for people with children and increasing the maximum credit for people without children by almost eightfold.
4. Expand the child tax credit from $2,000 to $3,000 or $3,600 per child, as well as making the credit fully refundable.
5. Create childcare purchasing accounts to cover childcare costs for the vast majority of parents. It would provide families with accounts that could be used to pay their childcare costs.
6. Increase Supplemental Security Income (SSI) benefits to $21,245 per year compared to $9,000 under 2018 law and remove some current program restrictions such as the asset test.
7. Increase Social Security benefits to a minimum of $23,066 per year.

The next graph shows the effect on poverty of the plan as measured by the Supplemental Poverty Measure (SPM). In contrast to the Official Poverty Measure (OPM), the SPM captures additional resources and expenses and is generally considered a better measure of the impact of poverty.

The first column in the graph, labeled “Baseline” is the percentage of poverty in 2018, before COVID-19 hit. This is followed by seven columns representing the level resulting from each of the seven policies, each standing alone.

The final column shows the aggregated effect of adopting all seven policies. In summary the TRIM3 model predicts that with all seven policies the poverty rate drops from 11.4% to 3.1% of the population.

The next graph is the inverse of the one above. It shows the reduction in poverty from each of the seven policies standing alone and from the combination of all seven. Taken together, the poverty rate drops by 8.3% compared to the baseline.

The next chart shows the number of people (in thousands) at four poverty levels for the Milwaukee area. The four levels are below the poverty threshold, between 100% and 150% of poverty, between 150% and 200% of poverty, and over 200% of poverty.

The blue columns show the number of people at each level prior to application of the policy package. The green column shows the change of the number level due to the policies. The rust columns show the resulting number of people at each level.

For example, the Milwaukee area starts with 134,000 people below the poverty threshold. As the result of the seven policies, the number of people under the poverty threshold declines by 107,000 leaving 27,000 behind. The number of people in near poverty—between 100% and 150% of the poverty threshold—would decline by 231,000. Meanwhile, the number with incomes above 200% of the poverty line would increase by 308,000.

The next graph shows the number of people — in thousands — moving up in Wisconsin. Of the 434,000 people living below the poverty line, 322,000 would cross that line.

Finally, the next graph shows what is expected at the national level. Here the numbers are in millions. Of the nearly 37 million living with incomes below the poverty level, nearly 27 million would move into a level over the poverty line.

The report shows that practical and measurable policies can radically decrease the rate of poverty locally and nationally. The problem is a lack of political will. The cost of the Trump administration’s “Big Beautiful Bill,” it has been estimated, is $400 billion per year with the major result being a large decrease in the taxes that wealthy people pay. The cost of this anti-poverty plan would be $800 billion per year, the Urban Institute report estimates, and would result in “an unprecedented reduction in material hardship in the United States. Poverty would fall dramatically for people of all ages, races, and backgrounds.”