Bigger and better
Growing the economy is the best way to end poverty.
On June 13, Minnesota Public Radio (MPR) asked if Minnesota betting on the child tax credit to cut poverty would work. Answering that question requires looking at what happened in the last several years.
At the height of the COVID-19 pandemic, low-income Americans saw massive job losses. In response, the U.S. government dumped trillions of dollars into the economy, some directly to households through stimulus checks, expanded child tax credit payments, and expanded unemployment benefits. So, despite these job losses, after accounting for government assistance, poverty fell.
However, this came at a tremendous cost. For one, to afford all this spending, Congress passed three stimulus bills, all totaling about $5 trillion. All this massive spending (plus other factors) has significantly raised inflation consequently inflicting pain on American households that we are still experiencing.
Additionally, despite this massive spending, poverty did not fall to zero. In fact, any poverty reduction was temporary. Ending COVID-19 assistance programs ended the progress the country made in reducing poverty. This is because these payments, like existing welfare programs, were not necessarily intended to get people out (and stay out) of poverty. They existed only to help the poor afford necessities while they faced a difficult time.
Minnesota’s child tax credit, much like payments made during the pandemic, comes at a very high cost to taxpayers and Minnesota’s economy. While it might reduce poverty, any progress made would likely only be temporary without continuous spending.
That is why, to get people efficiently and sustainably out of poverty, the state government should focus on growing the economy rather than increasing spending. A growing economy creates more jobs, giving people the opportunity to earn income and climb up the economic ladder. This lessens the pressure on the state government as fewer people rely on welfare programs and, at the same time, increases tax revenues.
Consider what happened in the last three years before the COVID-19 pandemic. According to data from the Federal Reserve Board’s Survey of Consumer Finances, between 2016 and 2019, median incomes grew five percent as the economy grew at 2.5 percent per year, on average. During the same period, unemployment fell. The result? Poverty fell to record lows without the government spending trillions of dollars on assistance programs and payments.
For the whole nation, for instance, poverty fell to 10.5 percent in 2019 — the lowest estimate since the U.S. Census Bureau started tracking poverty in 1959. Compared to the U.S., Minnesota has a lower official poverty rate. And in 2019, that rate fell even further, reaching 5.7 percent, down from 7.9 percent in 2018. The same was true for child poverty. For the United States and Minnesota, official child poverty rates reached historic lows in 2019 at 14.4 percent and 7.1 percent, respectively.
If Gov. Tim Walz and the DFL are serious about ending poverty — helping people get out and stay out of poverty — they need to support and advocate for policies that grow the economy. Sadly, a lot of the policies enacted in the 2023 legislative session are likely to harm Minnesota’s economy rather than help it grow.