The United States’ Record-Low Child Poverty Rate in International and Historical Perspective: A Research Note

Abstract

In 2021, the federal government of the United States expanded a set of income transfers that led to strong reductions in child poverty. This research note uses microdata from more than 50 countries and U.S. data spanning more than 50 years to place the 2021 child poverty rate in historical and international perspective. We demonstrate that whether using the Supplemental Poverty Measure (SPM), relative poverty measures, or an absolute poverty measure, the U.S. child poverty rate in 2021 was at its lowest level since at least 1967. The U.S. tax and transfer system reduced the 2021 SPM child poverty rate by more than 75% relative to the pre-tax/transfer child poverty rate; this reduction was three times the mean reduction effect between 1967 and 2019. These policy changes improved the country's standing from having a relative poverty rate twice that of Germany's in 2019 to the same as Germany's in 2021. Moreover, the U.S. progressed from reducing child poverty at less than half the rate of Norway in 2019 to a rate comparable to Norway in 2021. However, the U.S. success was temporary: after the expiration of the 2021 income provisions, the child poverty rate doubled and returned to being higher than in most other high-income countries.

Introduction

The United States has generally had higher child poverty rates than other advanced economies when applying a relative (percent-of-median) poverty measure (Duncan and Le Menestrel 2019; Gornick and Jäntti 2012; Rainwater and Smeeding 2005). In 2021, however, the U.S. government passed the American Rescue Plan (ARP) Act to support U.S. households during the second year of the COVID-19 pandemic. ARP implemented a temporary expansion of the Child Tax Credit (CTC), a one-time Economic Impact Payment (EIP), and other income support measures. The expanded CTC marked a particularly large shift in the generosity of the American welfare state: the benefit was previously conditional on earnings and unavailable to the lowest-income families, but now acted as a temporary child allowance akin to the type of unconditional income support available to families with children in many other high-income countries (Duncan and Le Menestrel 2019). As a result, the U.S. child poverty rate, according to its Supplemental Poverty Measure (SPM), declined from 9.7% in 2020 to 5.2% in 2021 (Creamer et al. 2022). But these benefits expired after one year and, in turn, the SPM child poverty rate rebounded to 12.4% in 2022 (Shrider and Creamer 2023).

The exceptionality of the low poverty rate in 2021 warrants further contextualization on how the 2021 child poverty rate ranks in historical and international perspective. This research note has three objectives. First, we use U.S. data spanning more than 50 years to place the 2021 child poverty rate into historical U.S. context. Second, we use microdata covering more than 50 countries in recent years to place the 2021 U.S. child poverty rate into international context. Third, we document the role of taxes and transfers in leading to the United States’ low child poverty rate in 2021 and place the welfare state's performance into historical and international context.

We describe our data sources and poverty measures in online appendix A, but we emphasize several points here: our poverty measures follow best practices in the international and U.S. literatures (Atkinson 2019) and account for all government taxes and transfers unless explicitly specified otherwise. Children are defined as being younger than 18 years old. In our primary cross-national analyses, we present relative (percent-of-median) poverty rates with thresholds set at 50% of national equivalized household median incomes while applying the square root equivalence scale. We present results with alternative thresholds (60% of median and an absolute poverty threshold) and equivalence scales in the online appendix. In our analysis of historical U.S. trends, we present results with the same measures, but we also add trends in the SPM poverty rate, which is not replicable with available data in other countries. We do not include results from the U.S. official poverty measure (OPM), as it excludes ARP's primary income transfer expansions (the expanded CTC, the EIP, and the expanded benefits from the Supplemental Nutrition Assistance Program).

Findings

In line with our first objective, Figure 1 documents child poverty rates in the United States from 1967 through 2021 using the SPM (left) and relative poverty measure (right). The gray line in each figure represents the post-tax/transfer measure of poverty, while the black line represents the pre-tax/transfer poverty measure. In 2021, the SPM child poverty rate was 5.2%, while the relative child poverty rate was 12%. Both represent the lowest child poverty rates on record in the United States (since at least 1967, the first year for which the Census Bureau has reliable data on income and poverty status).

The 2021 SPM rate is 15 percentage points lower than its value in 1967, and more than 10 percentage points lower than any year prior to 2019. The relative child poverty rate in 2021 marks the first time since at least 1967 that the U.S. child poverty rate fell below 15%. Notably, the pre-tax/transfer poverty rates in 2021 are unremarkable and are not notably lower than in prior years. In fact, the pre-tax/transfer rates increased from 2019 to 2021 despite the large decrease in the post-tax/transfer poverty rates. This fact speaks to the large role of income taxes and transfers in reducing child poverty rates in recent years, and in 2021 especially. In online appendix B, we provide details of the 2021 CTC expansion and the EIP and demonstrate that the record-low child poverty rates can be largely attributed to these temporary benefit expansions.

To document the role of taxes and transfers in achieving these record-low poverty rates, Figure 2 visualizes the percentage reduction in child poverty rates due to income transfers (or the relative decline in child poverty rates when examining the year's post-tax/transfer poverty rate compared to the pre-tax/transfer poverty rate). In 2021, taxes and transfers reduced the U.S. child poverty rate by 76%. This is the largest percentage reduction in the child poverty rate due to taxes and transfers in U.S. history. For context, the mean percentage reduction from 1967 through 2019 was 24%.

In line with our second objective, Figure 3 compares the U.S. child poverty rates in 2019 and 2021 to levels from other countries for which we have comparable data. As detailed in online appendix A, our primary analysis compares the U.S. performance to pre-pandemic baselines for each country (generally taken from 2019 income data); this allows us to maximize country coverage and benchmark the 2021 U.S. performance relative to more “standard” poverty rates in other countries. Later, we also compare the U.S. performance to pandemic-era poverty rates for a smaller set of countries for which data are available. We include both high-income and middle-income countries for which we have data; in Figure 3, black bars indicate countries that the World Bank deems as high-income, and gray bars indicate other countries. In 2019, the relative child poverty rate in the United States ranked 39th among the 54 country-years examined, comparable to levels observed in Bulgaria and Mexico, and twice the rate of that in Germany. In 2021, however, the relative child poverty rate in the United States ranked 21st among the 54 country-years examined, comparable to levels in Switzerland and Germany.

Figure 4 documents the percentage decline in poverty rates due to taxes/transfers by country. In 2019, taxes and transfers reduced the U.S. relative child poverty rate by 21.5%, comparable to the reduction effect of Paraguay, Peru, and Brazil, and less than half the reduction effect observed in Norway. In 2021, taxes and transfers reduced the U.S. relative child poverty rate by 57.5%, placing the United States among the ranks of Norway and Belgium. In online appendix B, we provide further evidence that the 2021 expansions to the CTC and the EIP payment contributed most to these strong reductions in U.S. poverty.

Pandemic-Era Comparisons

Figure 5 restricts the poverty comparisons to countries for which pandemic-era data are available; thus, all estimates are from either 2020 or 2021, as labeled, and are primarily from the European Union. Though the United States experienced a large drop in poverty rates during the pandemic, the average EU country did not (the mean change from 2019 to 2020 in the EU was −0.1 percentage point). These countries had strong welfare states and lower poverty rates to begin with, and many already featured a universal child allowance prior to the pandemic (unlike the United States, which introduced its temporary version in 2021). Moreover, the social policy response to the pandemic in the EU focused predominantly on job retention schemes. The increase in social protection expenditures in 2020 across EU countries was relatively large by historical standards (an increase of 6.8% per capita in the EU compared to 2019), though within the social protection budget, employment expenditures increased substantially (74.8% increase) relative to expenditures for family and child support (5.6% increase).¹

As a result, EU poverty rates were relatively stable from 2019 to 2020, and thus our conclusions are largely unchanged when restricting countries to pandemic-era poverty rates. The U.S. performance advanced the country from having a poverty rate that was nearly twice Austria's in 2019 to being on level with Austria's in 2021 (Figure 5, see top panel). Similar to our primary findings, the United States in 2021 was cutting child poverty with taxes and transfers at the rate of Belgium, France, and Norway in 2020 (see bottom panel).

Alternative Poverty Measures

We present results from several alternative poverty measures in our online appendices. In appendix Figures C1 and C2, we document the 2021 U.S. performance using an absolute (“fixed”) measure of poverty in which all countries and years are evaluated at 50% of the U.S. median in 2021. We update income values in all country-years using the Consumer Price Index and Purchasing Power Parity deflators to directly compare absolute monetary values. Figure C1 shows that the absolute poverty rate also reached a record low in the U.S. in 2021. Figure C2 shows that, when applying this absolute poverty measure in cross-national comparisons, the United States advanced from 10th in the rank order of available countries in 2019 to 2nd (trailing only Norway) in 2021.

In online Figure C3, we evaluate relative U.S. poverty trends when applying the modified OECD equivalence scale and when setting the relative poverty line at 60% of median income. The change in equivalence scale has no meaningful effect on levels or trends. Setting the poverty threshold at 60% of median increases levels of poverty in any given year, but does not affect trends. In online Figure C4, we compare international poverty rates using this 60% of median poverty threshold. The large increase in the U.S. performance from 2019 to 2021 is comparable to the results demonstrated in our primary analyses.

Discussion

Child poverty rates are typically higher in the United States than in peer nations, at least when measured using a relative (percent-of-median) measure. Following the American Rescue Plan Act, however, the U.S. welfare state temporarily featured an unconditional child allowance and also provided a one-off Economic Impact Payment (Parolin 2023). These policy changes contributed to the lowest child poverty rates in U.S. history (since at least 1967, when reliable income data became available). This is true whether examining trends in the Supplemental Poverty Measure, a U.S.-specific tool for measuring poverty; a relative poverty measure, in which the poverty threshold is set at 50% or 60% of equivalized national median household income; or an absolute poverty measure, in which we fix the poverty threshold at the 2021 relative poverty line.

The U.S. tax and transfer system contributed to the largest reduction in child poverty rates (relative to pre-tax/transfer rates) in U.S. history in 2021, placing the relative decline in child poverty on par with countries such as Denmark and Norway. Regarding levels of child poverty, the United States advanced from a relative child poverty rate that was roughly twice that of Germany's in 2019 to being on par with Germany's in 2021.

However, the United States’ success was temporary. The income supports that led to its record-low child poverty rate expired after 2021; in turn, the SPM child poverty rate in 2022 rebounded to 12.4%, more than doubling from the 2021 rate. The rebound in 2022 poverty emphasizes the exceptionality of 2021 and the usefulness of placing the 2021 rate in international and historical context. As scholars and policymakers continue to debate why the United States tends to have higher child poverty rates than other countries, and the relative role of demographic composition, structural forces, or politics and institutions in shaping poverty, the example of 2021 now serves as an integral source of evidence regarding the role of child-oriented policies in improving the country's relative standing (Brady et al. 2017; Chen and Corak 2005; Gornick and Jäntti 2012). Specific policy changes, such as the provision of an unconditional cash allowance, can help bring the United States in line with child poverty rates of peer nations (Rainwater and Smeeding 2005).

One perspective might see the U.S. policy response of 2021 as a temporary response to address financial stress in the middle of the pandemic (Piven and Cloward 1972); a counterperspective, however, might acknowledge that the 2021 poverty rate was even lower than in 2020, when the pandemic's labor market effects peaked, and that the key policy responses introduced were also present in other high-income countries prior to the pandemic. Regardless, the policy efforts showed that the United States is capable of reducing child poverty to levels seen in other high-income countries. Returning to those low child poverty rates in the future would help the country reduce temporary hardships and increase children's longer run well-being (Duncan and Le Menestrel 2019).

Acknowledgments

We acknowledge the staff of LIS, the Cross-National Data Center in Luxembourg, for making it possible to estimate child poverty rates across the 53 countries included in this study. We acknowledge funding from the European Union (ERC Starting Grant, ExpPov, #101039655). The views and opinions expressed are those of the authors and do not necessarily reflect those of the European Union or the European Research Council; neither the European Union nor the granting authority can be held responsible for them.

Note

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