Introduction and summary
Newly released poverty data from the U.S. Census Bureau show that from 2020 to 2021, the official poverty rate (OPM) remained statistically unchanged, only slightly increasing from 11.5 percent to 11.6 percent. Meanwhile, the supplemental poverty measure (SPM)—a more reflective measure of the total income available and total living costs for a household, including all government benefits received and all taxes paid—declined from 9.2 percent in 2020 to a record low of 7.8 percent in 2021.1
Despite an unprecedented pandemic-induced recession that saw 22 million people—14 percent of employed workers—lose their jobs from February 2020 to April 2020, the United States was able to prevent a sustained increase in poverty. Moreover, all net jobs lost have already been recovered.2 Thanks to expansionary federal monetary and fiscal policy—most notably, targeted fiscal stimulus and decisive executive action that provided income directly to those most in need—the recovery following the COVID-19 recession has been historically rapid. Indeed, several rounds of federal support prevented what would have been massive, prolonged hardship and economic damage.3
A robust economic recovery in just two years and no large increase in poverty was not a foregone conclusion: The U.S. economy historically has not recovered as quickly in prior recessions.4 In particular, following the Great Recession, policymakers in Congress witnessed that austerity measures lead to unnecessarily long recoveries,5 with prolonged periods of unemployment, poverty, and long-term scarring—which reduces consumer spending, business investment, and productivity—limiting economic growth.6 Congress, learning from the flawed responses to past recessions, implemented a wide range of poverty-mitigating measures in 2020 and 2021, including through the Families First Coronavirus Response Act; the Coronavirus Aid, Relief, and Economic Security (CARES) Act; and American Rescue Plan (ARP) Act, the combination of which expanded and boosted unemployment insurance (UI), increased Supplemental Nutrition Assistance Program (SNAP) benefits, and enhanced refundable tax credits for families through the earned income tax credit (EITC) and child tax credit (CTC).
This fiscal response saved millions of people from experiencing poverty and saved the economy from much higher unemployment and, potentially, a double-dip recession.7 These much-needed boosts required constant and continued political will and action as the challenges of 2020 and 2021 played out. What will help going forward is to tie these benefits to economic conditions—that is, turning them into “automatic stabilizers”—which would help further smooth interventions during future downturns.8
While it appears that the United States has avoided the high and persistent rates of poverty experienced following the Great Recession, many of the core anti-poverty measures implemented during the COVID-19 recovery were temporary. As a result, poverty today, while certainly not as bad as it could have been, is still disappointingly high. Nonetheless, the key lesson from the response to the COVID-19 recession should be that more accessible and better-funded fiscal support is crucial in responding to future economic downturns. Timely, generous, and targeted support mitigates against extended increases in poverty, prevents further downward spirals caused by widespread economic insecurity, and builds financial stability that leads to a faster and more equitable economic recovery.
- Automatic stabilizers: Fiscal programs that quickly offset economic fluctuations by automatically increasing stimulus during downturns and contracting during economic booms without the need for new legislation or authorization from lawmakers.
- Official poverty measure (OPM): The first measure of poverty used by the Census Bureau, starting in the 1960s. The OPM measures cash resources for families of varying sizes in the form of total before-tax cash income against continually updated thresholds of poverty, but it does not include capital gains, noncash benefits, or tax credits and does not vary geographically.
- Supplemental poverty measure (SPM): A measure of poverty that was first used officially by the Census Bureau in 2011 and that accounts for additional factors such as noncash government benefits, taxes paid, tax credits, and heath care costs when determining family income, varying geographically.
- Supplemental Nutrition Assistance Program (SNAP): The largest anti-hunger government program in the United States—previously known as “food stamps”—providing monthly benefits to eligible low-income applicants for purchasing food. The amount received and the requirements to maintain eligibility vary by state.
- Unemployment insurance (UI): A program that temporarily replaces a part of wages for eligible workers who have recently lost their job through no fault of their own. Each state runs its own UI program, so benefit amount, duration, and recipiency vary greatly state to state. In addition, many workers are not eligible for UI because they earn too little or because of the type of job that they work.
- Extended benefits (EB): A program that covers an additional 13 or 20 weeks of unemployment benefits in states with high unemployment rates.
- Federal Pandemic Unemployment Compensation (FPUC): A federal program created in 2020 to add $600 per week on top of state unemployment benefits. While FPUC was initially allowed to expire in July 2020, it was eventually renewed at $300 per week.
- Pandemic Emergency Unemployment Compensation (PEUC): A federal program created in 2020 to offer additional weeks of unemployment benefits after a person has reached their state’s time limit—26 weeks in most states.
- Pandemic Unemployment Assistance (PUA): A federal program created in 2020 that expanded unemployment benefits to gig workers, independent contractors, self-employed workers, and others who lost work but would not normally be eligible under UI’s outmoded employment eligibility standards.
- Child tax credit (CTC): A tax credit provided to families that claim at least one child as their dependent when filing their taxes to decrease the amount owed. The credit varies in size depending on the income reported and the number of children claimed.
- Earned income tax credit (EITC): A tax credit targeted at working families with children to supplement low wages. As opposed to the partially refundable CTC, the EITC is fully refundable each year. This means the full value of the credit can be claimed even if no taxes are owed, resulting in a cash payment from the government.
- Food insecurity: A combination of households that experience low food security and very low food insecurity, including all households that do not have access to enough food to ensure healthy living.
- Low food security: A term used by the U.S. Department of Agriculture (USDA) to identify households with problems acquiring food and maintaining diet quality.
- Very low food security: A term used by USDA to identify households where at least one person had reduced food intake or disrupted eating patterns at any time during the past year due to limited money and other resources.
The fiscal policy response to the COVID-19 recession prevented a significant and persistent rise in poverty
After each of the past three recessions dating back to 1991, it took at least three years for the poverty rate to start to decline.9 In particular, the Great Recession—from 2007 to 2009—is notable for its persistent and sustained increase in poverty, with the poverty rate reaching multidecade highs.10 (see Figure 1) Although the Great Recession officially ended in 2009, it took 10 years—until 2017—for the overall poverty rate to return to pre-recession levels, the longest recovery since poverty data were first collected in 1959.11 Unsurprisingly, and consistent with every other year data have been collected, Black and Hispanic people experienced much higher unemployment12 and poverty rates than the population as a whole both during and following the Great Recession.13 (see Figure 1)
In stark contrast, the OPM rose by a smaller amount in 2020 and 2021 following the COVID-19 recession, despite its much more intense impacts on the economy, with the unemployment rate reaching record highs.14 Meanwhile, the SPM actually decreased in 202015 and 2021.16 In fact, in 2020, it was lower than the official poverty rate for the first time in U.S. history, despite the massive economic shocks from the pandemic, because of the historic amount of federal support.17 (see Figure 1) Furthermore, while it took six and a half years to recover all the jobs lost during the Great Recession period, the economy has already recovered all jobs lost during the pandemic in just slightly more than two years.18 According to researchers, without the American Rescue Plan (ARP) Act, in particular, it would have taken at least another year to recover all jobs lost during the COVID-19 recession.19
The difference between the poverty rate during and following the most recent recessions is largely attributable to the fiscal response. The American Recovery and Reinvestment Act of 2009 (ARRA)—the fiscal support that was enacted to stimulate the economy during the Great Recession—invested more than $700 billion into the economy in 2009 and 2010 in areas such as expanded Temporary Assistance for Needy Families (TANF), SNAP, UI, and tax credits for families.20 However, those funds were insufficient for the size of the crisis to fully support affected families and avoid a relatively slow and protracted recovery. And after much of the fiscal assistance was allowed to expire, unemployment remained high,21 income declined,22 and poverty rates persisted at unacceptable levels—particularly for young people, those without a college degree, and Black and Hispanic people.23 While it is important to recognize that the poverty rate would have been much worse if it was not for ARRA, fiscal policy failed to do nearly enough to shorten the prolonged nature of the recovery.24 What is more, the 2009 fiscal response was quickly counteracted by harmful austerity demanded by congressional Republicans starting in 2011, including through their blockage of much-needed additional stimulus from the American Jobs Act.25
In stark contrast, during and following the COVID-19 recession, the federal government injected multiple rounds of supports into the economy, even after the recession officially ended in April 2020, and helped ensure the mistakes of the Great Recession were not repeated. Moreover, there was a greater effort to ward off some of the most adverse effects of a downturn, including through eviction moratoriums, paid leave, a pause on student debt repayments, and emergency money given directly to individuals outside of usual safety net mechanisms through several stimulus payments.26 The Census Bureau estimates suggest that the stimulus payments alone helped move 11.7 million people out of poverty in 2020.27
In addition to the sheer number of avenues the government used to help families during and following the COVID-19 recession, the difference in success can be seen in how three of the most effective antipoverty programs—UI, SNAP, and low-income tax credits—were expanded through both recessions, with a concerted focus on access to these programs during the COVID-19 recession fiscal response.
The biggest-ever expansion of UI helped the economy recover faster
For the past 40 years, the unemployment rate and the poverty rate have followed a clear trend: As unemployment rose, so did poverty. However, in 2020, that changed. Expansions in unemployment insurance gave unemployed people a measure of economic stability while they weathered the worst of the pandemic and looked for work, ultimately leading to them getting better jobs.28 The economy as a whole also greatly benefited, as tens of millions of people suddenly becoming poor would have drastically cut spending even further.29 Such an outcome would have shuttered countless businesses and sent the economy into a free fall, with lasting damage done to long-term employment and economic growth.30 Instead, by supporting unemployed workers more than in any prior recession, the United States was able to prevent mass poverty and stabilize the economy, allowing it to recover more quickly than in the past.31
If the trend in unemployment and OPM poverty of the previous 40 years had held, there would have been more than 10 million more people in poverty in 2020 and about 4.5 million more people in poverty in 2021.
Data from 1980 through 2019 show an unmistakable pattern: Significant increases in the unemployment rate are accompanied by significant increases in the poverty rate—both OPM and SPM, which only has data going back to 2009. However, in 2020 and 2021, amid the COVID-19 recession and recovery, poverty stayed well below the level traditionally expected given the heightened unemployment and that historical pattern. (see Figure 2)
With an average unemployment rate of 8.1 percent for the 2020 calendar year, the OPM poverty rate should have been about 14.6 percent according to the previous trend, but instead it stood at 11.5 percent. Again, in 2021, given an average unemployment rate of 5.3 percent, the OPM poverty rate should have been 12.9 percent, but it was actually 11.6 percent. Similarly, the SPM poverty rate would have been expected to be 15.7 percent in 2020 and 14 percent in 2021, yet it fell to 9.2 percent and 7.8 percent, respectively.32 If the trend in unemployment and OPM poverty of the previous 40 years had held, there would have been more than 10 million more people in poverty in 2020 and about 4.5 million more people in poverty in 2021.33
These statistics may, in fact, be significant undercounts. A recent study from an economist at the Federal Reserve described the serious underreporting of UI benefits in the Census Bureau’s Current Population Survey. Accounting for all UI benefits, he estimated that the OPM rate was actually 9.5 percent in 2020 and 10.1 percent in 2021, while the SPM rate was actually 7.3 percent in 2020 and 6.6 percent in 2021.34
The expansion of UI during the Great Recession fell far short of what was needed
The cost of extended benefits (EB) in unemployment insurance is typically split 50-50 between state and federal governments. During the Great Recession, Congress had the federal government cover the full cost of EB to encourage more states to offer additional weeks of benefits.35 Congress also increased weekly UI benefits by $25, created the Emergency Unemployment Compensation program to temporarily extend the maximum period of benefits available to 99 weeks, 36 and exempted the first $2,400 received in unemployment compensation from federal income taxes.37 These expansions were helpful and desperately needed, keeping roughly 5 million people out of poverty in 2009 and an additional 2 million people out of poverty in 2010.38 Indeed, this was in keeping with a half-century of practice; Congress has expanded UI in some way in every recession since 1957.39 Yet every UI expansion prior to 2020 fell far short of what was truly needed to prevent a sustained increase in poverty.
Despite about one-third of workers seeing their incomes decline by at least 10 percent in both 2009 and 2020, only 19 percent of UI recipients in 2009 had that lost income fully replaced, compared with 52 percent in 2020; and that is just from those who actually received benefits.40 Many fewer workers who lost significant income received UI benefits in 2009 than in 2020—27 percent versus 37 percent—because a program similar in design to Pandemic Unemployment Assistance (PUA) was not available.41 From March 2020 to February 2021, more than 1 billion weekly UI payments were made, compared with about 400 million in 2009—the difference, in large part, coming from PUA.42
The UI expansions during the COVID-19 recession were unprecedented and historically successful
During the pandemic-induced recession, Congress, having learned from past recessions, did more for unemployed people and their families. Three new temporary federal programs were created—Federal Pandemic Unemployment Compensation (FPUC), Pandemic Emergency Unemployment Compensation (PEUC), and PUA—to enhance UI during the pandemic recession by increasing weekly benefits by $600,43 ultimately providing 53 additional weeks of eligibility,44 and expanding benefit eligibility to workers who are generally not eligible for UI, respectively.45 States were similarly incentivized to opt in to the EB program,46 and the first $10,200 of unemployment compensation was exempted from federal income taxes,47 while the federal government fully covered the cost of waiving the one-week waiting period for receiving benefits for states that had a waiting week in place.
In 2020, largely because of these expansions, UI alone reduced the number of Americans in poverty by 5.6 million people.48 And in 2021, UI decreased poverty by 2.3 million people. Significantly, UI did not just aid people who were in or would have fallen into poverty; it also helped millions more who were just above the poverty line but still not living comfortably and did not have the savings to survive for months without a steady income. About 1 in 4 workers, 46.2 million people in total, relied on UI at some point during the first year of the pandemic, compared with 14.5 million workers in 2009.49 Had previous trends held, about 23 million more people would have been living below 200 percent of the poverty line in 2020, and in 2021, that number would have been about 12.7 million.50 This crucial aid came despite many unemployed people facing significant delays or struggling to make it through the system and be accepted for benefits.51
UI also provided a critical economic stimulus that supported spending for more than a year and kept the recovery from being slower and more drawn out, as was the case in the aftermath of the Great Recession. Moreover, UI did this, as countless evidence has shown, without significantly discouraging people from returning to work.52 Now, just two and a half years after the worst spike in unemployment in almost a century, the rate of underemployed workers is near the lowest on record.53
Increased SNAP benefits prevented sustained spikes in hunger
The SNAP program, like unemployment insurance, automatically injects money into the economy during every downturn by providing benefits to supplement the food budgets of individuals and families who fall below a certain income level. Because SNAP is an automatic stabilizer, its caseload tends to increase during and after recessions as people lose some or all of their income. SNAP not only works to reduce hunger among its recipients but also boosts economic activity during recessions.54
When SNAP was expanded—and became more accessible—during the COVID-19 recession, it not only provided an additional economic support that led to more consumer spending but also allowed recipients to better participate in the economy. It is well established that when people go hungry, they are less likely to fully participate in the labor market and are more likely to experience financial instability, which limits economic growth.55 While food insecurity tends to increase for years during and after recessions,56 that did not occur following the COVID-19 recession.
SNAP expansions were more comprehensive during the pandemic than in the Great Recession, preventing a large spike in hunger
In response to the Great Recession, ARRA raised maximum monthly SNAP benefits by 13.6 percent57 and temporarily suspended the three-month benefit time limit for unemployed nondisabled childless adults, augmenting both the number of people eligible as well as the amount of help they received. These provisions were effective because of the quick implementation, and caseloads consistently grew throughout the early years of the recovery, reaching historic heights of almost 48 million people receiving SNAP benefits by 2012, while unemployment remained elevated.58 Still, food insecurity hovered above and around 14 percent until 2014, one year after the SNAP benefit increase had already ended. (see Figure 3) In total, it took 11 years to return to 2007 food insecurity levels.59
Food insecurity after the COVID-19 recession, however, managed to stay consistent with lower pre-recession levels in 2021, at 10.2 percent, while the rate of households with food-insecure children among all households with children receded to 6.2 percent after a brief increase in 2020.60 These rates signal a swift recovery and, in fact, match the lowest levels on record since 1998. Very low food security also remained essentially unchanged in 2021, at 3.8 percent.61 One of the main reasons for these comparatively low levels of food insecurity is a drastic increase in SNAP and other federal food benefits during the COVID-19 recession compared with the Great Recession.
SNAP lifted 2.8 million people out of poverty in 2021
Temporary emergency allotments raised recipients’ SNAP benefit to the maximum for their household, added $95 to monthly benefits for those already close to or at the maximum,62 and, separately, the maximum monthly SNAP benefit was temporarily increased by 15 percent—which was later replaced with a permanent 21 percent increase in October 2021.63 As a result, people in poverty had more available resources during the COVID-19 recession to address hunger.64 In 2021, the average monthly benefit per household ($443) was $204 greater than it was in 2019. In comparison, the average benefit of $288 in 2010—the highest value during the Great Recession—was only $76 larger than pre-recession levels.65 These larger benefit amounts allowed SNAP to pull 2.8 million people out of poverty in 2021.66 Combined with the decrease in food insecurity, far fewer people went hungry each day because they now could afford enough food.
Additionally, SNAP participants were given greater flexibility throughout the pandemic via state waivers that loosened restrictions on interview requirements, recertification, and suspension of time limits for some eligible participants.67 Meanwhile, the Pandemic Electronic Benefit Transfer (P-EBT) program—established in 2020 and continued in 2021—provided funds to families with children who could no longer receive free meals at school during the pandemic because of school closures. That extra money further decreased food insufficiency among children.68
Strong refundable tax credits for families greatly reduced child poverty
The EITC and CTC programs have the potential to be some of the most effective tools for combating child poverty, as this past year demonstrated when child poverty decreased by almost 3.4 million children—down to a historically low 5.2 percent.69 Temporary increases to these tax credits, such as refundability and monthly payments, served to supplement wages for families and help alleviate the increased expenses that come with raising children.
SPM child poverty rate in 2021
The expansion of tax credits during the COVID-19 recession and the subsequent historic economic recovery should teach policymakers that providing additional monetary benefits to low-income households—and ensuring that these benefits are accessible to larger groups of people—are key economic supports. By directly providing income to those in need, these expanded tax credits worked as a much-need stimulus in a moment of crisis, boosting consumption and economic activity when the United States needed exactly that to avoid a slow, prolonged recession and recovery.
Low-income tax credits that were expanded to give additional income to those most in need during the Great Recession were taken a critical step further during the pandemic
The fiscal response to the Great Recession included multiple provisions to tweak existing tax credits. First, the CTC refundability threshold—the amount that had to be earned before a taxpayer could start accumulating refundable dollars from the CTC—was reduced twice, from $12,050 ultimately down to $3,000.70 This meant that families with lower incomes were given access to the credit, but the maximum amount that one family could receive remained at $1,000 per child. As for the EITC, families with three or more children were given a new credit worth up to $629 more than what they received previously. In addition, the income phaseout thresholds for married couples filing jointly were increased from $3,000 above other households to $5,000.71 The changes to both programs, which improved access, were eventually made permanent. Likewise, the Making Work Pay tax credit was introduced in 2009 and 2010, providing a refundable credit of 6.2 percent of wages up to $400—and $800 for married couples.72
While these changes did make the CTC and EITC more equitable and gave more money to people with low incomes, the enhancements made to them in 2021 through the ARP added to these now-permanent provisions and ensured that the programs would be of even greater benefit. These expanded tax credits proved to be an effective economic support, as they helped to increase consumer spending and prevented the recovery from stagnating.
The CTC, for instance, was temporarily increased from what was, by then, a $2,000 maximum credit that was only partially refundable to a $3,000 maximum credit for children between the ages of 6 to 17 and up to $3,600 for each child under the age of 6, all of which was fully refundable to those who did not earn enough to owe federal income tax.73 Moreover, the entire program was turned into a monthly child benefit, as opposed to an annual tax credit, as payments could be provided in installments; half the amount was sent monthly, from July through December 2021, and the rest was sent at tax season in 2022.
Tax credit expansions during the pandemic had huge impacts on poverty, especially for children
Number of people pulled out of poverty by refundable tax credits
In December 2021, the final monthly CTC installment decreased child poverty by almost 30 percent,74 helping Black and Latino families in particular pay for basic necessities such as food, utilities, clothing, rent, and school expenses, as well as pay off debt.75 In 2021, not only did child poverty decrease significantly from 9.7 percent in 2020 and from the years after the Great Recession—when child poverty did not dip below 15 percent for nearly a decade—it also dropped noticeably compared with poverty among working-age adults and seniors. (see Figure 4) This was thanks in large part to this extra support going directly to families in need. In fact, enhanced CTC benefits alone brought 5.3 million people, including 2.9 million children, above the poverty line in 2021.76 Without the expansion, child poverty would only have dropped as low as 8.1 percent.77 However, the expiration of the monthly payments at the end of the year sent an estimated 3.7 million children back into poverty by January 2022.78
In addition, the EITC received a temporary expansion for workers without children, nearly tripling their previous max benefit to $1,502 while extending eligibility to workers ages 19 to 24 as well as those 65 and older.79 The income limit was also increased by about $5,500 to provide benefits for people with slightly higher earnings.80 Lastly, the child and dependent care tax credit, which is meant to lessen the financial burden of high child care costs for families, was made fully refundable in 2021 and matched half of expenses up to $16,000.81 Taken together, these three credits pulled 9.6 million people out of poverty.82
While fiscal policy during the Great Recession helped struggling families, a smaller stimulus followed by a turn toward austerity held back the potential impact that anti-poverty programs could have had and instead led to an unnecessarily painfully long economic recovery with unacceptably high poverty rates. In a welcome and much-needed change, during and after the COVID-19-induced recession, Congress passed multiple rounds of fiscal supports that directly provided benefits to those most in need, including through stimulus checks and expanded UI, SNAP, EITC, and CTC. These enhanced benefits and the improved access to them prevented the poverty rate from spiking to multidecade highs and helped to ensure that the economy and labor market recovered much faster than was the case during Great Recession. Simply put, if less economic support was provided during the COVID-19 recession, an even deeper economic crisis would have ensued.
Yet while the response to the COVID-19 recession was positive overall with a historically quick recovery, the poverty rate nonetheless remains unacceptably high, and many temporary measures, including the federal UI and tax credit expansions, expired too soon. It is important that the gains the United States has made over the past few years are sustained, with investments in the economy continuing to focus on creating an inclusive economy and providing stability for low- and middle-income families. Additionally, it is crucial that at the first signs of an economic downturn, policymakers do not hesitate to bolster the safety net to protect people in need. Even better, lawmakers should put triggers in place that automatically expand and enhance these programs at the start of a downturn.
The response to the COVID-19-related recession is a textbook example of how to keep the economy afloat through a robust safety net. Increasing and expanding societal benefits and supports during challenging economic times provides historically positive results and ensures that tens of millions of Americans are protected and made secure.
The authors would like to thank David Ballard, Seth Hanlon, Arohi Pathak, Lily Roberts, and Jessica Vela for their helpful feedback as well as Camila Garcia for her factchecking.