Census Bureau's Annual Poverty and Income Report Paints a Dark Future

Census reportEvery year the Census Bureau releases its annual report on the state of Poverty, Income, and Health Insurance in the United States. This report looks back on the data for the previous year. Last week the Census Bureau released its report for 2012. But more than looking back on the past, the report is interesting, and disturbing, for what it suggests about our future.

The continuing struggle of young adults. The youngest working age group, ages 15-24, is the only age group whose income has not increased over the past 30 years. In 1982, the median salary of a householder aged 15-24 was $31,563. In 2012, the median salary of a householder aged 15-24 was $30,604 (the difference is not statistically significant). In addition, in 2012, young adults aged 25-34 living with their parents had a 43 percent poverty rate if their poverty status is determined using only their own income and not their parents’ income.

These data speak to the problems faced by young adults. It is during these initial years of career building, when young adults generally do not yet have families, that they have both the resources and the capacity to lay a solid foundation for their entire adult life. It is also the time to build credit and begin saving for retirement and emergencies. A consequence of this stagnant median income is that young adults in 2012 are increasingly having to push these activities into their thirties. Ultimately, lowered income means lowered opportunities for young adults to invest in themselves and their future families.

The lack of a post-recession recovery. Median income and the poverty level were not statistically different in 2012 than they were in 2011. Fifteen percent of the American people lived in poverty, 20 percent more than before the recession. Real median household income lingered at $51,000, 8.3 percent lower than the pre-recession level. Thus, even now, three years after the recession has ended, the recovery has yet to reach the 46.5 million Americans living in poverty.

The poverty rate understates the true level of destitution. Fifteen percent of the overall population lived in poverty, with the poverty rate for children at 22 percent. But forty percent of those who lived in poverty—20 million people, including seven million children—lived in extreme poverty, meaning their income was less than half of the federal poverty level. A family of three in extreme poverty has an annual income below $9,765.

Income inequality has grown enormously over time. Over the past 45 years, the average household’s income has increased by $8,000, while the income of households at 90% of the median income has increased by $56,000, and the income of households at 95% of the median income has increased by $77,000. As a result of this unequal income growth, the disparity between the living standards of middle class and wealthy Americans is far different today than it was in 1967. A household at 90% of median income now has roughly three times as much income as the average household, and a household at 95% of median income has roughly four times as much.

The release of the Census Bureau reports comes against the backdrop of the U.S. House of Representatives’ vote to shred the safety net for low-income Americans by cutting $40 billion from the Supplemental Nutrition Assistance Program (SNAP) over the next ten years. As bad as poverty is in America, it would be far worse without safety net programs like SNAP, which lifts nearly four million Americans out of poverty.

Kali Grant contributed to this blog post.

 

Don't Let it Get Worse: Wealth Inequality

A new report by the Pew Research Center illustrates the worsening wealth inequality in the U.S. According to the report, during the first two years of the nation’s recovery (2009-2011) the net worth of the top 7% of households rose 28%, while the net worth of the bottom 93% dropped 4%. In other words, during the recovery the total wealth of the top 8 million households rose $5.6 trillion, while the total wealth of the bottom 111 million households dropped $600 billion. That’s an average gain of $697,651 for the top 8 million households, versus a $6,079 average drop for the 111 million households in the bottom rung of the economic ladder!   

U.S. wealth inequality was already staggering before the recovery began in 2009. At that time, the average household in the top 7% had 18 times more wealth than the average family in the bottom 93%. But since 2009, the top 7% have increased the gap, increasing their total wealth to 63% of total U.S. wealth and 24 times the wealth of the bottom 93%.

The major contributor to the dramatic increase in the wealth gap, according to the Pew Report, was the rise of the stock market and the fall of the real estate market. Because 87% of stock market shareholders are members of the top 7%, the nation’s wealthiest households benefited greatly as the S&P 500 rose by 34% during the recovery. And the top 7% continue to rake in investment gains as the Dow Jones industrial average hit a record 15,000 on May 4, 2013. At the same time, the bottom 93% of families, who rely on the real estate as their main asset, saw the housing market fall 5% from 2009-2011. The bottom 93% also lost out on the fruits of the stock market gains since their share of stock ownership declined during this period (from 16% in 2009 to 13% in 2011). 

Overall, during the economic recovery (2009-2011) only households with greater than $500,000 in wealth, or 13% of Americans, saw a growth in wealth (21% growth). The average household earning less than $500,000 lost wealth from during the recovery. The data are consistent with other research showing a consistent growth in wealth inequality in the U.S. over the last 50 years.

While reading these statistics is hard enough, seeing them illustrated graphically drives the point home. A short video about the overall U.S. wealth inequality that was recently posted by “Politizane” uses data from Dan Ariely and Michael Norton’s 2011 study on perceptions of wealth inequality compared to actually wealth inequality in order to drive home the depressing reality of the current wealth inequality in the U.S.

While overall wealth inequality in the U.S. is problematic, when focusing in on race, inequality looks even worse. A new report by the Urban Institute shows that a dollar in a white person’s hand grows significantly faster than a dollar in a black or Hispanic person’s hand. In 1983, whites age 30 had on average 3 times more wealth than blacks age 30By 2010 the same group of whites had 7 times more wealth compared to the same group of blacks. Unfortunately, just as the recession increased the overall wealth gap in America, it also increased the racial wealth gap. Between 2007 and 2010 Hispanic families lost 40% of their wealth on average, and blacks lost an average of 31%. Meanwhile, white families lost only an average of 11% of their wealth. Overall, on average whites had 6 times more wealth than blacks and Hispanics, according to Urban Institute’s report. These findings are inconsistent with a 2011 Pew Research Center report that found that white households had 20 times the wealth of black households and 18 times that of Hispanic households

To further demonstrate these staggering figures, the Urban Institute also released a video illustrating the racial wealth gap, based on the findings of their recent report.

But this is just the tip of the iceberg. According to The Rules’ new short video based on United Nations Data, globally, the richest 300 people have more wealth than the poorest 3 billion people. To put that in perspective, the number of people it takes to fill a midsize aircraft have more wealth than the populations of India, China, the U.S., and Brazil combined. The richest 1% of people have 43% of the world’s wealth, while the bottom 80% of people have just 6% of the wealth. Two hundred years ago the richest countries were 3 times richer than the poorest countries; by the 1960s they were 35 times richer, and today they are about 80 times richer.

Clearly, something needs to be done in order to close these wealth divides. All people, whatever nationality or race, must have an equal opportunity to build wealth. This is why the Shriver Center’s Asset Opportunity Unit focuses on asset building policy and initiatives. To learn more about the Shriver Center’s work visit our website and see how you can get involved.

 

Seven Years After Hurricane Katrina: Who Owes Whom?

 

Right now Hurricane Isaac is thrashing New Orleans and the Gulf Coast, but the thoughts of many residents there are on another storm. Today marks seven years since Hurricane Katrina blasted ashore along the Gulf Coast. The storm’s trail of destruction left at least 1,836 people dead and 80 percent of the city of New Orleans flooded, largely from the failure of the city’s levee system. Hurricane Katrina forever changed New Orleans economically, culturally, and environmentally and left the rest of the country with unforgettable images of damage and desperation. The federal government, especially the Federal Emergency Management Agency (FEMA), was roundly criticized for its bungled response to this unprecedented disaster.

Seven years later, New Orleans is still struggling to recover. Last week Professors Bill Quigley (who has written twoarticles about poverty and Hurricane Katrina for Clearinghouse Review: Journal of Poverty Law and Policy)and Davida Finger released their annual “Katrina Pain Index” to document the city’s slow recovery. The numbers paint a bleak picture for low-income residents of the Big Easy:

·         27 % of New Orleans residents live in poverty.

·         40 % of poor adults work, including a quarter who work full time yet remain in poverty.

·         37 % of New Orleans families are “asset poor,” which means they could not survive for three months without income.

·         42 % of New Orleans children live in poverty.

·         New Orleans has the second highest rate of homelessness in the country.

·         New Orleans also has the second highest rate of income inequality, and the racial disparities are striking:

o   30 % of African Americans live in poverty, as opposed to 8 % of whites.

o   50 % of African Americans in New Orleans are asset poor, followed by 40 % of Latinos, 24 % of Asians, and 22 % of whites.

o   65 % of African American children are poor, versus less than 1 % of white children.

To be sure, New Orleans had its problems before Hurricane Katrina, but given these statistics and the failures of the U.S. Army Corps of Engineers and FEMA, one could argue that the United States owes a debt to New Orleans and survivors of Hurricane Katrina. Instead, in a twisted irony, the federal government has been trying to collect debts fromHurricane Katrina survivors.

In the current issue of Clearinghouse Review, Professor Finger chronicles FEMA’s attempts to recoup alleged overpayments of post-disaster housing assistance and the challenges recipients have faced in contesting these collection efforts.

FEMA’s initial attempts to terminate housing assistance and recover overpayments were almost as sloppy as its initial handling of the hurricane itself: it did not adequately notify those who had been overpaid about why it wanted its money back and what the overpaid recipient could do about it. In addition, housing-assistance recipients had no due process before their assistance payments stopped.

Professor Finger, through her work with the Loyola Law Clinic, teamed with pro bono counsel and brought a class action lawsuit against FEMA that led to a $2.65 million settlement to resolve FEMA’s shoddy procedure for terminating housing assistance. FEMA also abandoned thousands of pending overpayment-collection efforts to review and revise its recoupment procedure.

In the summer of 2011, half a year after settling the class action suit against it, FEMA sent out a fresh batch of more than 80,000 notice-of-debt letters to people who had allegedly received too much housing assistance from the agency. Those who received the letters had two options: (1) within 60 days they could appeal FEMA’s determination and submit evidence of their living situations six years prior—a nearly impossible task for people whose housing had been in flux since Katrina—or (2) they could request a “compromise” by demonstrating their current inability to pay, in which case FEMA would reserve the right to recoup the debt later if their financial circumstances changed.

After outrage grew over these insufficient remedies, at the end of 2011 Congress enacted the Disaster Assistance Recoupment Fairness Act (DARFA) to offer a more appropriate remedy. Under DARFA, an individual who received an overpayment from FEMA can obtain a complete waiver of this debt without the usual tax consequences of debt forgiveness. As Professor Finger explains, waivers are available when the overpayment was FEMA’s fault and collecting the debt would be “against equity and good conscience,” among other factors. Full waivers are available to those whose annual household adjusted gross income is less than $90,000, and partial waivers are available to those with higher incomes.

Unfortunately, FEMA’s authority to waive debt under DARFA ends September 30, 2012. And it is unclear whether everyone who qualifies for debt waiver even knows about it. Professor Finger notes that FEMA sent out 90,000 letters to people about waiving their debts under DARFA; right away, 20,000 of those letters came back as undeliverable. Recipients of these letters have only 60 days to respond from the date on the letter. Southeast Louisiana Legal Services has been working to raise awareness of this debt-relief opportunity.

DARFA has brought relief to some people who were displaced by Hurricane Katrina and then pursued by FEMA, including at least one client of Professor Finger’s legal clinic. After seven years, stopping FEMA’s unwarranted recoupment efforts is one more step toward balancing the debts between hurricane victims and the federal government.

 

Subprime Mortgage Crisis Widening the Racial Wealth Gap

ForeclosureAmerica has long been experiencing a growing racial wealth gap, however, the 2008 recession and mortgage crisis widened the gap.   

Household wealth is the sum of assets such as a home, car, savings, stocks, etc., minus the sum of debt. The Federal Reserve has released an analysis of U.S. family finances that showed that racial and ethnic minorities lost about a third of their net worth from 2007 to 2010. Overall, median family worth dropped from $126,400 to $77,300 in just four years, and medium income dropped 7.7%. This dramatically unbalanced wealth disparity is the largest since the government began collecting and documenting the data over 25 years ago. The racial wealth gap is twice the size it was 20 years before the 2008 recession.

A recent Pew research study explains that decreasing home values are the main cause for the decline of household wealth among minorities, hitting Hispanic and black families the hardest. The Pew study also showed that homeownership rates are highest for whites and lowest for blacks; in between are Hispanics, who experienced the greatest decline in the homeownership rate, from 51% to 2005 to 47% in 2009. A leading cause of the decline in homeownership was the foreclosure crisis.   

During the housing boom, there seemed to be loans for anyone who wanted them, but for some these loans came at a high cost. The boom enabled a boost in homeownership in minority neighborhoods because of the availability of risky loans at high interest rates. As the bubble burst, borrowers defaulted on these loans, and home prices fell at record rates. Investigations into the cause of the housing collapse revealed that many mortgage companies were discriminating against minority borrowers or otherwise engaging in suspect practices. SunTrust, for instance, was sued for charging African American and Latino borrowers significantly more than white borrowers with similar credit backgrounds for loans in Atlanta. The judge in that case called the lender's actions a “racial surtax.”

The recession also had a trickledown effect on other important aspects of families’ financial health, especially their credit scores. A foreclosure can remain on a credit report for up to seven years and drop a credit score by 86-160 points leaving a lasting scar on one’s financial well being. A low credit score, in turn, can limit a person’s ability to get a job and increase the interest rates one pays for loan products. According to FICO, nearly 50 million people saw their scores drop more than 20 points at the height of the financial crisis, and over 15 million people’s scores dropped 50 points in 2010-11. A low credit score due to a subprime mortgage, foreclosure, or the inability to pay bills on time can prevent one’s achievement of the American Dream, which, for minorities, was once a reality but is now out of reach. 

Read more about the growing racial wealth gap in Clearinghouse Review: Journal of Poverty Law and Policy

Chicago: The Most Segregated City in the Country

ChicagoAmerica overall is more integrated than ever, and all-white neighborhoods are virtually extinct. Gentrification, immigration, migration to the suburbs, and the tearing down of public housing all have contributed to desegregation over the past decade. However, there are still areas of the country that remain highly segregated.

According to a recent report by the Manhattan Institute for Policy Research, although Chicago has seen the second largest decrease in segregation among the ten biggest cities, next only to Houston, Texas, it is still the most racially segregated city in America.

The study uses census data and two key measures to discuss segregation. First the report examines “isolation,” which measures the tendency of members of a racial group to dominate a neighborhood. The report also measures “dissimilarity,” which is the evenness of the distribution of two racial groups across an area. Chicago’s difficulty lies in the fact that it has historically isolated African-American neighborhoods that are very rarely integrated because, unlike other neighborhoods, they are not experiencing population growth or the influx of new housing.

While segregation may be decreasing since its peak in the 1960s, racial income and asset inequality still persists and is actually growing. According to a recent Pew Study, the median wealth of white households is 20 times that of black households and 18 times that of Hispanic households. This is the largest racial wealth gap since the government began publishing the data 25 years ago. In fact, the gap has doubled since the 2008 recession. Prior to the recession, in 2005, Hispanics had $18,359 in net worth (assets minus debts), African-Americans had $12,124, and whites had $134,992. After the recession, the net worth for Hispanics and African-Americans fell dramatically, while white families were left unscathed. In 2009, the average white family had $113,149 in net worth compared to $6,325 for Hispanics and $5,677 for African-Americans.

Tom Shapiro of Brandeis University, who has studied the racial wealth gap for years, says he's concerned about the long-term impact. He thinks the wealth gap will likely grow even more, unless the economy turns around soon. Not only does the economy need a boost, but so do government policies that create barriers for minorities’ financial stability and mobility. As the Manhattan Institute’s report notes, access to credit and fair housing laws significantly contribute to a city’s segregation patterns. Government programs and policies that increase access to credit and bank accounts, as well as policies that encourage saving and diversified asset holdings will eradicate segregation. During the recession, white families, whose assets were diversified, were relatively safe compared to minority families, whose assets were mainly concentrated in the housing market, which crashed. Clearly, the racial wealth gap is still prevalent in cities across America, and there is much to be done to begin to close it. Changing government policies and creating asset building opportunities for everyone is an important first step. 

Check the Shriver Brief for more coverage on access to credit, fair housing laws and closing the racial wealth gap.

This blog post was coauthored by Alison Terkel.

 

America's Income Gap: Migration to Elections

Hundred dollar billsThe 2010 Census data released this past September showed that the income gap between Americans is widening. More specifically, the income gap between blacks and whites widened such that the average white worker’s income was about 1.7 times higher than that of black workers, which is up significantly from the 1990s. But this isn’t the case across the whole country; the suburbs are experiencing a wave of desegregation and a closing of the income gap.

Affluent black Americans, who are leaving industrial cities for the suburbs and the South, are shifting traditional lines between rich and poor. While suburbia is flourishing amidst the new flux of diverse middle-class residents. Cities such as Chicago, Detroit, Philadelphia, and others are suffering from racial and economic inequality because, for the most part, only lower-skilled minorities have remained.

These changes in city demographics will result in political redistricting as the African American political base shifts. Chicago has had one of the biggest losses, with over 180,000 middle- and working-class African Americans leaving the city for the suburbs and the South, where housing is cheaper, schools are better, and jobs are easier to come by. Not only has such migration changed the face of major industrial cities, but it will also change the face of the upcoming elections and how candidates campaign to their new base. Once Southern red states could now become swing states or even blue states due to the influx of African Americans who have left Northern cities.

Concern and debate about wealth distribution has been the central theme of the Occupy Wall Street movement. Although many seem to write off the Occupy movement as a radical minority group, research shows that 92% of Americans are actually in favor of wealth redistribution. When survey participants were asked what they thought the wealth gap was, the majority believed that the top 20% only controlled 59% of wealth, a modest estimation. The truth, however, is that the top 20% control 84% of the wealth. When asked what the ideal distribution of wealth should be, people said that the top 20% should only control 34% of the country’s wealth. This disconnect among Americans’ beliefs about economic inequality, their self-interest, and their public policy preferences suggests that, if there were more awareness of the reality of the gap, people would be more likely to advocate to close it.

As the Occupy movement continues and grows, and more Americans become aware of the real level of wealth inequality, it is sure to be an important topic during the 2012 Presidential election. 

This blog post was coauthored by Alison Terkel.