In 1964, President Lyndon B. Johnson declared war on poverty, asserting that additional efforts were necessary to “strike down all the barriers” that kept many from taking advantage of increasing economic opportunities. As Johnson explained, the war on poverty was “not a struggle simply to support people, to make them dependent on the generosity of others.” Rather, it was a “struggle to give people a chance.”
Yet after numerous anti-poverty programs and trillions in government spending, the data show that the war on poverty has increased, not reduced, dependence.
A recent working paper published by the National Bureau of Economic Research (NBER) has found, for instance, that the war on poverty did not accelerate poverty reduction.
From 1939–1963, poverty fell by 29 percentage points, with even larger declines for Black people and all children. While absolute poverty continued to fall following the War on Poverty’s declaration, the pace was no faster, even when evaluating the trends relative to a consistent initial poverty rate.
However, while rising market incomes (wages, investments, and other private sources) were largely responsible for declining poverty rates before 1964, government transfers have accounted for a large and growing share of income gains among the poor since the war on poverty. As the authors note,
…the pre-1964 decline in poverty among working age adults and children was achieved almost completely through increases in market income, during which time only 2–3 percent of working age adults were dependent on the government for at least half of their income, compared to dependency rates of 7–15 percent from 1972–2023.
Congressional Budget Office (CBO) data
Indeed, according to Congressional Budget Office (CBO) data, in 2022, pre-tax household income averaged $26,200 for the bottom 20 percent of Americans — or the bottom quintile. After accounting for transfers (cash assistance and in-kind transfers such as Medicaid), average income rose to $45,000. That is, government transfers accounted for approximately 44 percent of income for the bottom quintile.
In 1979, households in the bottom quintile received approximately $32 in government transfers for every $100 of pre-tax income. However, in 2022, transfers averaged $72 per $100 of income.
This trend is not exclusive to households with the lowest income, either.
For the second quintile, transfers grew nearly sevenfold, rising from 2.4 percent of pre-tax income in 1979 to 16.2 percent in 2022. For the middle quintile, transfers grew from less than 1 percent of pre-tax income to 6 percent.
Figure 1: Average Transfer Rates for the Three Bottom Quintiles
Two things are clear.
First, contrary to popular assertions, the United States has a massive welfare system. This system has been successful in alleviating material poverty.
For instance, after adjusting for government transfers, CBO estimates that only 0.5 percent of Americans were living below the poverty line in 2021. The official poverty rate using pre-tax income was over 11 percent.
Figure 2: Percent of U.S. Population Living in Poverty, Official Rate vs. CBO Adjustments for Government Transfers
Secondly, while increasing welfare spending has significantly alleviated material poverty, it may be undermining the deeper form of progress: reduced dependence and greater self-sufficiency. This is worth a national discussion.