For the first time in more than half a century, the number of families on a low income is growing in the US, and the number of families now is poverty is also on the increase. In almost every year from the end of the Second World War until the turn of the century, household incomes in the US rose. After 2000, however, they leveled off for some time and now, in the last couple of years, they have started to decline. So what has caused this increase in the number of low income families?
There is no simple explanation for the rise in the number of low income families in the US, but the lackluster performance of the American economy, and persistent high rates of unemployment are certainly key factors. But perhaps the real problem is that there is little confidence in any real recovery in the near future.
Economic growth is hovering at little more than 2%, and the factors that normally drive the engine of economic recovery simply are not there. The housing market, and the construction industry, are all but in recession, and manufacturing and consumer spending are well below the levels needed to generate growth. As if this was not enough, the state of markets around the world means that the outlook for US exports is also poor. Without growth in the US economy, low income levels are set to stay, at least in the near future.
Low income levels and poverty have a significant impact on the wider US economy with a fall in tax revenue on the one hand, and a rise in government expenditure to support low income families on the other hand. The drain on the economy is seen through such things as the Earned Income Tax Credit (EITC), through which low income families can benefit from a reduction in the amount they owe in tax, or even claim a tax refund in certain circumstances.
The United States is said by many to be finely balanced on a knife edge between recovery and recession, and it is really a case of it being anybody’s guess what will happen in the next year or two. Depending on who you talk to, there is anywhere from about a 35% to a 50% chance of the US falling once again into recession. Whether this happens, or the economy starts to recover, the number of low income families in the US is likely to remain high for some time to come.