America's Poor and the Great Recession

Chapter 5. Risks to the Safety Net in the Aftermath of the Great Recession

84 · america’s poor and the great recession 5 Risks to the Safety Net in the Aftermath of the Great Recession In 2009–2011, President Obama and the U.S. Congress took major steps aimed at bolstering the safety net during and soon after the Great Recession. The $787 billion stimulus package of 2009 contained a temporary burst of spending for safety net programs while the federal debt-ceiling agreement of 2011 was designed to shield the largest safety-net programs from an initial round of automatic cuts to defense and domestic spending. Looking forward, however, it appears that the safety net is far from secure. Since the U.S. economy is unlikely to reach full employment (less than 5 percent) until 2017 (or even the end of the decade) and since tens of millions of Americans living near the poverty line have much diminished levels of savings and assets due to the Great Recession, the need for safety net programs is likely to remain quite large between now and 2020.198 During this same period , while revenues to the federal government and state governments will be rising gradually due to the slow recovery, politicians will be under increasing pressure to curb government spending in order to avoid or curb deficits and reduce the large accumulated debt. Some states will enact new sources of revenue, but the enactment of substantial new sources of revenue by the federal risks to the safety net · 85 government is not likely to be politically appealing to members of Congress and their constituents. In this chapter, we explore a variety of ways that the safety net is already being threatened and may be cut further in the next decade . We set the stage by describing how the 2009 stimulus package gave a temporary boost to the safety net. Using surveys from the Federal Reserve Board, we then consider how well low-income people were doing in 2010 compared to 2007. We then describe the 2011 debt-ceiling agreement and the strengths and weaknesses of the safety-net protections that are contained in this agreement. We then describe a variety of ways that federal and state governments are already reducing spending on the safety net and thereby placing low-income populations at risk. These early cuts provide an indication of more substantial and widespread cuts that are likely in the years ahead, unless the economy recovers much more rapidly than expected. The Recovery Act of 2009 By early 2009, it was becoming increasingly clear that the Great Recession was even worse than expected. The Obama administration and the Congress responded with the temporary, $787 billion American Reinvestment and Recovery Act. The main purpose of the Recovery Act (also called the “federal stimulus” package for short) was to soften the impact of the downturn, accelerate the economic recovery, and create jobs for Americans. The stimulus package , while huge in absolute size, was actually a compromise between those who argued that a much larger stimulus (say, $1 trillion ) was advisable and those who questioned whether any stimulus was likely to be effective enough to justify an exacerbation of the bleak federal fiscal situation. Economists will debate for many years the precise impact of the 2009 stimulus package, but it appears that the temporary package “worked in the sense that the recession would have been substantially worse without the stimulus.”199 But even with the stimulus, the economy was left “badly injured.”200 It is less clear how the slow economic recovery since June 2009 has been affected (positively or negatively) by the fiscal policies of the U.S. federal government. It may take 86 · america’s poor and the great recession scholars many years to answer that question, and even today there are debates about whether the actions of Congress during the Roosevelt administration helped or hurt America’s recovery from the Great Depression. Economics is a science but a very imperfect one. What we can say with confidence is that, in the design of the stimulus package, the President and Congress made a special effort to channel substantial amounts of funds to low-income families and depressed communities.201 A case can be made that all of the $787 billion helped boost the recovery and thereby mitigated some of the hardships incurred by the poor and near poor, but roughly $240 billion of the stimulus package was aimed directly at...