Table 4, which is based on special tabulations by the Census Bureau, provides
some insight on how big these effects might be. We present poverty rates in 2003
under several different alternative definitions of income for two groups: all nonelderly
and children. Because the definition of what is included in income is
shifting across this table, the level of any particular poverty rate in the table is tricky
to interpret. Our focus here is on how including various government benefits would
change the estimated poverty rates. In particular, the table shows how this measure
would change if EITC payments, cash transfers and noncash transfers were fully
included. Beginning with line (b), when after-tax income (excluding the EITC) is
used to calculate the poverty rate, it increases the poverty rate by more than a
percentage point. This is expected, since including tax payments lowers after-tax
income. Including tax credits from the EITC in the definition of income, however,
reduces the fraction of individuals who are counted as poor. Overall, including the
EITC as income lowers the poverty rate by 1.7 percentage points, from 13.9 to
12.2 percent. Because EITC eligibility is sharply limited for households without
children, the effects of the EITC on poverty among children (shown in the last
column of table 4) are substantially larger—a reduction of 3.1 percentage points
from 19.1 to 16 percent.