Press Briefing by National Economic Advisor Gene Sperling and Chairman of the President's Council of Economic Advisors Martin Baily

The James S. Brady Briefing Room

1:55 P.M. EDT

MR. SIEWERT: Mr. Sperling and Martin Baily are here to brief on the President's announcement today of the new numbers on income and poverty. Without further ado, I will let them take the stage.

DR. BAILY: Thank you. The numbers that were released today by the Census Bureau really are remarkable. There are many, many striking numbers within the release that they put out. I'm going to mention some of them and say a little bit about what might be the reason or the background behind those numbers, and then turn over to Gene.

Looking at poverty, the decline in poverty in just this last year was 2.2 million; as the decline has been 7 million since 1993. For African Americans, the poverty rate is the lowest on record going back to 1959, and the decline in the poverty rate between 1998 and 1999 was the largest one-year percentage decline in the poverty rate.

The Hispanic poverty rate is the lowest since 1979, and again, is the largest percentage decline. Asian and Pacific islanders have the lowest poverty rate on record. The poverty rate for children is the lowest since 1979 and again, also, the largest one-year percentage decline going back until 1966.

One of the striking things in this report is what's happened in central cities, which, as you know, is an area where poverty has been concentrated. The decline in poverty in central cities was also the largest percentage point decline, from 18.5 percent to 16.4 percent.

In fact, just over 80 percent of the total decline in poverty occurred in central cities, even though only 41 percent of the poverty was located there. So inner cities have benefitted dramatically in this '98, '99 period.

That obviously suggests that there's more to be done in terms of combatting rural poverty, but it's encouraging that the central cities which have been, unfortunately, a center of poverty, have improved so much during that year.

Turning to income, media household income, again adjusted for inflation, reached the highest level ever for the United States. This is true for every one of the demographic groups that the Census Bureau breaks out: for whites, for African Americans, for Hispanics, for Asian and Pacific islanders the overall household income went up 2.7 percent.

All of the minority groups, in fact, experienced the biggest gains on record. African American households gained almost $2,000 in that one year, '98-'99. That's a 7.7 percent increase in their household income. Hispanics gained almost $1,800, a 6.1 percent increase. Asian and Pacific islanders, there was a 7.4 increase. So, really, these groups did extraordinarily well in that last year. Central cities' median household income was up 6.4 percent, again reflecting what I mentioned earlier, the decline in poverty that took place.

Looking at income distribution, overall income inequality stayed about the same, but, in fact, in the '98 and '99 period, the bottom fifth of the income distribution actually saw the largest increase in real household income -- 5.4 percent.

Now, I think just to put this in context, we hear a lot and at the Council we've been talking a lot about the new economy, how that's based in a lot of the new technologies. We've seen a tremendous increase in the stock market valuation, which has allowed the wealthiest to do well and many middle income families to do well also.

But I think what's striking about these numbers is it shows that the economic progress is not just restricted to Silicon Valley or to the stock market. It means that median family incomes and minority incomes are rising substantially, too. It's really encouraging to see the benefits going across the board, so that the lowest quintile among the income groups actually had the largest gain in income.

Now, why is that? I think a big reason is that we've kept this expansion going. One of the things that you learn, looking back at economic history is that as expansions continue, and unemployment stays low, that's when people at the bottom really begin to benefit. That's when you see the best gains in median income. As you know, we now have the longest expansion on record. This one has exceeded the others, so we've been able to keep this expansion going, and therefore reach people in the middle and those at the bottom.

There have also been, of course, policies that have contributed to this. The EITC, that Gene is going to talk some more about the direct effects, but obviously that encourages people to enter the work force and to improve their living standards. The education and training policies; minimum wage increases have been important. And certainly, one would suggest that some of the empowerment zones have also been helpful in improving the situation for inner cities.

So in short, this is a very encouraging report. It suggests that the policies that are being followed, the fiscal discipline and so on which have kept this expansion going, are really helping all Americans, and that some of the specific policies are also helping.

So this is a very good sign, and a sign that the policies we have, I think, are the right policies. Thank you.

MR. SPERLING: Let me just follow up Martin's presentation with three additional points. We are very proud that the distribution of this growth has been so evenly balanced, and as Martin said, in this last year it was the bottom 20 percent that saw the largest gains. They had 5.4 percent income gain.

The same holds true when you look over the last five, six years. From 1993 to '99, every single income quintile, every 20 percent, has seen their income grow between 13 and 16 percent. But the highest growth takes place in the bottom 20 percent. Their growth rate was 16.3 percent. Now, that is a dramatic turnaround from what happened in the 12 years prior to President Clinton being in the White House.

During that period of time, what you saw was very uneven income growth. In fact, the top 20 percent had exceptional income growth of 26.4 percent. But the bottom 20 percent actually lost income; they went down 4.4 percent. And in the middle, there was almost not growth at all, virtually stagnant income growth.

So, compare a situation were over 12 years, the bottom 20 percent lost ground, the middle basically stayed completely even in terms of their purchasing power, and only the top 20 percent saw significant gains. And they were significant at 26.4 percent.

Now, look at these last five years in which the bottom 20 percent grew. Instead of losing 4.4 percent of income growth, grew 16.3 percent in real terms over five years. And every income quintile after that grew at least 13 percent. So the growth has been very even with the best growth coming at the bottom.

As Martin said, there's many factors; but policy does matter. And I do believe that the hallmark of President Clinton's economic policy will be not simply deficit reduction and fiscal discipline, but progressive deficit reduction and progressive fiscal discipline, that, in turning our country's fiscal situation around, it was not done on the backs of the poor, just the opposite.

As we were bringing the deficit down, we increase the earned income tax credit dramatically to encourage people to work and be part of the new prosperity. We increased the minimum wage, empowerment zones, the Community Reinvestment Reform, the tripling of funding for dislocated workers, the funding for the digital divide.

All of these things were designed to say that while we bring down the deficit, we do not need to do it by cutting funding for those who are poor and lower middle income. Indeed, we increased funding so that they could become more part of this economy. And as Martin said, as this expansion, which has been helped by the low interest rates from fiscal discipline, has extended; it has forced more and more businesses to reach out to lower income workers who, through these benefits and many of the benefits that are added in welfare reform and the others things that encourage people to become part of the work force, has helped ensure that the growth here has been balanced and shared even by those at the lower end of the income bracket.

The second point I just want to point out is what a large difference the earned income tax credit makes. The poverty rate that you see today, 11.8 percent, is one that does not include tax policy. So you might ask, if this was after tax, what would the poverty rate be, instead of 11.8 percent. Well, the Census does an alternative definition, and if it were not for the earned income tax credit and you included tax policy, the poverty rate would go up from 11.8 percent to 12.8 percent. So if you did after-tax policy and there was no earned income tax credit, then the poverty rate would increase a full point, from 11.8 percent to 12.8 percent.

Because of the earned income tax credit, however, when you add that in, the poverty rate would be 11.3 percent. So the earned income tax credit alone makes the difference between whether the after-tax poverty rate would be a point higher than it is or half a point lower. In terms of people, that means there are 4 million people, 2 million children, that are lifted out of poverty every year because of the earned income tax credit.

This pro-work tax credit that's pro-job and pro-growth as well, is a major advance in public policy. And in our budget right now we have initiatives to increase that, to reduce the marriage penalty for people on the earned income tax credit, and to give more for people who have three or more children. Because the poverty rates are still far higher for children if they're in families with three or more children.

The third point that I would make is simply that we saw some dramatic gains in places where we still have dramatic problems, and it's important to recognize both at the same time. There were -- concerning children, we should feel proud that of the 2.2 million people that were moved out of poverty this year, 1.3 million were children. In one year, 1.3 million children moved above the poverty line, a tremendous advance in a single year for our nation.

Indeed, since the President's been in office, 3.6 million children have moved above the poverty line. And the child poverty rate has gone down, from 22.7 percent to 16.9 percent, a 25 percent drop. The African American poverty rate has taken a dramatic drop, from 46 -- excuse me, the African American children poverty rate has gone from 46 percent to 33 percent. I think what is worth pointing out is what dramatic progress that is, and what a dramatic problem that still is.

The fact that we have made progress in reducing the number of African American children in poverty from half to a third is a tremendous accomplishment, unquestionably. The fact that a third of our African American children are still in poverty should be something that weighs on the conscience of all Americans, and something that we should all be working on.

The same is very much true with Hispanic children, where there's been significant increases, and yet 30 percent are still in poverty. So this is a day for celebration, but it is also a day to recognize how serious the problems of poverty still are in many pockets of our country, and how far we still have to go. Martin and I are available for questions.

Q: What do you think the election is going to impact -- how it will impact on these figures in any way?

MR. SPERLING: Well, I think that you have to -- I think that there are different spheres in the economy, and you have to look at the public policy sphere. And what I guess I would say is that there's obviously many factors involving the economy, the information technology, et cetera. All I would say is that a Clinton-Gore administration has focused like a laser beam, from the beginning, on insuring that at every step of the way, affirmative steps are being taken to insure that those who are economically disadvantaged, have tools to become part of the new economy.

And I think that -- and I worry that whether intentional or not, passage of explosive, large tax cuts would essentially drain our federal resources so that there would not be enough funding for those at the bottom of the income stream, who have the least political power, but have the greatest need for additional education, for additional incentives, for additional health care.

So, I for one believe the continuation of the policies we have, and hopefully even the strengthening of these, would continue to focus on ensuring that whatever is happening in the economy, that there's a special focus on making sure that those who have the least economic opportunities now have more in the future.

Q: Gene, there were two sort of negative areas in the report today. One --

MR. SPERLING: Martin handles all negative things. (Laughter.)

Q: It looks like in income inequality trends are stuck. In six years there hasn't been any move to improve the wage -- the income gap -- and also the gap between men's wages and women's wages has widened, for the second year in a row. Does this concern you guys at all?

DR. BAILY: Well, obviously, it is a concern. We would like to see the income distribution become a little more equal. But one step at a time. As Gene mentioned, really there was tremendous growth in inequality, and that has been turned around. We're now seeing broad growth across the board in income. And actually, as we said, the bottom fifth had the largest increase.

So we'd like to see inequality reduced. But I think the priority is to make sure that all families see increases in their incomes. That's the thing that's most important.

Again, I think there has been tremendous progress in women's earnings relative to men. One thing I would point out in this report, that's the improvement in the full-time earnings of African American males, which have increased substantially. And the ratio of those earnings to the rest of the population, or to white males, has narrowed substantially. So I think that's another sign where we're seeing some reduction in the inequality.

MR. SPERLING: Can I just say, one way to think about that is we did have dramatic increase in inequality during the '80s, and you can see that -- if the bottom 20 percent was having income grow at 26 percent, the bottom 20 percent was actually losing income. If you look at the last six years as we've described, the bottom 20 percent saw their income grow 16.3 percent in real terms.

Now, if the top 20 percent had seen their income only grow 10 percent, then you would have had income inequality narrow. But the fact is they grew 16 percent, almost the same rate. So, in other words, if things are staying stable because there is strong income growth at the bottom, I don't think anybody feels that somehow our country would be better if there was less income growth other places.

So I do think the focus really should be, is the prosperity being shared at the bottom of the income sphere. It clearly is. There clearly are still significant pockets of poverty and problems in our country, but at a larger level we are seeing significant growth in the bottom 20 percent and the stop of inequality increasing. And the only reason inequality was stable was not because there wasn't growth at the bottom, but because there was comparable growth at both the top 20 percent and the bottom 20 percent.

DR. BAILY: Can I just mention the number, because it is striking -- for full-time workers, African American males increased their earnings by $2,379 in just that one year. That was an 8.6 percent increase.

Q: I'm wondering if you could comment on the state of the economy. The U.S. economy is fairly moderating. We see a lot of signs of that. Is the spike in energy prices enough to transform what could be a soft landing scenario to a hard landing scenario? And could you just give us a basic outlook of what we could expect over the next year?

DR. BAILY: We don't think a hard landing is likely. The economy has been very strong, has continued to be stronger than we expected. The third quarter growth will be certainly lower than the first half of the year. But by the fourth quarter we expect to see growth at around 3 percent. The projection for the third quarter is a little bit less than that.

In terms of what the energy price increase does, it certainly has been painful for the economy. We've seen an increase in what people have had to pay for gas and for heating oil. It's taken purchasing power out of people's pockets. But at the same time, this economy is less dependent on oil in relation to its GDP; much less dependent than it used to be. So if you look back at the example of the 1970s or early '80s, we're not as dependent on oil as we were in relation to our GDP.

Another reason why I think this is a different situation is productivity growth has been very strong, whereas in that earlier period we saw weak productivity growth. So we have a strong budget situation, strong growth in demand, and we're less dependent in relation to our GDP on oil. So I think all those reasons suggest that, while it is taking some purchasing power away from Americans, it's unlikely to push us into a downturn.

Q: Can you give us a little bit of a state of play on the New Markets initiative? It looks like it's becoming a magnet for a lot of different amendments on the different types of tax provisions. Is that going to kill it, or not?

MR. SPERLING: We still remain quite hopeful on the New Markets legislation.

There have been conversations between the President, Speaker Hastert, Majority Leader Lott in which all have expressed the desire to get this done. I think we have to wait and see how the finance markup unfolds. I think the most important thing we think for the passage of new markets is that we're able to move it into conference, move it out of the Senate, because I think there is an enormous amount of good feeling for this legislation. I think there's a lot of bipartisan support.

So I think the important thing is to, at this point of the year, is to keep movement, keep the process moving forward, and I think we think if we can -- if that happens, that people of both parties of good faith on this issue, will be able to work out the differences, and pass something that I think will certainly will honor the agreement that Speaker Hastert and President Clinton came to, but we'll certainly -- may include some measures that Majority Leader Lott, Chuck Robb, Senator Santorum, many others, are looking at.

The question of how many unrelated matters will come on board is really one that's very difficult, because obviously that goes to how the entire end of the year will unfold, and if anybody knows the answer to that, I would love you to give me a call.

PRESS: Thanks.

MR. SPERLING: Thanks.

END 2:17 P.M. PDT