A Declining Poverty Rate Versus a Declining Tax Burden

With all indicators showing the Rhode Island economy tanking at the state level, as well as national and international-level factors like the banking crisis and energy prices squeezing Rhode Island families, it comes as something of a surprise to learn that the Federal Government says that the overall poverty situation in Rhode Island improved during the years 2006 and 2007.

According to the Annual Social and Economic Statistical Supplement put out by the U.S. Census Bureau and the Bureau of Labor Statistics, the poverty rate in Rhode Island in 2007 was 9.5%, its lowest absolute level since 1990. The figure of 9.5% was 76% of the national poverty rate, the lowest relative poverty rate seen in RI since 1994, and the period 2006-2007 was the first time that Rhode Island's relative poverty rate remained below 90% for two consecutive years since 1995-1996 -- probably not coincidentally, around the same time that RI's social services programs were redesigned in response to the Clinton administration's welfare reform initiative.

The new data lets us add two more points to the graph first presented by Anchor Rising last year of relative poverty rate versus Tax Foundation state tax-burden ranking. This graph also incorporates the changes that the Tax Foundation has made to its ranking methodology since last year (which seems to have reduced some of the year-to-year swings in the RI rankings). Here is the scatterplot of current year's relative poverty rate versus previous year's tax burden using the new numbers; the points in blue represent the two most recent years…

Fans of the Tax Foundation rankings may be interested to know that Rhode Island has fallen out of the top 5 in terms of the taxes paid by its residents. RI "dropped" to 9th place in 2007 and, according to the Tax Foundation's preliminary estimate, to 10th in 2008. It's too early to add a 2007 tax rank versus 2008 poverty rate point to the graph, as 2008 poverty data won't be released by the government until August 2009, but for a possible look ahead, the tax rank of current and previous years can be averaged together and compared to the current year's poverty rate -- for this data set at least, the averaging method produces a tighter fit to the data than by using the previous year's rank alone…

Obviously, there is more than one cause in play creating a result like this, but it is pretty clear from the most recent 25 years of Rhode Island history that creating of a high-tax state is not a great method for attacking the problem of poverty.