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US incomes fall to 1989 levels. How did that happen?

A Census report signals that for much of America, the economic downturn has produced not one lost decade but two. But the data also show that federal safety-net programs helped keep people out of poverty.

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The prescriptions for the road ahead depend on the diagnoses of causes, but many economists agree on the need for stronger education, better matching of skills with job opportunities, and an effort to overhaul the nation's fiscal policy, including taxes.

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Some economists also argue for policies targeted to boost the level of innovation and entrepreneurship.

"Policymakers need to recognize that the United States is engaged in a fierce race for innovation-based economic growth," write Robert Atkinson and several co-authors, in a report released Wednesday by the Information Technology and Innovation Foundation in Washington. To enhance US science and entrepreneurship, they argue that political leaders should recognize "that both parties bring good ideas to the table."

"We do need to keep [government] debt from rising faster than the economy grows," Robert Greenstein, president of the liberal Center on Budget and Policy Priorities in Washington, said in a conference call about Wednesday's Census numbers.

The challenge, he said, is to set a long-term course away from huge deficits, while also avoiding the "fiscal cliff" – a $560 billion package of mandatory spending cuts and tax hikes that take effect at year's end, including the expiration of the Bush tax cuts, that could cause a recession unless Congress takes countermeasures to prevent a big drop in consumption.

Mr. Greenstein argues that, given that high-earning Americans have seen their share of national income grow, there is a "need for those at the top to share in the sacrifices that lie ahead." His viewpoint stands in contrast to Republican presidential candidate Mitt Romney, who emphasizes low taxes for everyone as a key to reviving job creation.

While the Census data won't settle the debate over the proper size of government, it did provide some evidence that federal safety-net and social-insurance programs have helped to keep poverty lower than it would otherwise be.

Some 21.4 million Americans would be in poverty were it not for Social Security income, including 14.5 million people over age 65 and others who are on disability insurance, the report said.

Meanwhile, the Census report showed that the share of Americans who don't have health insurance declined in 2011, in part because of rising enrollment in Medicaid, the federal-and-state program for the poor.

Programs including food stamps (now known as the SNAP program) and the Earned Income Tax Credit have a significant impact. Although two Census gauges show similar levels of overall poverty in the US, the inclusion of SNAP and the EITC in a "supplemental poverty rate" suggest the more widely watched official poverty rate overstates the share of children in poverty.

By both measures, however, children in the US have a higher poverty rate than adults.

RECOMMENDED: Could 'fiscal cliff' push US into recession? 5 questions answered.


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