Using Microsimulation to Identify Strategies for Cutting Child Poverty in Half
What would it take to cut child poverty in half in the US in 10 years?
Earlier this year, the National Academies of Sciences, Engineering, and Medicine released a highly anticipated report, commissioned by Congress, on reducing child poverty in the United States. Over two years of intensive research, an expert committee of social scientists examined individual program options, considered four “policy packages,” and ultimately identified two packages to achieve that ambitious goal:
- Expanding tax credit programs while increasing food and housing assistance to eligible families at an estimated cost of $90.7 billion per year — removing 4.9 million children from poverty and reducing the child poverty rate from 13 percent to 6.4 percent
- Providing tax credit expansions, minimum wage increases, child allowances, and child support assurance and restoring full eligibility in federal assistance programs to documented immigrants (currently facing eligibility restrictions) at an estimated cost of $108.8 billion per year — removing 5.0 million children from poverty and reducing the child poverty rate to 6.2 percent
The committee asked the Urban Institute to estimate the effects of the individual proposals and policy packages using the Transfer Income Model, version 3 (TRIM3). We first evaluated more than 20 different antipoverty policy and program options and found that none alone could reduce child poverty by half (see PDF table).
The committee then asked Urban researchers to test different packages or combinations of programs and policies to see which packages could achieve this goal.
What is TRIM3?
TRIM3 is one of several microsimulation models — or sophisticated computer programs — Urban researchers use to understand the effects of current policies and to estimate how demographic, behavioral, and policy changes play out at the individual, family, state, and national levels. These microsimulation models mimic the real world by starting with an individual- (or “micro-”) level dataset and simulating outcomes of interest for each individual (be it people, households, or businesses) in the data. The individual results are then aggregated to show the overall effects of the policy being simulated.
Since its 1973 development, TRIM3 and its predecessors have been instrumental in evaluating major policy proposals, including tax reform in the 1980s and welfare reform in the 1990s. The US Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (ASPE) owns and is the primary funder of the model.
How TRIM3 works
TRIM3 starts from a baseline in which program eligibility and participation is determined for individuals and families in each of nearly 70,000 representative households in the Current Population Survey’s Annual Social and Economic Supplement, which supports the US Census Bureau’s annual poverty estimates. It assigns program eligibility to those individuals in the model by applying detailed national- and state-level eligibility rules to the people in each household.
Participants are selected from that population so the number and characteristics of the simulated caseload match the real-world caseload as closely as possible. For example, the simulated SNAP caseload is aligned to targets by state, benefit level, presence of earnings, and characteristics including Temporary Assistance for Needy Families (TANF) receipt, Supplemental Security Income (SSI) receipt, presence of children and two adults, presence of children and one adult, presence of an elderly member, and immigrant and citizenship status. TRIM3 also corrects for substantial underreporting in survey data to give a more accurate picture of who participates in safety net programs.
After establishing the baseline, TRIM3 analysts can vary the program eligibility rules to simulate the effects of a proposed policy change on each household. By aggregating the results over all households, the model can estimate the change’s effects on program benefits, participation, and poverty rates and show how the changes affect various subgroups.
TRIM3 captures how changes to one program can affect others. For example, if a policy proposes a change to SSI benefits, TRIM3 can model how this change might affect a family’s Supplemental Nutrition Assistance Program (SNAP) benefits.
Another example is the earned income tax credit (EITC), a tax credit the federal government and nearly 30 states have implemented to help support to low- and moderate-income working individuals and families. If policymakers were to propose an increase to the EITC, TRIM3 can simulate how this change affects state-level EITC benefits for households living in states with their own EITC programs.
A large part of the nation’s safety net for families with children is delivered through in-kind benefits (such as SNAP) and tax credits, not cash assistance. TRIM3 combines those benefits with information about a household’s income, cash benefits, taxes, and other expenses to compute each family’s income-to-poverty ratio using the Supplemental Poverty Measure (SPM). Using the SPM, rather than the Official Poverty Measure, enables TRIM3 to capture the antipoverty effect of policy changes to these programs.
Factoring in employment changes
Employment status can change in response to a policy change, and TRIM3 can capture how a change in employment affects income and how it affects benefits and taxes.
For example, the EITC has been found to increase the share of single mothers who work and decrease the share of working married mothers. TRIM3 can identify low-income single mothers who are not currently working and turn some of them into workers, change some married mothers into nonworkers, and estimate how the change in earnings will affect their benefits, taxes, and tax credits.
The committee specified the assumptions to use regarding employment effects, based on the economic literature and the policy change being simulated, which we then implemented in TRIM3. Among low-income families with children, the TRIM3 model shows that the net effect of employment changes to the first policy package was estimated to add about 400,000 new workers to the workforce and generate $2.2 billion in additional earnings; the second package was estimated to add about 600,000 new workers and increase earnings by $13.4 billion.
A history of collaboration
This isn’t the first time TRIM3 was leveraged to create an evidence base for policy conversation on reducing poverty. The TRIM3 team has previously collaborated with the Center for American Progress on a project focused on reducing US poverty overall and with the Children’s Defense Fund on reducing child poverty nationally. The team has also conducted poverty-reduction research focused on specific states and cities.
The National Academies selected TRIM3 because it provided the necessary breadth and depth of policy modeling to analyze the committee’s proposals — made possible by years of development and modeling work supported by ASPE and others.
We are grateful the TRIM3 model, combined with our team’s programming and subject matter expertise, enabled us to contribute to this landmark report and ongoing policy discussions on strategies to reduce child poverty.
