In his 1982 book “The Underclass,” writer Ken Auletta described poverty as a systemic problem replicated from generation to generation because our country had not dealt with its history. Almost four decades since he wrote that gripping book, poverty stubbornly persists and heavily affects people of color. With the severe economic disruption sparked by the coronavirus, these vulnerable communities are facing dire challenges.
Our country is engaged in an important conversation about race. A critical piece of that conversation must be how to overcome poverty. Far too little has been done for far too long now, including in the coronavirus relief bills passed by Congress. National income and wealth gaps, already excessive before the crisis, are now seriously heightened. As legislators continue to address the economic downturn, they need to focus on reaching people with low incomes and very few opportunities for support.
For years, we urged leaders to view poverty as a vital issue for the future. No matter what income you make or where you live, poverty affects all of us, on top of being a wrenching human issue. Even before this crisis, the poverty rate in thousands of low income communities topped 20 percent. The unemployment rate in those communities was nearly eight times the national average and is greater now, as roughly three out of four jobs lost have been low or moderate wage jobs. About 40 percent of people who earn less than $40,000 a year have been laid off in the past few months. Moreover, these job losses especially affect people of color.
To stop such conditions from worsening, and instead promote recovery, legislators should adopt economic policies that assist people hardest hit. One key proposal is for a new $10 billion low income emergency support fund that states and localities could use to assist vulnerable people who are facing severe situations, like eviction or homelessness.
Yet another idea is to temporarily increase food stamp benefits, which is effective in fighting hunger. Another important measure would be a one time expansion of the child tax credit, targeted for the poorest children, and of the earned income tax credit for workers without children. More rental assistance can help protect households and multifamily property owners at risk. All these measures are included in the Heroes Act, which passed the House last month and is now before the Senate.
We also need programs that reach small businesses and nonprofits which serve poor neighborhoods. The government must recognize that millions of enterprises and jobs operate outside the mainstream financial system. To better aid the small businesses without credit or deposit relationships with traditional banks, any federal relief efforts have to fully leverage the experience of community development financial institutions, which have been the main source of capital to low income communities.
We were both working at the Treasury Department in the 1990s when the Community Development Financial Institution Fund, that federal agency that certifies these lenders, was still in its infancy. Since then, this sector has evolved to more than 1,000 nonprofit loan funds, credit unions, and banks that can raise capital from public and private sources.
The Treasury Department announced a $10 billion program for community development financial institutions, as it recognizes that these lenders are critical to sustain businesses across underserved communities. Congress should reinforce those efforts with a commitment to help lenders provide emergency loans and grants to their customers as well as shore up those balance sheets. The Federal Reserve and the Treasury Department should also further support a recovery by establishing a new facility to purchase the loans for community development financial institutions.
In the next coronavirus relief bill, Congress has the opportunity to take a more inclusive approach and reach millions of Americans who have been left behind by the previous pieces of legislation by creating investments that will pay high dividends in the years to come. When people look back on these difficult days, they should not wonder why one of the wealthiest and most innovative countries in the world failed to overcome its poverty, even when it was shown the devastating effects of its cost.
In an ever more competitive global market, we need to reap the economic benefits that could be realized when millions of Americans lift themselves out of poverty and up to the economic mainstream. This kind of recovery can and must be broadly shared by all around the country.
Robert Rubin is a former Treasury secretary and is now chairman of Local Initiatives Support Corporation. Maurice Jones is a past Treasury director and is now chief executive officer of Local Initiatives Support Corporation.