For Good Measure: NAS's 1995 Report on Updating the Poverty Measure
[This is the third in a series of six articles summarizing the half century history of the US poverty threshold and the dire need for an updated poverty measure.]
For the last fifty years, there has been no improvement to the Federal Poverty Measure. The National Academy of Sciences (NAS) 1995 approach for updating the poverty measure was probably the closest the U.S. has come to such reform in recent history. Among the report’s recommendations were that:
- The poverty threshold should be comprised of a budget for three basic categories (e.g., food, clothing, shelter including utilities) and a small additional amount to allow for other needs (e.g., household supplies).
- Actual data on household spending should be used to develop a threshold for a reference family.
- Each year, the threshold should be updated to reflect changes in spending on food, clothing, and shelter over the previous three years and then adjusted for different family types and geographic areas of the country.
- The resources of a family to be compared with the thresholds to determine poverty status should be defined to include money and near-money disposable income (e.g., resources should include most in-kind benefits and should exclude taxes and certain other nondiscretionary expenses (e.g., work expenses).
- A regular updating procedure to maintain the time series of poverty statistics should be used.
The primary advantage of NAS’s proposal was that it would have directly addressed many criticisms of the current poverty measure by:
- applying thresholds that actually reflect the costs families incur to meet a set of basic needs;
- ensuring a logical relationship between the thresholds and resource-counting rules;
- using resource rules that both better reflect family resources and expenses such as health care, work-related costs, and child support paid, and that do a far better job of showing the effects of key policies; and
- providing for geographic variation in the thresholds to reflect variations in actual costs.
These changes are important, in that they would have created a measure that better reflects the effects of government and anti-poverty policies. For example, the American Reinvestment and Recovery Act, or ARRA, contained a number of provisions intended to help poor and vulnerable groups. The current poverty measure does not reflect these efforts since ARRA’s expansion of tax credits, such as the Earned Income Tax Credit, Making Work Pay, and Child Tax Credits, as well as SNAP benefits and child care assistance, are not considered in the measure.Thus, there is no way to measure their effectiveness. Similarly, removing these credits and benefits would financially hurt many, but will not affect the poverty level at all. Adopting an NAS-type approach would have fixed this problem.
However, NAS’s approach also had a number of drawbacks. Among them:
- Measuring economic deprivation by assessing whether households can afford to meet a set of basic needs is not productive when international comparisons and many other developed countries use a “relative” measure of poverty based on the share of families below 50 or 60 percent of median income (on the premise that, in a developed society, measuring the number of families far from the median provides a better measure of whether families are outside of the social mainstream).
- Using self-sufficiency standards, basic living budgets, and family budgets aims too low because often such measures conclude that the amount of income a family needs for a reasonably decent life or similar formulation may be twice the current poverty line or higher.
- Using thresholds that reflect only food, clothing, shelter, and “a little more” do not adequately reflect the developmental needs of children.
- Excluding health care and work-related costs in the thresholds can make the measure misunderstood by suggesting that these costs are not important. And, by only subtracting actual expenses, the measure provides no recognition that some families have low or no expenses because they are going without needed health or child care.
Despite these drawbacks, NAS’s approach became the one most widely debated. There was great consensus as to many of its principles, but, as always, disagreement among others. Eventually, NAS’s suggestions were used, at least in part, as the basis for several legislative proposals for updating the poverty measure that were eventually introduced.
These legislative proposals are discussed in the next blog in this series.
