Hard Numbers: A Measure Meant for Research, Not Eligibility

[This is the first in a series of six articles summarizing the half century history of the U.S. poverty threshold and the dire need for an updated poverty measure.]

CashThe Federal Poverty Measure is badly in need of revision. The current measure is not an accurate reflection of the resources a family needs to stay healthy and thrive. This six-part series will examine the history of the measure and past and current efforts to reform it.

The Federal Poverty Measure is a decades-old relic that became widely utilized by historical accident. The current measure was created during the mid-1960s by an economist at the Social Security Administration (SSA) who began publishing articles with poverty statistics for the United States using a poverty measure that she had developed.

Since 1965, there have been two slightly different versions of the Federal Poverty Measure: (1) the poverty thresholds, and (2) the poverty guidelines. The poverty thresholds are the original version of the Federal Poverty Measure. They are published by the Census Bureau and are used mainly for statistical purposes. The poverty guidelines are a simplification of the poverty thresholds. They are published by the Department of Health and Human Services and are used for administrative purposes (e.g., determining financial eligibility for certain federal programs).

The original poverty threshold measure has two components--a set of poverty lines or income thresholds, and a definition of family income to be compared with those thresholds. Both components of the measure are flawed and need to be revised.

In devising the measure, the economist used the price of food as the basis of the measure. At the time the measure was developed, families of three or more persons spent about 1/3 of their after-tax money income on food. In particular, the "economy food plan"--the cheapest of four food plans developed by the Department of Agriculture, which was designated for "temporary or emergency use when funds [were] low," was used as the basis. The poverty thresholds were determined by taking the dollar costs of this food plan for families of various sizes and multiplying the costs by a factor of three to allow for other expenses. However, currently food is only 1/7 of a family's budget, while the costs of housing, child care, and health care, none of which are taken into consideration, have all risen disproportionately to the cost of food.

A family's income was calculated using pre-tax income levels, since that was the only income information available at that time. Although income was based on pre-tax dollars, the poverty thresholds were created using estimated income available after taxes. In other words, using this measure, a family would seem to have more money relative to the poverty line than they had in reality. The inconsistency of this method was acknowledged, but since there was no other alternative, it was understood that the result would yield "a conservative underestimate" of poverty.

In effect, the measure was for a hypothetical average family that had to cut back on its expenditures. The measure assumed that expenditures for food and non-food items would be cut back at the same rate and that the amount that a family would be spending on non-food items would be minimal, but sufficient. Thus, the original poverty measure was presented as a measure of income inadequacy, not of income adequacy. As its developer noted, "if it is not possible to state unequivocally 'how much is enough,' it should be possible to assert with confidence how much, on an average, is too little."

In May 1965--just over a year after the Johnson Administration initiated the War on Poverty--the Office of Economic Opportunity adopted the poverty thresholds as a quasi-official definition of poverty for statistical purposes and for program planning. In 1969, the thresholds became the federal government's official statistical definition of poverty, though it was clearly stated that "[the official poverty thresholds] were not developed for administrative use in any specific program and nothing in this Directive should be construed as requiring that they should be applied for such a purpose." Thus, these thresholds were intended to be used for research, not to determine eligibility for antipoverty programs.

The next blog in this series will examine previous efforts to revise the Federal Poverty Measure.

 

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