Decreasing Poverty, Even If We Can't Agree How to Measure It

[This is the last 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.]

MoneyAs the earlier posts have discussed, the main problem with the currently poverty measure is that its ridiculously out of date. Updating the measure will offer a more realistic view of what constitutes poverty in 2010. The measure will actually have some real relationship to costs rather than rely on antiquated 1955 costs. It’s currently based on the lowest cost food plan available in 1955; a time when food constituted 1/3 of the average family’s budget. Now, however, food is only 1/7 of a family’s budget while the costs of housing, childcare, and health care, none of which are taken into consideration, have all risen disproportionately. The 2008 average poverty threshold of $22,025 for a family of four represents the same purchasing power as the corresponding 1963 threshold of $3,128.

The current poverty measure is also confusing. As discussed previously, the poverty thresholds are published by the Census Bureau and are the original measure and are mostly used for statistical purposes. The poverty guidelines are published by the Department of Health and Human Services (HHS) and are used for determining eligibility for certain federal benefit programs. The Census Bureau and HHS also follow different labeling practices. The Census Bureau labels its poverty thresholds by the year to which they are applied, whereas HHS labels its poverty guidelines by the year in which it issues them. Because of these disparate labeling practices, the Census Bureau poverty thresholds for 2008 and the 2009 HHS are actually for the same year. Trying to compare these two versions leads to confusion.

Perhaps most importantly, however, is the fact that such outdated poverty measures are used for benefits determinations at all. Although some means-tested programs do not use the poverty guidelines in determining eligibility (e.g. TANF, SSI, EITC), many others do.  Currently at least 82 federal or federally assisted programs use information about numbers of people in poverty in some way in formulas for allocating funds to states or localities, or use some percentage of poverty in calculating benefits eligibility. Federal programs that use the guidelines in determining eligibility include Head Start, Low Income Home Energy Assistance, Children’s Health Insurance Program, Food Stamps, and Women Infants and Children (WIC). Some federal programs use a percentage multiple of the guidelines, such as 125%, 150% or 185%. This is not the result of a single coherent plan, instead, it stems from decisions made at different times by different congressional committees or federal agencies. Additionally, some state and local governments have chosen to use the federal poverty guidelines in some of their own programs and activities such as state health insurance programs.

Use of the poverty guidelines might not have been important if cash and in-kind government benefits for poor families had risen at the same rate. The rate of growth has, however, been very unequal. In the early 1960s more than $8 out of $10 in public means-tested benefits was transferred to poor people as cash, less than $2 as in-kind benefits. By the early 1990s, more than $7 out of $10 was transferred as in-kind benefits. Official poverty statistics, therefore, mask the full extent to which poverty has been reduced by programs to ameliorate it, because they exclude the consumption gains that result from in-kind transfers.

The new poverty supplement addresses many of these deficiencies. Yet, there will likely be little to celebrate from the new data. Given the depth and length of this recession, the supplemental measure will likely confirm what we’ve known for a while – that more and more working families are living on the brink. On the other hand, the new measure could prove transformative if it becomes the central basis by which we establish whether we are making progress on reducing poverty.

The current poverty measure’s failure to evaluate the effectiveness of anti-poverty programs creates the false impression that poverty is intractable and that we’ll never make a dent in this problem no matter what government does. In reality, research shows that just four policy recommendations, to improve the Earned Income Tax Credit, Child Tax Credit, child care assistance, and minimum wage, would cut the U.S. poverty rate by 26% over 10 years.

This new data can help us understand how well the federal government is responding to the recession and what types of policies are most effective at helping those families striving to join the middle class. In particular, these supplemental figures could take on added significance at a time when many in the government point to an overhaul of public benefit programs as the best hope for reducing the ballooning federal debt. The fact that the new measure will not immediately be used as an “official measure” is also beneficial.

Using the new measure as a supplement allows studies of the potential effects such a switch could have. Once this impact is assessed, advocates can then lobby for a change if appropriate.

In the meantime, after such a long discussion about the poverty measurement, it is important to remember exactly what the purpose of the U.S. poverty measure is. As its creator explained:

"Unlike some other calculations, those relating to poverty have no intrinsic value of their own. They exist only in order to help us make them disappear from the scene . . . .With imagination, faith and hope, we might succeed in wiping out the scourge of poverty even if we don't agree on how to measure it."

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