There are many schools of thought on how to fairly allocate resources to those in need. A fundamental issue is deciding who qualifies for assistance. One of the federal government’s tools for determining who is truly “poor” and who is not is the Federal Poverty Level (FPL) measure. For years, human rights and antipoverty advocates have criticized this measure for being an inaccurate tool.
When the Social Security Administration first released the FPL in 1963, it was based on the annual baseline cost for an inexpensive, nutritious diet. The cost of this “thrifty food plan” was then multiplied by three, since in 1955 food constituted one third of total household expenditures. Almost since its inception, the FPL has been criticized by human rights and antipoverty groups for not accurately measuring poverty. Among other problems, under the FPL a family's income is calculated using pre-tax income levels; however, the poverty thresholds that have been established use estimated income available after taxes. Thus, the measure assumes that families have more income than they do in reality, thereby underestimating the level of poverty.
Throughout the years, various proposals to update the FPL have been proposed. Finally, in 2011, the federal government adopted the so-called Supplemental Poverty Measure (SPM). Although this measure is supposed to provide a more detailed picture of poverty, it is not meant to replace the FPL. The SPM is more complex than the FPL because, when calculating income, the SPM excludes various expenses such as taxes, medical bills, child care, and work expenses. In addition, the SPM includes non-cash elements such as public benefits and tax credits. Finally, the SPM takes geographic location into consideration.
In November 2011, the first SPM data were released. Under the SPM, 49.1 million, or 16 percent, of Americans lived in poverty in 2010, significantly more than under the official measure, which found that 46.6 million people, or 15 percent, lived in poverty. Given that the number of people in poverty in 2010 under the existing measure was the highest that it has been in the 52 years since this information has been collected, this new measure’s estimate is even more dramatic.
A recent article, Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure, is critical of the SPM. The authors state that the use of any income-based poverty measurement is flawed. Instead, they advocate for the use of a consumption-based measurement; a metric that considers what people consume rather than what people earn. The authors argue that:
income-based measures of well-being will not capture differences over time or across households in wealth accumulation, ownership of durable goods such as houses and cars, or access to credit. . . . Another advantage of consumption is that it appears to be a better predictor of deprivation than income; in particular, material hardship and other adverse family outcomes are more severe for those with low consumption than for those with low income. Yet another advantage is that consumption appears to be more accurately reported than income for the most disadvantaged families.
Under the consumption-based measure, poverty rates would decrease. That is not to say that poverty in absolute terms would decrease, but rather that many people who qualify as poor under the SPM and FPL would not qualify as poor under a consumption-based measure. Importantly, under the proposed consumption-based metric, many people who currently qualify for benefits like Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) would no longer qualify.
Determining an objective line for poverty, regardless of the measure used, assumes that poverty is quantifiable. In real life, however, poverty is determined by a lack of both quantifiable and unquantifiable resources.
Many other countries do a better job than the U.S. in considering needs in their poverty definitions. Great Britain looks at factors including whether or not children have the opportunity to celebrate their own birthdays. In Germany, poverty is approached in relative terms, defined as earning less than 50% of the median income. The United Nations focuses on human development when examining poverty and considers factors such as life expectancy and schooling. Maybe the U.S. needs to look towards other countries in developing a more comprehensive system for defining poverty.
In her book, A Framework for Understanding Poverty, Ruby Payne lists eight resources necessary to escape poverty. Although financial resources are significant, many others, such as emotional, mental, spiritual, and social capital, are unquantifiable, but also very important.
In other words, objectifying poverty simply in terms of income is intrinsically flawed. While such a measure provides valuable insight, we also need to take a step back and realize that the ultimate goal of all government programs is maximizing well-being in society. Focusing solely on financial resources limits the definition of “well-being” to merely having material possessions and money. It is only when all of the determinants of poverty are viewed together that it is possible to develop a quantifiable metric for determining who is poor and who is not. Maybe the real question is not which of the FPL, SPM, or consumption-based poverty measures is the best, but rather whether we should redefine poverty entirely. After all, if the fundamental purpose of a poverty measure is to identify, as fairly and efficiently as possible, those individuals in our society who truly need government assistance, shouldn’t we examine all of their needs?
This blog post was coauthored by Alex Hoffman.