New Poverty Data, Still Not Looking Good for Millions

The Census Bureau recently released new data capturing the state of poverty in the U.S. using the Supplemental Poverty Measure (SPM). The U.S. government uses two measures for quantifying poverty: (1) the official poverty measure and (2) the SPM

The official measure, also known as the Federal Poverty Level (FPL), is used to determine the eligibility of individuals applying for means-tested public benefit programs, such as the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and Temporary Assistance for Needy Families (TANF).  

In March 2010, the U.S. Census Bureau announced that it would develop an alternative way to measure poverty and created the SPM. The SPM is an attempt to update the official poverty measure or FPL; it is generally agreed that the FPL is outdated and therefore underestimates the level of poverty in the U.S. The SPM is not intended to replace the FPL, but rather to supplement it. Thus, the FPL will continue to be the measure for determining eligibility for public benefits.

The SPM is a more robust tool for examining the overall picture of poverty in the U.S. For years, statisticians, policy analysts, and advocates argued that the official poverty measure was overly simplistic, as it is simply calculated by looking at gross pre-tax income. The SPM, on the other hand, takes into consideration geographic location, necessary expenses, taxes, and alternative forms of income such as public benefits. The final calculation of the SPM is the “sum of cash income; plus in-kind benefits that families can use to meet their food, clothing, shelter and utilities needs; minus taxes (or plus tax credits); minus work expenses; minus out-of-pocket medical expenses and child support paid to another household.”   

According to the first SPM data, which was released last November, 49.1 million, or 16%, Americans lived in poverty in 2010, significantly more than the official poverty measure for the same time period, under which 46.6 million people, or 15% of Americans, were living in poverty.

The new SPM data released earlier this month found that approximately 49.7 million or 16.1% of Americans were living in poverty in 2011 versus 46.6 million, or 15%, under the official poverty measure.  Although the report shows that there was no statistical change in the overall SPM poverty rate between 2010 and 2011, the data is still grim. According to the new SPM data, African American and Hispanic populations have significantly higher poverty rates than whites and Asians; 25.7% of all African Americans and 28% of all Hispanics were living poverty in 2011, compared to 14.3% of whites and 16.9% of Asians. Women were also more likely to be living in poverty compared to men;  53.5% of people living in poverty in 2011 were women versus 47% of men. As for poverty levels by age, according to the official poverty measure, 22.3% of children (under 18), 13.7% of adults (ages 18-64), and 8.7% of seniors (65 and above) were living in poverty in 2011. While under the SPM, 18.1% of children (under 18), 15.5% of adults (18-64) and 15.1% of seniors (65 and above) were living in poverty in 2011

Most importantly, the SPM examines the impact of various government programs on poverty. The new SPM data reveal that without Social Security the overall poverty rate would increase from 16.1% to 24.4%. Similarly, without refundable tax credits the overall rate would grow from 16.1% to 18.9%. Alternatively, if people didn’t have expenses such as child support, income and payroll taxes, work-related expenses, and medical out-of-pocket expenses, the overall poverty rate would decrease from 16.1% to 12.7%

The 2011 SPM data allow us to understand the current poverty levels in our society more clearly. There are somewhere between 45 and 50 million Americans living in poverty according to the SPM and the official measure. Yet, these measures still understate the number of people in poverty, since they focus solely on income poverty and do not even consider asset poverty. Asset poverty means having insufficient funds to meet one’s needs for three months if income were to disappear for those three months. According to the Urban Institute, 1 in 5 people, or 60 million Americans, were asset poor in 2010. Unfortunately in the 2012 election, tackling domestic poverty issues was not on either the candidates’ agenda or the media’s agenda. In a country with so much wealth and an overall increasing wealth gap as well as a worsening racial wealth gap, it is totally unacceptable that so many people are living in or on the edge of poverty, and we as a country need to bring this issue to the forefront.

This blog post was coauthored by Alex Hoffman.

 

New Poverty Measure Claims to Capture Poverty More Objectively

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.

 

   

CFED Asset and Opportunity Scorecard

Assets & Opportunity ScorecardThe results are in: poverty is on the rise in America. Over 46 million Americans, 15% of the country’s population, are income poor. This number has grown from 1 in 5 in 2009 to 1 in 4 today. And this is actually an underestimate of the U.S. poverty level since the Census Bureau’s current method for calculating poverty is outdated. In fact, the Census Bureau recently announced a new supplemental poverty measure to help update the way it calculates poverty.

While income poverty is important, it refers only to a person’s cash flow. Asset poverty, on the other hand, focuses on net worth. Individuals who cannot get by for three months if all of their outside sources of income cease are considered asset poor. Asset poverty is, therefore, is more important than income poverty, since income poverty examines only whether people have enough to get by, whereas asset poverty examines whether they have enough to get ahead. 

This week, the Corporation for Enterprise Development (CFED) released the 2012 Assets & Opportunity Scorecard, which highlights the growing asset poverty trend. According to this report, 43%, or 127.5 million people, are asset poor. The Scorecard focuses on five areas and provides an overall ranking and grade per subject area for each state, as well as policy solutions for states to implement to improve their scores. As CFED’s State Asset Network partner for Illinois, the Shriver Center contributed data for this report.

Based on this data, Illinois ranks 32nd in the nation with almost 13% of its population experiencing income poverty and over 26% experiencing assert poverty.

Financial Assets and Income
Illinois scored a C and ranked 29th in the nation in terms of assets and income. The most dramatic figure ranks Illinois 42nd in the country for bankruptcy; 6.3 per 1,000 residents have filed for bankruptcy, compared to the national average of 5.

Businesses and Jobs
Illinois also scored a C and ranked 31st in the nation in the area of business and jobs. While the national unemployment rate is 9.6%, in Illinois it is 10.2%, ranking the state 36th in the country. Similarly, the national underemployment rate is 16.7% versus 17.5% in Illinois, ranking it 40th. These numbers depict the continuing struggle of those looking for work and lingering unemployment.

Housing and Homeownership
Illinois scored a D for housing and homeownership, ranking it 44th in the nation. The state’s foreclosure rate is 7.29%, 48th in the nation, meaning that 1 in every 498 households are in foreclosure. Forty percent of residents are also financially overburdened by their homeownership costs and another 52% are overburdened by rental costs.

Health Care
Illinois scored a C in health care and ranked 26th in the nation. Although health care reform will provide health care coverage for more Americans, currently the poorest 20% of Illinois residents are 13.6 times more likely to be uninsured, and people of color are 2.3 times more likely to be uninsured than the rest of the nation.

Racial Wealth Gap
Nationally there has been a dramatic increase in the racial wealth gap. While 20% of white families are asset poor, over 44% of households of color in America are asset poor. In Illinois, people of color are 2.6 times more likely to be asset poor.  

Asset Building Policy Solutions
The recession may be over, but families are still reeling from the aftermath and struggling to get ahead. The U.S. income poverty level is the highest it has been in the 52 years that poverty data has been collected. It is imperative that states and the federal government begin addressing these overwhelming figures. By implementing asset building strategies, the nation will create opportunities for families to both move out of poverty and become economically upwardly mobile. The Shriver Center and its Assets Opportunity Unit will continue its efforts to ensure that these issues receive the attention that they deserve. 

For more information about the Shriver Center and its work on alleviating poverty visit Shriver’s Website and subscribe to our asset building newsletter, or follow us on Twitter and Facebook.

For a complete look at all 50 states and their scores, see the full CFED Asset and Opportunity Scorecard.

 

Supplemental Poverty Measure:
49.1 Million Americans Poor

In March of last year, the U.S. Census Bureau announced that it would develop an alternative way to measure poverty. The Supplemental Poverty Measure, which was released yesterday, is an attempt to update the current federal poverty measure that, it is generally agreed, is outdated and therefore underestimates the level of poverty in the U.S. 

Measuring Poverty

The current poverty measure was developed in 1963 and is based on the cost of a minimally adequate diet in the mid-1950s, multiplied by three. At the time the measure was developed, families of three or more persons spent about 1/3 of their after-tax income on food.  

Other than being updated annually based on the consumer price index, the methodology for measuring poverty has not changed since the measure was first developedFrom the very beginning, policymakers have expressed concern about the accuracy of the measure and proposed that it be revised.Today, the measure is badly outdated. For example, food now consumes only 1/7 of the average family’s budget.

In 1995, the National Academy of Sciences/National Research Council (NAS) was commissioned by Congress to study the official U.S. poverty measure and provide suggestions on how to revise it. The Supplemental Poverty Measure released yesterday is largely based on their report, Measuring Poverty: A New Approach.

The Supplemental Poverty Measure is based on an updated market basket of goods that reflects changes in consumer spending since 1963. It takes into account household expenses such as taxes, housing, utilities, health care costs, child support payments, and work-related expenses (i.e., travel and child care). This is offset by including the value of government income supplements, such as subsidized school lunch programs, energy assistance programs, housing subsidies, and the Supplemental Nutrition Assistance Program (previously food stamps), that are not accounted for in the official poverty measure. The result is that the new calculation more accurately reflects how low-income Americans are actually getting by.

Resource Estimates

SPM Resources = Money Income from All Sources

Plus:
Minus:
Supplemental Nutritional Assistance Taxes (plus credits such as the Earned Income Tax Credit [EITC])
National School Lunch Program Expenses Related to Work
Supplementary Nutrition Program for Women, Infants, and Children Child Care Expenses
Housing subsidies Child Support Paid
Low-Income Home Energy Assistance (LIHEAP) Medical Out-of-Pocket Expenses (MOOP)

New Data Increases Poverty Levels

Under the Supplemental Poverty Measure, 49.1 million, or 16 percent, lived in poverty in 2010, significantly more than the official measure released in September that found 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.

The annual income at which a family of four—two adults and two children—is considered living in poverty under the supplemental measure was $24,343 in 2010. That compares with the official figure of $22,113. This threshold is still low, and most poverty advocates believe that using 200 percent of the federal poverty level for eligibility for public benefit programs is more reasonable. In fact, when polled most Americans believe that the minimum amount of yearly income a family of four would need to “get along” in their community is a little more than $40,000 annually, or roughly twice both the official measure and the supplemental measure.

The figure below compares the poverty rates under the official measures and the new measure for different age groups. The percent of the population that was poor using the official measure for 2010 was 15.1 percent versus 16 percent under the new measure. The supplemental measure puts the percentage of American children under 18 living in poverty at 18.2 percent, a drop from the 22.5 percent official rate. The reason for the drop is that the supplemental measure includes benefits designed to help poor children, such as school lunch programs. On the other hand, the supplemental rate for the elderly was 15.9 percent, a 9-percent increase from the official rate of 6.9 percent. Again, the reason is that the supplemental measure’s inclusion of expenses, particularly out-of-pocket health care costs, more realistically depicts the budgetary constraints the elderly face. 

Poverty Rates Using Two Measures for Total Population by Age Group
In terms of minorities, the picture is still grim, but different. The official poverty data released in September showed that the poverty rate for African-Americans had increased faster than for the rest of the population and was just over 27 percent, and the rate for Hispanics was 26.7 percent, whereas whites’ rate was 13.1 percent, and Asians’ was 12.1 percent. Under the new measure, Hispanic poverty rose to 28.2 percent, surpassing that of blacks, 25.4 percent, for the first time. Poverty levels among whites, 14.3 percent, and Asians, 16.7 percent, were also higher under the supplemental measure. 

Public Benefit Programs Work 

Because the supplemental poverty measure takes into account in-kind benefits aimed at improving the economic situation of the poor, for the first time it is possible to see the impact such programs have on poverty. Applying the new measure, almost 7 million more people would have lived in poverty in 2009 and 2010 absent government action.

The chart below shows the effect of adding or subtracting a benefit program or expense on the poverty level for both 2009 and 2010. In general, including SNAP benefits, housing subsidies, school lunch programs, WIC, and energy assistance programs all result in lower poverty rates. On the other hand, subtracting amounts paid for child support, income and payroll taxes, work-related expenses, and medical out-of-pocket expenses result in higher poverty rates.

For instance, including the Earned Income Tax Credit (EITC) results in lower poverty rates; without it the poverty rate for all people would have been 18 percent rather than 16 percent in 2010. The EITC had a significant effect on child poverty—if the EITC is not included, the child poverty rate would be 22.4 percent rather than 18.2 percent. Similarly, excluding SNAP would increase poverty by 17.7 percent and excluding housing subsidies, school lunches, WIC, and LIHEAP would increase poverty by 16.9 percent, 16.4 percent, 16.1 percent, and 16.1 percent respectively.

Effect of Excluding Public Benefit Programs from SPM 2009 and 2010These figures prove that public benefit programs are an important factor in poverty alleviation. Without such programs the level of poverty in the U.S. would be significantly higher. Especially in today’s economy, the supplemental measure highlights the need for such programs and reiterates the fact that the nation cannot afford further cuts in them.  

Effect of Supplemental Poverty Measure on Public Benefits 

The Supplemental Poverty Measure will not replace the official poverty rate, but instead will be published alongside the traditional figure as a "supplement" for federal agencies and state governments. It will not change eligibility for governmental benefits or the formulas by which billions of dollars in federal spending are distributed to states and localities. It will, however, provide a much more accurate view of poverty in America and better demonstrate the effect of government benefit programs in reducing poverty. 

 

Because You Have a Refrigerator and a Stove You Are Not Poor?

RefrigeratoIf you have a refrigerator and a stove you aren’t really poor! Or at least that is what a recent report, “Air Conditioning, Cable TV and an Xbox: What is Poverty in the United States Today,” by the Heritage Foundation claims.

The report’s premise is that public policy discussions on poverty are meaningless absent a detailed description of the actual living conditions of poor households. Specifically, the report asserts that although the Census Bureau reports that over 30 million Americans are living in poverty, in reality, this number overestimates poverty because poor families own things like refrigerators, stoves, microwaves, washers and dryers, and ceiling fans. Oh and let’s not forget to include the coffee maker that poor families own instead of going to Starbucks for their $4 latte!

 Putting aside the fact that, according to 2009 Census Bureau data, 43.6 million people were actually in poverty (which is the highest number in the 51 years that the U.S. has published poverty rates), the report analyzes data from the Residential Energy Consumption Survey (RECS) which measures energy consumption and ownership of various “conveniences.” Comparing the amenities available to poor households versus those available to all households, the report asserts that the average poor person has a living standard far higher than the public imagines. According to the authors’ analysis, both typical households and poor households each have air conditioning, washing machines and dryers, refrigerators, stoves and ovens, TVs and cable or satellites, a DVD and VCR, and cordless phones. Based on this analysis, the report concludes that poor households are living well today. As the report states, “the poorest Americans today live a better life than all but the richest persons a hundred years ago.”

But everyone is better off today than they were 100 years ago!! The wealthy are better off than they were 100 years ago, too. The real issue is how the poor fare in today’s economy, not how they would have fared in the economy 100 years ago.

For example, the report acknowledges that, although poor households were less likely to have air conditioning in any given year, the share of all households with air conditioning has steadily increased over the past 25 years. (Admittedly, I am sitting in an air conditioned room writing this while outside it’s over 100 degrees, so I currently think air conditioning is certainly not a luxury.) The reality, however, is that poor families have air conditioning solely because most of today’s homes were constructed with it. It’s not a luxury that the poor are indulging in; it’s merely what is available in the housing market. Do we know whether poor families are actually using the air conditioning in their homes, or are they unable to because they cannot afford it?

The report also asserts that poor Americans are well housed because their dwellings are spacious compared to international standards. All American homes are spacious compared with most other countries’ housing, but that doesn’t mean that poor families are living in palaces!

According to the report, homelessness is not a problem either. The authors assert that only 240,000 out of the total 643,000 Americans without a permanent domicile are actually “homeless” because they live in cars, abandoned buildings, alleyways, or parks. The rest of the so-called homeless are in emergency shelters or transitional housing so they don’t really count as homeless. Moreover, the report explains that individuals typically lose housing, reside in emergency housing for a few weeks and then re-enter permanent housing, so the homeless rate isn’t really a problem. But how long is it before they lose this new housing because they can’t continue to pay for it? The report does admit that there has been an increase in the number of families with children who use homeless shelters, but asserts that the increase isn’t a “tidal wave of increased homelessness.” Perhaps the increase isn’t as large because those families that lost their homes have moved in with other family members. Or perhaps it’s because poor families are relying on Section 8 housing instead of sleeping the streets, though they may have to line their sleeping bags up in the gutters soon with HUD programs among the many public benefits programs that the Republican budget proposal would cut.

Similarly, the report implies that having a refrigerator, stove, and oven means that families are not poor. Families should have these items. It’s whether or not there food to put in the fridge and to cook on the stove that matters! Of course the authors also argue that food is available because, even though there has been an increase in the use of charity food pantries and soup kitchens during the recession, only one poor family in five took food from a pantry and even less ate at a soup kitchen. Would that be because more people applied for food stamps to get by instead? And, by the way, food stamps are another public benefit program on the chopping block, so there probably will be longer lines at the soup kitchen soon.

Although the recession has increased the number of families in poverty, the authors contend that once the recession ends the living conditions of the poor are likely to continue to improve as they have in the past. So I am guessing that the racial wealth gap, which has increased fourfold in the past 25 years, is likely to improve to as well? After all minorities and low-income families were the hardest hit by the recession so they should bounce back pretty quickly, if the report is correct.

The report claims that the creation of a new poverty measure is simply a propaganda tool in President Obama’s endless quest to “spread the wealth.” In other words, the new measure’s focus on income inequality rather than poverty is a way to get the American public to unknowingly buy into the goal of income leveling. Yet, even if the new poverty measure was the “Trojan horse” that the authors claim, the horse has already left the barn because research shows that 92% of Americans already favor income redistribution. 

The report correctly states that the current federal poverty measure, which defines poverty in terms of income and ignores public benefits, undercounts the economic resources provided to poor people. The new poverty measure would correct this by including such benefits into the poverty calculation. Since the new poverty measure is merely a ruse, though, I guess we shouldn’t mention that part.

Perhaps the only thing that the authors do get right is the fact that “accurate information about the extent and severity of poverty is imperative for the development of effective public policies.” They are correct when they say that “misrepresentations of poverty data lead to a misallocation of resources and, by obscuring the causes of deprivation, impedes the development of effective countermeasures.” Unfortunately it’s the data and how government dollars should be allocated that they get wrong. As the report points out, federal and state governments spent $714 billion on means-tested welfare programs in 2008. However, the federal government also spent over $400 billion in asset building policies that mostly benefit the wealthy. So maybe the right allocation would be to redistribute the asset building expenditures and tax credits from the wealthy to the poor. Perhaps then there wouldn’t be a welfare state, because the poor would actually own assets that would help them move away from welfare programs.

 

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."
 

Out with the Old (Sort of) and In with the New: A New Federal Poverty Measure

[This is the fifth 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.]

MoneyAs fears about the economy became reality, the call for modernizing how the nation measures poverty took on new urgency. The President’s FY 2011 budget, for example, included a proposal for creating a new poverty measure

Based on this new sense of urgency as well as the many previous proposals and discussions, in March the U.S. Census Bureau announced that it will be developing an alternative way to measure poverty. The Supplemental Poverty Measure will be released in the fall of 2011, at the same time that the official income and poverty measures for 2010 are released. This new measure will be broadly based on NAS’s1995 recommendations, but updated by the research done on this issue for the past 15 years. The precise formula has yet to be determined, but in general it is expected that the measure will:

  • Define “family unit” to include all related individuals who live at the same address in order to reflect today’s family structure;
  • Use the most recent five years of available data to increase the stability of the poverty thresholds;
  • Include in-kind benefits to meet help meet food, clothing, shelter, and utility needs as income, and deduct basic expenses such as work expenses, taxes, child care, out-of-pocket expenses, child support and commuting costs;
  • Be updated annually and the measure itself continuously improved based on the latest research; and
  • Include some form of geographic adjustments that present a more realistic relationship between cost of living and what it takes to meet basic needs.

Based on alternative poverty measure figures previously used by the Census Bureau experimentally, it is clear that the new measure will put poverty rates much higher than the official rate. Although it’s impossible to predict precisely what the new supplemental rate will reveal, other alternative measures’ figures would predict the following:

  • Overall poverty is expected to increase from 13.2 percent, or 39.8 million people, to 15.8 percent, or 47.4 million, mostly due to rising expenses from medical care and other factors.
  • About 18.7 percent of Americans 65 and older, or nearly 7.1 million, will be considered poor compared to 9.7 percent, or 3.7 million, under the traditional measure, due to out-of-pocket expenses from rising Medicare premiums, deductibles, and a coverage gap in the prescription drug benefit.
  • About 14.3 percent of people 18 to 64, or 27 million, will be in poverty, compared to 11.7 percent under the traditional measure, many of which will be low-income, working people with transportation and child-care costs.
  • Child poverty should be lower, at about 17.9 percent, or roughly 13.3 million, compared to 19 percent under the traditional measure, since single mothers and their children’s non-cash aid, such as food stamps, will be counted as income.
  • And the Northeast and West will have bigger jumps in poverty, due largely to cities with higher costs of living such as New York, Boston, Los Angeles, and San Francisco.

Importantly, this new poverty measure will not replace the official poverty rate, but will instead be published alongside the traditional figure as a "supplement" for federal agencies and state governments. The point of the new measure is to provide a more realistic view of poverty including both the necessary expenses of modern day living as well as the anti-poverty programs currently being used. Issuing a supplemental measure, however, will not change eligibility for any governmental benefits or, in and of itself, cost the government one penny in additional poverty program expenditures. While some may argue that this new measure should immediately become the official measure, such a change shouldn’t be rushed into because the impact of the new measure must first be assessed.

The next and final blog in this series explores what effects, if any, this new supplemental measure will have on current benefit programs and current programs attempting to ameliorate poverty.
 

Acting on the Data: The Measuring American Poverty Act

[This is the fourth 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.]

MoneyIn September 2008 and again in 2009, the Measuring American Poverty Act (MAP Act) was introduced in Congress. The bill had a number of provisions intended to build on the NAS approach while seeking to address many of its criticisms. In general, it would have incorporated NAS’s suggestions that the poverty measure be based on current consumption patterns for food, clothing, shelter and other basic necessities, include income assistance from public programs (e.g., Earned Income Tax Credit, Food Stamps, Housing Assistance) and deduct necessary expenses (e.g., federal income taxes, work expenses, and out-of-pocket medical expenses). Finally, it would have also taken into account NAS’s suggestions to include geographical differences in the cost of living. Among the bill’s key provisions were:

  • Thresholds: The Census Bureau would have been required to adopt thresholds along the lines recommended by NAS to better reflect the needs of children.
  • Resources: The bill would have adopted the NAS approach of counting tax credits, non-cash benefits such as food stamps, and housing subsidies as household income, and, at the same time, subtract expenditures for health care, necessary work-related expenses, and child support.
  • Historical Measure: The bill would have treated the current official poverty measure as the “historical” measure, and require that calculation and reporting of poverty rates be done for both the modern and historical measure.
  • Use of New Measure: The bill would have specified that adoption of the modern measure would have had no automatic effects on program funding formulas or eligibility rules that currently use the official poverty measure. Instead, Congress would, over time, have been required to make whatever adjustments it considered appropriate on a program-by-program basis.
  • Decent Living Standards and Medical Care Risk Measure:  The bill would have directed that NAS make recommendations for Decent Living Standards and Medical Care Risk measures. The Decent Living Standard would be defined as “the amount of annual income that would allow an individual to live at a safe and decent, but modest, standard of living,” that is, an amount intended to be above that of the poverty thresholds. The Medical Care Risk measure would calculate the extent to which individuals are at risk of being unable to afford needed medical treatment, services, goods, and care, taking into account both uninsured and underinsured statuses.
  • Calculation of Relative Measure: While the bill would not have mandated reporting of relative poverty measures using percentages of median income, it would have required that public online tools be made available to allow members of the public to calculate poverty using alternative approaches, including calculations based on 50 and 60 percent of median income.

In sum, the proposed bill would have addressed a range of concerns leveled against the NAS approach. First, in addition to establishing a “modern” poverty measure the bill would have laid the groundwork for developing a Decent Living Standard measure. This measure would recognize that a family needs resources far exceeding the current poverty line in order to have a “reasonably” decent life, while acknowledging that it would not be feasible to immediately implement a new poverty line that is twice as high (or higher) than the current one. Finally, over time, a Decent Living Standard recognized in federal law could have become an important vehicle for analyzing and talking about the need to increase the number of families that have the resources not just to get by but to thrive.

The bill also would have ensured that there would be no immediate effects on existing funding or eligibility rules by specifying that there would be no automatic effects on program funding formulas and benefits eligibility.  Instead, it recognized that there may be good reason to adjust funding formulas and eligibility rules overtime.

One drawback to the MAP Act was that implementation of the new measure would have required Congressional action. In contrast, the administration could have, and still can, change the current measure without Congressional action since the directive to use the original poverty measure came from the Office of Management and Budget. Administrative action would be preferable to legislation because the measure could be developed and continually refined without locking in the detailed rules contained in parts of the Act. Still, the introduction of the MAP Act was an important step forward in showing how the administration or Congress could build on NAS’s recommendations and the subsequent learning and experience to develop a significantly better poverty measure.

The next blog in this series discusses the recently announced supplemental poverty measure.

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.]

MoneyFor 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.

No Real Progress: 1969-2004

[This is the second 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.]

MoneyToday's policy experts are not the first to raise concerns over the poverty measure's accuracy. As early as November 1965, policymakers expressed concerns about the poverty thresholds and how to adjust them for increases in the general standard of living. In 1968, ideas began to be discussed about raising the thresholds to reflect such increases. A committee was established to reevaluate the thresholds. Ultimately, the committee decided to adjust the poverty thresholds only for price changes, and not for changes in the general standard of living. Thus, in 1969, it was decided that the thresholds would be indexed by the Consumer Price Index (CPI) instead of by the per capita cost of the economy food plan.

In 1973, a thorough review of federal income and poverty statistics occurred. Specifically, the Subcommittee on Updating the Poverty Threshold recommended that the poverty thresholds be updated every ten years using a revised food plan and a multiplier derived from the latest available food consumption survey. It also recommended that the definition of income used to measure overall income should also be the income definition used to calculate the multiplier for the poverty thresholds. This would generally have resulted in higher poverty thresholds at each decennial revision. Unfortunately, none of these changes were implemented.

Interestingly, beginning in 1979 the Census Bureau began testing a variety of experimental poverty measures using various expanded definitions of income and alternative methods to account for inflation. None of these, however, replaced the official poverty measure.

In 1981, several minor changes were made to the poverty thresholds in accordance with recommendations of an interagency committee. During most of the 1980s, although there were extensive debates about poverty measurements, particularly about proposals to count government noncash benefits as income for measuring poverty without making corresponding changes in the poverty thresholds, no changes were actually made.

Perhaps the closest the U.S. came to succeeding in revising this measure came in 1990. A Congressional committee tasked the National Academy of Sciences/National Research Council (NAS) with studying the official U.S. poverty measure and providing suggestions for how to revise it. In May 1995, NAS’s report was published. According to the report:

The major conclusion is that the current measure needs to be revised: it no longer provides an accurate picture of the differences in the extent of economic poverty among population groups or geographic areas of the country, nor an accurate picture of trends over time. The current measure has remained virtually unchanged over the past 30 years. Yet during that time, there have been marked changes in the nation’s economy and society and in public policies that have affected families’ economic well-being, which are not reflected in the measure.

Ultimately, none of NAS’s recommendations were implemented.

In 2004, the Office of Management and Budget held a workshop to review progress made in moving towards a new measure of income poverty as recommended by NAS’s 1995 report.  Over the succeeding three years, these discussions continued but did not result in any consensus. That is, not until recently.

Stay tuned for the next installment in the series where we discuss the findings and implications of the National Academy of Sciences’ Report.

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.