It’s Time for a Better Poverty Measure

The way we measure poverty is critical in determining both our understanding of what poverty is and what resources and methods we use to combat it. The current poverty measure is an outdated reference on what poverty was in 1960's and does not give a clear insight into the struggles that those in poverty face today.

The current poverty measure was based off of a 1960's agricultural report that stated food comprised about one-third of a person's budget. So the poverty measure is basically the cost of the lowest cost nutritional diet multiplied by three. Today we know that food only consists of about one-sixth of a person's budget, juxtaposed to the costs of rent, transportation and healthcare which have skyrocked since the 1960's. The poverty measure also does not take into consideration resources such as tax credits and food stamps.

Where is in one way it understates the poverty level by not providing an accurate budget-cost analysis, it also overstates poverty by neglecting to include the many resources families receive that allow them to operate on a functional level above poverty.

The National Academy of Sciences recommends that there should be a logical relationship between how poverty thresholds are constructed and resource-counting rules. Specifically they suggest:

• Poverty thresholds should be calculated by using current data about how much families actually spend on food, clothing, and shelter, with an adjustment for “a little more.” Operationally, the NAS panel recommended using an amount somewhere between the 30th to 35th percentile of family costs as measured in the Consumer Expenditure Survey, along with a multiplier of 15 to 25 percent for other necessary expenses.
• Thresholds should vary geographically to reflect variations in the costs of meeting the needs in the thresholds.
• All resources available to meet the needs in the thresholds should be counted, including tax credits, food stamps, the value of subsidized housing, and other benefits that can meet those needs.
• Funds that are not available to meet the needs in the thresholds—because they are used to meet tax liabilities, pay child support, or pay out-of-pocket medical costs or work-related expenses—should not be counted as resources.

How exactly would these new measures affect the poverty thresholds?

• Poverty thresholds would be higher than under the current measure. For example, in 2007, the official poverty threshold for a two-parent, two-child family was $21,027. For that year, according to the Census Bureau, an NAS-style threshold would have been in the range of $23,465 to $27,744, depending on how home mortgage principal and medical costs were treated. In New York City, the threshold for a family of four calculated under an NAS approach was $26,138 in 2006, as compared with the official threshold of $20,444.
• Poverty rates would be higher. In 2007 the official rate was 12.5 percent, but the census experimental work suggested that the poverty rate would have been in the range of 15.1 to 16 percent under the approaches most similar to the NAS recommendations. Under New York City’s calculations, the poverty rate for the city would have been 23 percent in 2006 under an NAS approach, versus 18 percent under the official measure.
• Elderly poverty would go up. How much it would go up would particularly depend on how households without mortgage costs were treated, but it seems clear that elderly poverty would rise, both because thresholds were increased and because medical expenses were given consideration.
• Extreme poverty—having an income below 50 percent of the poverty line—would go down, because the measure would count noncash benefits such as SNAP and housing assistance.
• Immigrant poverty would likely go up because of the higher thresholds and counting of work expenses, and because immigrant households are less likely to participate in some of the counted benefits programs than are other comparably poor households.
• Poverty would likely go up in high-cost urban areas relative to other areas, all else being equal, though it doesn’t follow that poverty rates would necessarily go down in other areas, given the NAS thresholds and resource-counting rules.

The Measuring American Poverty Act’s approach

The Measuring American Poverty Act, introduced by Rep. Jim McDermott (D-WA) in the House and Sen. Chris Dodd (D-CT) in the Senate, would direct the Census Bureau and Bureau of Labor Statistics to adopt a “modern” measure of poverty drawing from the recommendations of the NAS. Among the bill’s key provisions:

• Thresholds: The Census Bureau and BLS would be required to adopt thresholds along the lines recommended by the NAS. The bill would also provide for geographic variation, and provide authority to further develop the thresholds to better reflect the needs of children, including young children. The bill would provide for lower thresholds for households owning their homes free and clear, and authorize additional threshold development for other subgroups if reliable data indicated substantial variation in the amounts of money needed by the subgroups to purchase similar quality shelter.
• Resources: The bill would adopt the NAS approach of counting tax credits, noncash benefits such as food stamps, and housing subsidies if they are available to households to meet the needs in the thresholds. At the same time, per the NAS, the bill would provide for subtracting expenditures for health care, necessary work-related expenses, and child support paid.
• The historical measure: The bill would treat the current official poverty measure as the “historical” measure, and require that calculation and reporting of poverty rates should be done for both the modern and historical measure.
• Use of the new measure: The bill would specify that adoption of the modern measure would have no automatic effects on program funding formulas or eligibility rules that currently use the official poverty measure. Instead, Congress could over time make whatever adjustments it considered appropriate on a program-by-program basis.
• Decent Living Standards and Medical Care Risk Measure: The bill would direct that new National Academy of Sciences panels 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 mandate reporting of relative poverty measures using percentages of median income, it would require 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