CHN: Improved Measure of Poverty Announced by Obama Administration

On March 2nd, the Obama Administration announced the development of a new way to measure poverty.  Long sought by researchers and policy makers, this new method will attempt to gauge more accurately both the expenditures and income sources of the poor.  The new Supplemental Poverty Measure was described in a press statement by Department of Commerce Under Secretary for Economic Affairs Rebecca Blank.  It will be first released in the fall of 2011, at the same time the annual poverty survey results are made public.  The Administration emphasized that this is an experimental research tool, and will not replace the current guidelines used to determine eligibility for means-tested programs.
The current official poverty measure was developed in the 1960s after research showed that the poor spent about one-third of their income on food.  A barely adequate “Thrifty” food budget was designed; it was then multiplied by three and adjusted for family size.  Those living on less than those totals were deemed poor.  In the years since almost nothing has been changed about the measure except to adjust it annually for inflation.  Over time the model’s shortcomings have increased, as food now takes up less of a low-income family’s budget than it did decades ago and expenses such as housing loom larger.  In addition, the official measure does not count in-kind income sources such as food stamps (now called SNAP, or Supplemental Nutrition Assistance Program).  That has meant that increases in SNAP benefits, which clearly benefit poor people, do not count in the annual assessment of poverty trends.  Advocates recognize that leaving such income sources out make it impossible to show whether progress in alleviating poverty is being made.

The new Supplemental Poverty Measure is generally based on work done about fifteen years ago by researchers at the National Academy of Sciences.   It will establish a poverty threshold by calculating the costs of food, shelter, clothing and utilities for all family units with two children.  Costs will take into account regional variation (not part of the official poverty measure), and will show housing cost differences for those who rent, own outright, or own with a mortgage.  Expenditures will be averaged over five years, to even out fluctuations that might show up in annual data.  Once these basic expenditures are estimated, the figure will be multiplied by 1.2 (recognizing that the poor purchase more than just these necessities) and adjusted for varying household size.  The threshold will be set at the 33rd percentile – that is, two-thirds of Americans will spend more than the estimated figure for these necessities.  Those who spend less will be considered poor.

The new measure then counts a broader array of income sources than is currently estimated, including in-kind public benefits such as SNAP.  Certain expenses are then subtracted, including child support paid and work expenses including child care and transportation.  Taxes are subtracted, and refundable tax credits like the Earned Income Tax Credit and Child Tax Credit are counted as income.  Out of pocket medical expenses are also subtracted from income.

The precise way of incorporating these expenditures and income sources is left to the Census Bureau to develop over the coming year, and public comment will be sought on the best way to estimate both income and expenditures.  Advocates and analysts have already voiced some criticisms, some technical, and some taking the broader view that the Supplemental measure gauges only a very low level of expenditure, but does not help us understand what it would take for families to escape from poverty.  Legislation to establish a new poverty measure previously introduced by Rep. McDermott (H.R. 2909) and Senator Dodd (S. 1625) calls for developing an additional “decent living standard” – a higher level at which families were more comfortably entering the middle class and making ends meet.  While the March 2 announcement did not call for designing a decent living standard, it is possible such a request could be incorporated into the charge to the Census Bureau.  Advocates are already calling for this addition.

Advocates of a national commitment to reduce poverty hope that a more accurate measure will make it possible to see more clearly whether anti-poverty initiatives are effective.  The Half in Ten Campaign, which seeks to cut poverty in half within ten years, has developed a short educational video clip to explain why modernizing the poverty measure is needed.

(For an 8-page Observations from the Administration’s Interagency Technical Working Group describing elements the Census Bureau will have to consider in creating the new measure.)

Poverty and Income
tax policy