The Need for Better Measures of How Many Americans Are “Poor” and “Low-Income”

Background

Poverty metrics are used to measure economic well-being and as a benchmark for determining eligibility and benefit levels for some government programs as well as resource distribution across states. The first federal poverty measure was created in the early 1960s. The Census Bureau still uses this calculation, adjusted for price inflation, as the basis for federal poverty thresholds (i.e., income figures that determine how many people are classified as poor for statistical purposes). A second and related measure, the Department of Health and Human Services poverty guidelines, is used for administrative purposes.

The official poverty measure has several limitations. The method for determining it is outdated, based on spending patterns from the 1960s. It fails to account for tax credits and in-kind benefits provided through current government programs (such as housing subsidies and food assistance). It also fails to account for changes in medical care, housing, and child-care expenses, which have become a larger share of family budgets and have risen at a rate outpacing inflation. Furthermore, the current poverty measure for those age 65 and older is lower than the threshold for the rest of the population. This inaccurately assumes that spending on basic needs decreases with age.

In 1995 the Panel on Poverty and Family Assistance of the National Academy of Sciences (NAS) issued recommendations for modernizing the poverty measure to address these flaws.

In 2011 the Census Bureau began the annual release of the Supplemental Poverty Measure, an effort to implement NAS panel recommendations. Overall the new measure results in more Americans being classified as poor. The poverty rate for Americans age 65 and older increased by about 75 percent. In contrast the child poverty rate is lower using this metric than usingi the official poverty measure. This reflects the large burden of out-of-pocket medical spending on low-income older adults. Use of the new measure is limited largely to researchers with the capacity to analyze large data sets. Only a limited number of tables based on this supplemental measure are currently available to the public.

A single measure of poverty, even an improved one, cannot capture every aspect of family well-being. Therefore the poverty threshold may also need to be supplemented, such as with a measure of the income necessary to achieve a secure standard of living.

The Need for Better Measures of How Many Americans Are “Poor” and “Low-Income”: Policy

Updating the poverty threshold and its effects on assistance programs

In this policy: FederalLocalState

Congress should mandate the use of the Supplemental Poverty Measure developed by the Census Bureau in lieu of the existing federal poverty measure and should adopt the new poverty measure in defining eligibility for assistance programs.

The Census Bureau should produce detailed publicly available tables based on the Supplemental Poverty Measure.