Measuring Poverty

Poverty is defined by comparing household income with the minimum income required for basic needs. People whose income is below the threshold are considered poor. These metrics are used as a measurement of economic well-being. They are also used to determine eligibility and benefit levels for some government programs and as the basis for distributing resources across states.

The official federal poverty measure was created in the early 1960s. The Census Bureau still uses this calculation, adjusted for price inflation. The Department of Health and Human Services Poverty Guideline uses a second, related measure for administrative purposes.

The official poverty measure has significant limitations. The method for determining it is outdated. It is based on spending patterns from the 1960s. And it fails to account for tax credits and in-kind benefits provided through current government programs (such as housing subsidies and food assistance). The measure also fails to consider changes in medical care, housing, and child-care expenses. These expenses 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.

As a result, the Census Bureau now produces the Supplemental Poverty Measure. The poverty rate for Americans age 65 and older is 40 percent higher using this measure (12.8 percent in 2019 using the supplemental measure vs. 8.9 percent using the official measure). This is mainly because the supplemental measure accounts for out-of-pocket medical spending. Medical costs are a sizeable burden for older adults with low incomes.

Currently, the full benefits of the supplemental measure have not been realized. No government programs use it to determine eligibility for any program. And the public has limited access to data based on the measure.