Measuring Poverty

Background

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 The method for determining it is outdated.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 (SPM). The poverty rate for Americans 65 and older is usually higher using this measure, mainly because the SPM accounts for out-of-pocket medical spending. Medical costs are a sizable burden for older adults with low incomes. During the pandemic, the official poverty rate in 2021 was 11.6 percent, while the SPM rate was 7.8 percent. This inversion of the general trend could be due to the swift and massive government response to the COVID-19 pandemic. While the official poverty rate among those ages 18 to 64 held steady at 10.5 percent between 2020 and 2021, the poverty rate among those ages 65 and older increased from 8.9 percent to 10.3 percent. This increase of over 15 percent amounted to one million more people ages 65 and older falling below the federal poverty threshold. In total, approximately 6 million older adults are living in poverty.  

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. 

MEASURING POVERTY: Policy

MEASURING POVERTY: Policy

Updating the poverty threshold

Congress should mandate the use of the Supplemental Poverty MeasureA method for measuring poverty that more accurately reflects the spending patterns of people 65 and older.
(SPMThe Supplemental Poverty Measure (SPM) is a method for measuring poverty that more accurately reflects the spending patterns of people 65 and older.
) developed by the Census Bureau in lieu of the existing federal povertyThe federal government defines “poverty” as income below specific thresholds. These thresholds are adjusted annually for inflation and vary according to family size and the age of the head of the family.
measure. In addition, Congress should adopt the new povertyThe federal government defines “poverty” as income below specific thresholds. These thresholds are adjusted annually for inflation and vary according to family size and the age of the head of the family.
measure in defining eligibility for assistance programs. 

The Census Bureau should produce detailed, publicly available data based on the SPMThe Supplemental Poverty Measure (SPM) is a method for measuring poverty that more accurately reflects the spending patterns of people 65 and older.