This article is from the
May/June 2013 issue of
Dollars & Sense magazine.
In 1995, a blue-ribbon panel of poverty experts
selected by the National Academy of the Sciences (NAS) told us that the
“current U.S. measure of poverty is demonstrably flawed judged by
today’s knowledge; it needs to be replaced.” Critics have long pointed
out shortcomings including the failure to adequately account for the
effects of “safety net” programs and insensitivity to differences in the
cost of living between different places.
The Census Bureau, the federal agency charged with publishing the
official poverty numbers, has yet to replace the poverty line. However,
in the last couple years it has published an alternative, the
Supplemental Poverty Measure (SPM). The SPM is the product of over two
decades of work to fix problems in the federal poverty line (FPL).
This new measure takes us one step forward, two steps back. On
the one hand, it has some genuine improvements: The new measure makes
clearer how the social safety net protects people from economic
destitution. It adds basic living costs missing from the old measure. On
the other hand, it does little to address the most important criticism
of the poverty line: it is just too damned low. The fact that the
poverty line has only now been subject to revision—50 years after the
release of the first official poverty statistic—likely means that the
SPM has effectively entrenched this major weakness of the official
measure for another 50 years.
The 2011 official poverty rate is 15.1%. The new poverty measure
presented—and missed by a wide margin—the opportunity to bring into
public view how widespread the problem of poverty is for American
families. If what we mean by poverty is the inability to meet one’s
basic needs a more reasonable poverty line would tell us that 34% of
Americans—more than one in three—are poor.
What’s in a Number?
The unemployment rate illustrates the power of official
statistics. In the depths of the Great Recession, a new official
statistic—the rate of underemployment, counting people working part time
who want full-time work and those who have just given up on looking for
work—became part of every conversation about the economy. One in six
workers (17%) counted as underemployed in December 2009, a much higher
number than the 9.6% unemployment rate. The public had not been
confronted with an employment shortage that large in recent memory; it
made political leaders stand up and pay attention.
The supplemental poverty measure had the potential to do the
same: a more reasonable poverty line—the bottom line level of income a
household needs to avoid poverty—would uncover how endemic the problem
of economic deprivation is here in the United States. That could shake
up policymakers and get them to prioritize anti-poverty policies in
their political agendas. Just as important, a more accurate count of the
poor would acknowledge the experience of those struggling mightily to
put food on the table or to keep the lights on. No one wants to be
treated like “just a number,” but not being counted at all is surely
worse.
With a couple of years of data now available, the SPM has begun
to enter into anti-poverty policy debates. Now is a good time to take a
closer look at what this measure is all about.
The supplemental measure makes three major improvements to the official
poverty line. It accounts for differences in the cost of living between
different regions. It changes the way it calculates the standard of
living necessary to avoid poverty. And it accounts more fully for
benefits from safety net programs.
Different Poverty Lines for Cost-of-Living Differences
Everyone knows that $10,000 in a small city like Utica, New
York, can stretch a lot farther than in New York City. In Utica, the
typical monthly cost of rent for a two-bedroom apartment, including
utilities, was about $650 during 2008-2011. The figure for New York
City? Nearly double that at $1,100. Despite this, the official poverty
line has been the same regardless of geographic location.The
supplemental poverty measure adjusts the poverty income threshold by
differences in housing costs in metropolitan and rural areas in each
state—a step entirely missing in the old measure.
We can see how these adjustments make a real difference by simply
comparing the official poverty and SPM rates by region. In 2011,
according to the official poverty line, the Northeast had the lowest
poverty rate (13.2%), the South had the highest (16.1%), and the Midwest
and the West fell in between (14.1% and 15.9%, respectively). With
cost-of-living differences factored in, the regions shuffled ranks. The
SPM poverty rates of the Northeast and South look a lot more alike
(15.0% and 16.0%, respectively). The Midwest’s cheaper living expenses
pushed its SPM rate to the lowest among the four regions (12.8%). The
West, on the other hand, had an SPM rate of 20.0%, making it the
highest-poverty region.
Updating Today’s Living Costs
Obviously, household expenses have changed a lot over the last
half-century. The original formula used to construct the official
poverty line used a straightforward rule-of-thumb calculation: minimal
food expenses time three. It’s been well-documented since then that food
makes up a much smaller proportion of households’ budgets, something
closer to one-fifth, as new living expenses have been added (e.g.,
childcare, as women entered the paid workforce in droves) and the costs
of other expenses ballooned (e.g., transportation and medical care).
The new poverty measure takes these other critical expenses into
account by doing the following. First, the SPM income threshold tallies
up necessary spending on food, clothing, shelter and utilities. The
other necessary expenses like work-related child care and medical bills
are deducted from a household’s resources to meet the SPM income
threshold. A household is then called poor if its resources fall below
the threshold.
These non-discretionary expenses clearly take a real bite out of
family budgets. For example, the “costs of working” cause the SPM
poverty rate to rise to nearly doubles that of the official poverty rate
among full-time year-round workers from less than 3% to over 5%.
Bringing the Social Safety Net into Focus
Today’s largest national anti-poverty programs operate in the
blind spot of the official poverty line. These include programs like
Supplemental Nutrition Assistance Program (SNAP) and the Earned Income
Tax credit (EITC). The supplemental measure does us a major service by
showing in no uncertain terms how our current social safety net protects
people from economic destitution.
The reason for this is that the official poverty measure only counts
cash income and pre-tax cash benefits (e.g., Social Security,
Unemployment Insurance, and Temporary Assistance to Needy Families
(TANF)) towards a household’s resources to get over the poverty line.
The supplemental poverty measure, on the other hand, adds to a
household’s resources near-cash government subsidies—programs that help
families cover their expenditures on food (e.g. SNAP and the National
School Lunch program), shelter (housing assistance from HUD) and
utilities (Low Income Home Energy Assistance Program (LIHEAP))—as well
as after-tax income subsidies (e.g., EITC). This update is long overdue
since the 1996 Personal Responsibility and Work Opportunity
Reconciliation Act (a.k.a., the Welfare Reform Act) largely replaced the
traditional cash assistance program AFDC with after-tax and in-kind
assistance.
Here are some figures for 2011 that illustrate the impact of each
of twelve different economic assistance programs. Social Security,
refundable tax credits (largely EITC but also the Child Tax Credit
(CTC)), and SNAP benefits do the most to reduce poverty. In the absence
of Social Security, the supplemental poverty rate would be 8.3
percentage points higher, shooting up from 16.1% to over 23.8%. Without
refundable tax credits, the supplemental poverty rate would rise 2.8
percentage points, up to nearly 19%, with much of the difference being
in child poverty. Finally, SNAP benefits prevent poverty across
households from rising 1.5 percentage points.
The SPM gives us the statistical ruler by which to measure the impact of
the major anti-poverty programs of the day. This is crucial information
for current political feuds about falling over fiscal cliffs and
hitting debt ceilings.
A Meager Supplement
Unfortunately, the new poverty measure adds all these important details to a fundamentally flawed picture of poverty.
In November 2012, the Census Bureau published, for only the
second time, a national poverty rate based on the Supplemental Poverty
Measure: it stood at 16.1% (for 2011), just one percentage point higher
than the official poverty rate of 15.1%.
Why such a small difference? The fundamental problem is that the
supplementary poverty measure, in defining the poverty line, builds from
basically the same level of extreme economic deprivation as the old
measure.
In an apples-to-apples comparison (see sidebar), the new
supplemental measure effectively represents a poverty line roughly 30%
higher than the official poverty income threshold for a family of four.
For 2011, the official four-person poverty line was $22,800, an adjusted
SPM income threshold—one that can be directly compared to the FPL—is
about $30,500.
Unfortunately, the NAS panel of poverty experts appears to have taken an
arbitrarily conservative approach to setting poverty income threshold.
Reasonably enough, NAS panel uses as their starting point how much
households spend on the four essential items: food, clothing, shelter,
and utilities. A self-proclaimed “judgment call,” they choose what they
call a “reasonable range” of expenditures to mark poverty. What’s odd is
that their judgment leans back toward the official poverty line – the
measure they referred to as “demonstrably flawed.”
To justify this amount they show how their spending levels fall
within the range of two other “expert budgets” (i.e., poverty income
thresholds) in the poverty research. What they do not explain is why,
among the ten alternative income thresholds they review in detail, they
focus on two of the lower ones. In fact, one of these two income
thresholds they describe as an “outlier at the low end.” The range of
the ten thresholds actually spans between 9% and 53% more than the
official poverty line; their recommended range for the threshold falls
between 14% and 33% above the official poverty line.
Regardless of the NAS panel’s intention, the Inter-agency
Technical Working group (ITWG) tasked with the job of producing the new
poverty measure adopted the middle point of this “reasonable range” to
establish the initial threshold for the revised poverty line.
This conflicts with what we know about the level of economic deprivation
that households experience in the range of the federal poverty line. In
a 1999 book Hardship in America, researchers Heather Boushey, Chauna
Brocht, Bethney Gunderson, and Jared Bernstein examined the rates and
levels of economic hardship among officially poor households (with
incomes less than the poverty line), near-poor households (with incomes
between the poverty line and twice the poverty line), and not poor
households (with incomes more than twice the poverty line).
As expected, they found high rates of economic distress among
households classified as “officially poor.” For example, in 1996, 29% of
poor households experienced one or more “critical” hardships such as
missing meals, not getting necessary medical care, and having their
utilities disconnected. Near-poor households experienced these types of
economic crises only a little less frequently (25%). Only when
households achieved incomes above twice the poverty line did the
incidence of these economic problems fall substantially—down to 11%.
(Unfortunately, the survey data on which the study was based have been
discontinued, so more up-to-date figures are unavailable.)
This pattern
repeats for “serious” hardships that include being worried about having
enough food, using the ER for health care due to lack of alternatives,
and falling behind on housing payments. So if what we mean by poverty is
the inability to meet one’s basic needs, then twice the poverty
line—rather than the SPM’s 1.3 times—appears to be an excellent marker.
Let’s consider what the implied new poverty income threshold of
$30,500 feels like for a family of four. (This, by the way, is about
what a household would take in with two full-time minimum-wage jobs.)
This annual figure comes out to $585 per week. Consider a family
living in a relatively low-cost area like rural Sandusky, Michigan.
Based on the basic-family-budget details provided by the Economic Policy
Institute, such a family typically needs to spend about $175 on food
(this assumes they have a nearby grocery store, a stove at home, and the
time to cook all their meals) and another $165 on rent for a
two-bedroom apartment each week. This eats up 60% of their budget,
leaving only about $245 to cover all other expenses. If they need
childcare to work ($180), then this plus the taxes they have to pay on
their earnings ($60) pretty much wipes out the rest. In other words,
they have nothing left for such basic needs as telephone service,
clothes, personal care products like soap and toilet paper, school
supplies, out of pocket medical expenses, and transportation they may
need to get to work. Would getting above this income threshold seem like
escaping poverty to you?
For many federal subsidy programs this doesn’t seem like escaping
poverty either. That’s why major anti-poverty programs like that
National School Lunch program, Low Income Home Energy Assistance Program
(LIHEAP), State Children’s Health Insurance Program (SCHIP) step in to
help families with incomes up to twice the poverty line.
If the supplementary poverty measure tackled the fundamental
problem of a much-too-low poverty line then it would likely draw an
income threshold closer to 200% of the official poverty line (or for an
apples-to-apples comparison, about 150% of the SPM income threshold).
This would shift the landscape of poverty statistics and produce a
poverty rate of an astounding one in three Americans.
Now What?
The Census Bureau’s supplemental measure doesn’t do what the
underemployment rate did for the unemployment rate—that is, fill in the
gap between the headline number and how many of us are actually falling
through the cracks.
The poverty line does a poor job of telling us how many Americans
are struggling to meet their basic needs. For those of us who fall into
the “not poor” category but get struck with panic from time to time
that we may not be able to make ends meet—with one bad medical
emergency, one unexpected car repair, one unforeseen cutback in work
hours—it makes us wonder, if we’re not poor or even near poor, why are
we struggling so much? The official statistics betray this experience.
The fact is that so many Americans are struggling because many more of
us are poor or near-poor than the official statistics lead us to
believe.
The official poverty line has only been changed—supplemented,
that is—once since its establishment in 1963. What can we do to turn
this potentially once-in-a-century reform into something more
meaningful? One possibility: we should simply rename the supplemental
poverty rates as the severe poverty rate. Households with economic
resources below 150% of the new poverty line then can be counted as
“poor.” By doing so, politicians and government officials would start to
recognize what Americans have been struggling with: one-third of us are
poor.
JEANNETTE WICKS-LIM is an assistant research professor at the Political Economy Research Institute at the University of Massachusetts-Amherst.
Sources: Kathleen
Short, “The Research Supplemental Poverty Measure: 2011,” Current
Population Report, U.S. Bureau of the Census, November 2012
(census.gov); Constance F. Citro and Robert T. Michael (eds.), Measuring
Poverty: A New Approach, Washington D.C.: National Academy Press, 1995;
Trudi Renwick, “Geographic Adjustments of Supplemental Poverty Measure
Thresholds: Using the American Community Survey Five-Year Data on
Housing Costs,” U.S. Bureau of the Census, January 2011 (census.gov).
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