In March of last year, the U.S. Census Bureau announced that it would develop an alternative way to measure poverty. The Supplemental Poverty Measure, which was released yesterday, is an attempt to update the current federal poverty measure that, it is generally agreed, is outdated and therefore underestimates the level of poverty in the U.S.
The current poverty measure was developed in 1963 and is based on the cost of a minimally adequate diet in the mid-1950s, multiplied by three. At the time the measure was developed, families of three or more persons spent about 1/3 of their after-tax income on food.
Other than being updated annually based on the consumer price index, the methodology for measuring poverty has not changed since the measure was first developed. From the very beginning, policymakers have expressed concern about the accuracy of the measure and proposed that it be revised.Today, the measure is badly outdated. For example, food now consumes only 1/7 of the average family’s budget.
In 1995, the National Academy of Sciences/National Research Council (NAS) was commissioned by Congress to study the official U.S. poverty measure and provide suggestions on how to revise it. The Supplemental Poverty Measure released yesterday is largely based on their report, Measuring Poverty: A New Approach.
The Supplemental Poverty Measure is based on an updated market basket of goods that reflects changes in consumer spending since 1963. It takes into account household expenses such as taxes, housing, utilities, health care costs, child support payments, and work-related expenses (i.e., travel and child care). This is offset by including the value of government income supplements, such as subsidized school lunch programs, energy assistance programs, housing subsidies, and the Supplemental Nutrition Assistance Program (previously food stamps), that are not accounted for in the official poverty measure. The result is that the new calculation more accurately reflects how low-income Americans are actually getting by.
SPM Resources = Money Income from All Sources
|Supplemental Nutritional Assistance||Taxes (plus credits such as the Earned Income Tax Credit [EITC])|
|National School Lunch Program||Expenses Related to Work|
|Supplementary Nutrition Program for Women, Infants, and Children||Child Care Expenses|
|Housing subsidies||Child Support Paid|
|Low-Income Home Energy Assistance (LIHEAP)||Medical Out-of-Pocket Expenses (MOOP)|
New Data Increases Poverty Levels
Under the Supplemental Poverty Measure, 49.1 million, or 16 percent, lived in poverty in 2010, significantly more than the official measure released in September that found 46.6 million people, or 15 percent, lived in poverty. Given that the number of people in poverty in 2010 under the existing measure was the highest that it has been in the 52 years since this information has been collected, this new measure’s estimate is even more dramatic.
The annual income at which a family of four—two adults and two children—is considered living in poverty under the supplemental measure was $24,343 in 2010. That compares with the official figure of $22,113. This threshold is still low, and most poverty advocates believe that using 200 percent of the federal poverty level for eligibility for public benefit programs is more reasonable. In fact, when polled most Americans believe that the minimum amount of yearly income a family of four would need to “get along” in their community is a little more than $40,000 annually, or roughly twice both the official measure and the supplemental measure.
The figure below compares the poverty rates under the official measures and the new measure for different age groups. The percent of the population that was poor using the official measure for 2010 was 15.1 percent versus 16 percent under the new measure. The supplemental measure puts the percentage of American children under 18 living in poverty at 18.2 percent, a drop from the 22.5 percent official rate. The reason for the drop is that the supplemental measure includes benefits designed to help poor children, such as school lunch programs. On the other hand, the supplemental rate for the elderly was 15.9 percent, a 9-percent increase from the official rate of 6.9 percent. Again, the reason is that the supplemental measure’s inclusion of expenses, particularly out-of-pocket health care costs, more realistically depicts the budgetary constraints the elderly face.
In terms of minorities, the picture is still grim, but different. The official poverty data released in September showed that the poverty rate for African-Americans had increased faster than for the rest of the population and was just over 27 percent, and the rate for Hispanics was 26.7 percent, whereas whites’ rate was 13.1 percent, and Asians’ was 12.1 percent. Under the new measure, Hispanic poverty rose to 28.2 percent, surpassing that of blacks, 25.4 percent, for the first time. Poverty levels among whites, 14.3 percent, and Asians, 16.7 percent, were also higher under the supplemental measure.
Public Benefit Programs Work
Because the supplemental poverty measure takes into account in-kind benefits aimed at improving the economic situation of the poor, for the first time it is possible to see the impact such programs have on poverty. Applying the new measure, almost 7 million more people would have lived in poverty in 2009 and 2010 absent government action.
The chart below shows the effect of adding or subtracting a benefit program or expense on the poverty level for both 2009 and 2010. In general, including SNAP benefits, housing subsidies, school lunch programs, WIC, and energy assistance programs all result in lower poverty rates. On the other hand, subtracting amounts paid for child support, income and payroll taxes, work-related expenses, and medical out-of-pocket expenses result in higher poverty rates.
For instance, including the Earned Income Tax Credit (EITC) results in lower poverty rates; without it the poverty rate for all people would have been 18 percent rather than 16 percent in 2010. The EITC had a significant effect on child poverty—if the EITC is not included, the child poverty rate would be 22.4 percent rather than 18.2 percent. Similarly, excluding SNAP would increase poverty by 17.7 percent and excluding housing subsidies, school lunches, WIC, and LIHEAP would increase poverty by 16.9 percent, 16.4 percent, 16.1 percent, and 16.1 percent respectively.
These figures prove that public benefit programs are an important factor in poverty alleviation. Without such programs the level of poverty in the U.S. would be significantly higher. Especially in today’s economy, the supplemental measure highlights the need for such programs and reiterates the fact that the nation cannot afford further cuts in them.
Effect of Supplemental Poverty Measure on Public Benefits
The Supplemental Poverty Measure will not replace the official poverty rate, but instead will be published alongside the traditional figure as a "supplement" for federal agencies and state governments. It will not change eligibility for governmental benefits or the formulas by which billions of dollars in federal spending are distributed to states and localities. It will, however, provide a much more accurate view of poverty in America and better demonstrate the effect of government benefit programs in reducing poverty.