A better measure of poverty

A better measure of poverty will also mean better government.

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In 2014, the federal poverty threshold for a family of three was $18,853. For a family of four, it was $24,221.

Current poverty thresholds are based on an outdated formula that is more than 50 years old.
How the federal government determines who lives in poverty is based on a decades-old formula created by government economist Mollie Orshansky in 1964. Orshansky’s formula was, in turn, based on the cost of adhering to the Agriculture Department’s “low-cost food plan,” multiplied by three.

According to a Census Bureau history, Orshansky never intended to create the government’s official poverty – her work simply happened to coincide with President Lyndon B. Johnson’s inaugural efforts in the War on Poverty.

Today, the measure’s limitations are prompting a growing group of advocates to support a replacement metric – the Supplemental Poverty Measure – proposed by the Census Bureau in 2011. This alternate measure, advocates say, would not only better define what it means to live in poverty, but it would help to better measure the impact of anti-poverty government programs.

One criticism of the current measure is that it’s based on outdated consumption and spending patterns. While families did spent roughly a third of their income on food in the 1960s, food costs now take up just 10 percent of the typical family’s budget, according to government statistics. On the other hand, housing and transportation now take up roughly half of the average family’s income, while health care and health insurance expenses consume another 10 percent.

One consequence of the current metric is that the poverty thresholds are far too low. According to a recent report by the Annie E. Casey Foundation, “families need an income of roughly twice the official poverty threshold… to cover the entire cost of basic expenses for housing, food, transportation, health care and child care.”

But as significant a problem with the current measure, says Annie E. Casey, is that it doesn’t take into account non-cash government assistance such as the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) or housing subsidies or tax payments, such as refunds from the Earned Income Tax Credit (EITC). This means it’s tough to tell what effect these programs are having.

The Supplemental Poverty Measure, on the other hand, takes into account the impact of government anti-poverty programs. It also considers geographic variations in the cost of living and makes other adjustments for factors that affect family budgets.

This alternative measure also conclusively shows the effectiveness of government programs in fighting poverty. For example, says the Annie E. Casey Foundation, “The data show that without any government interventions, the child poverty rate would nearly double from 18 percent to 33 percent.” The alternative measure also makes it more possible to show state-by-state variations in poverty, which the foundation says can help policymakers better target programs to areas with the highest need.

First proposed in 2010, the Supplemental Poverty Measure was based on recommendations made in a 1995 report by the National Academy of Sciences, which itself relies on extensive research.

More than 50 years after Mollie Orshansky’s initial efforts to measure poverty, it might be time to redefine what it means to be poor. A better measure might also bring better success in the fight against poverty in America.

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