Mis-Measuring Poverty

In 1965, when Mollie Orshansky, an economist at the Social Security Administration, first devised the "poverty threshold," she was very clear about its limits: "If it is not possible to state unequivocally 'how much is enough,' it should be possible to assert with confidence how much, on an average, is too little."

Orshansky noted that families typically spent one-third of their income on food, so to define "too little," she took a minimal food budget and multiplied it by three. But today, food accounts for a smaller share of expenditures, as the costs of housing, child care, and other necessities have grown. The current poverty threshold, $21,200 for a family of four, is still based on that outdated rough estimate and is widely understood to be inaccurate.

In determining income, the current poverty measure also fails to include important non-cash government benefits such as the Earned Income Tax Credit, food stamps, and housing subsidies, leaving policy-makers without an accurate picture of whether anti-poverty programs actually work. Finally, the measure also treats the costs of basic needs the same everywhere in the U.S., whether you live in Manhattan or Missoula.

In recent years, there has been a growing effort to revamp our poverty definition. A revision could range from a simple adjustment of the balance of food and other costs in a household budget to a full shift toward a relative measure of poverty--for example, a percentage of median income, as in the United Kingdom--that more accurately reflects the social exclusion created by poverty. In the mid-1990s, Congress directed the National Academy of Sciences to devise a new methodology. Its report led to a set of recommendations, which Rep. Jim McDermott of Washington and Sen. Christopher Dodd of Connecticut have used as the basis for the Measuring American Poverty (MAP) Act.

The legislation instructs the Census Bureau to develop a new measure of poverty, what the law's authors call the "modern poverty measure." The measure uses a new calculation of income--one that adjusts for tax credits and other non-cash benefits. It then sets the level of poverty at the income needed to cover the 33rd percentile of spending on food, clothing, shelter, and utilities, plus an additional 20 percent for other costs. The threshold would adjust year to year based on the costs of these expenditures. It would also account for geographic differences and adjust for housing status. Additionally, the legislation directs the Census Bureau to start working on a measure that determines how much income is enough to meet a decent living standard.

While this all sounds logical, the devil, in this case, is in the politics. Few administrations have wanted to take on enacting these changes if a new definition would result in poverty rates going up on their watch. Best estimates, however, show that overall poverty rates will only rise modestly using this new calculation. Further, tying a new measure to program eligibility and how program money is allocated to states would most likely lead to the proposal's quick death. As a result, the MAP Act authors wisely do not link the new measure to program eligibility or allocation formulas. Instead, they instruct Census to continue calculating the "traditional" poverty measure for these purposes.

As the late Sen. Daniel Patrick Moynihan once said, "You can't solve a problem until you first learn how to measure it." Even if the modern poverty measure can't be used immediately to adjust the vast number of programs that are tied to Orshansky's poverty threshold, it can at least help us measure the effectiveness of our current efforts.

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