Three Ways to Improve the Proposed Supplemental Poverty Measure

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Shawn Fremstad
Spotlight on Poverty and Opportunity, June 18, 2010

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The Census Bureau recently requested public comment by June 25 on its proposal to develop a “supplemental” poverty measure (SPM). Based on 1995 recommendations made by the National Academy of Sciences (NAS), the proposal includes several useful reforms. However, there is room for improvement.

Overhauling the poverty measure is sometimes presented as a technical issue, and the approach recommended by the NAS as a fait accompli that simply needs to be implemented without making any policy decisions. This isn’t the case. While there are a myriad of technical issues involved in operationalizing the NAS approach, there are also major policy questions. These include, most importantly, where to actually set the supplemental poverty threshold, a question that the NAS called “ultimately political.”

Three modifications to the SPM are essential: 1) the thresholds must be set at a minimally decent level, one that doesn’t continue to “define poverty down” as the current measure has; 2) education and basic savings should be treated as necessities rather than luxuries; and 3) the thresholds should be adjusted upward for families without health insurance. These modifications would improve the measure’s accuracy and are consistent with the overall approach NAS recommended.

Adequate Poverty Thresholds: as a measure of “typical” living standards, median income provides a yardstick for judging the poverty measure’s adequacy. When established in the early 1960s, the poverty line was equal to nearly 50 percent of median income. Because it has only been adjusted for inflation since then – a decision made by the Nixon Administration – and not for increases in mainstream living standards, the poverty line has fallen to just under 30 percent of median income. As a result, to be counted as officially “poor,” you have to be much poorer today, compared to a typical family, than you would have in the 1960s.

Absent improvements, the SPM will not address this problem. Previous Census estimates suggest that the SPM will result in poverty thresholds that might be modestly higher than the current ones, but will almost certainly remain less than half of the amount that budget-based approaches – and public opinion – suggest is needed to maintain a barebones standard of living.

At a minimum, the supplemental measure should reflect a living standard that is at least as high, when compared to today’s typical living standard, as the official poverty measure was in the mid-1960s. Census should also adopt additional measures – at the same time as the SPM – that reflect the income needed to “make ends meet” at a basic level. At a minimum, this should include a “market-basket” measure, similar to the family budget standards once produced by the Labor Department, and a measure pegged to a percentage of median income (an approach championed by Martin Luther King, Jr. shortly before his assassination).

A related concern is that proposed geographic adjustments to the measure, while producing sensibly higher poverty thresholds in a few states, would result in thresholds lower than the current ones for many states. The declines may be particularly large for the poorest states in regions such as the Deep South, Appalachia and the Southwestern border.

CLASP found that a poverty measure based on the original NAS recommendations could result in lower poverty rates in most states. However, that outcome depends on policy and technical decisions the administration will need to make. The SPM has changed in some ways since this analysis was conducted. As a result, the state-level supplemental thresholds could end up lower than, similar to, or higher than, the official thresholds.

However, there’s nothing specific in the proposal that would rule out “sub-official” poverty thresholds. To resolve uncertainty, the Census Bureau should provide opportunity for the public to comment on any state-level thresholds that result from the proposal.

Because the current measure has defined poverty down since the 1960s, the SPM should not result in state-level poverty thresholds lower than the current official ones. Just as setting the federal minimum wage or EITC at a lower level in poorer states would be unacceptable, sub-official poverty lines for poorer states should not be tolerated.

Education and Savings: the supplemental measure treats basic savings (for retirement, a rainy day or children’s education) and education (including tuition, fees and student-loan repayments) as luxuries rather than necessities. This makes no sense in today’s economy. At a minimum, the measure should treat education-related spending and basic savings as non-discretionary expenditures that are subtracted from the family income that is compared to the SPM threshold. This is how the proposal already treats work-related spending on child care.

The Uninsured: the supplemental measure would subtract out-of-pocket expenditures on health care. However, the uninsured may not have the resources to make necessary expenditures on health care—and CBO projects that 21 million people will remain uninsured in 2016, so health care reform doesn’t eliminate this problem. To address it, the poverty thresholds for the uninsured should be adjusted to include the costs of health insurance.
Shawn Fremstad is Director of the Inclusive and Sustainable Economy Initiative at theCenter for Economic and Policy Research, which conducts both professional research and public education to promote democratic debate on the most important economic and social issues that affect people's lives. He blogs at cepr.net and inclusionist.org.