Mike Kueber's Blog

March 28, 2013

Who is poor?

Filed under: Issues,Politics — Mike Kueber @ 11:59 am
Tags: ,

While visiting with a friend in Austin last week, he suggested to me that the definition of poor in America should be revised to include the welfare benefits that poor people receive from the government.  I told him that, coincidentally, I had seen a NY Times article on the subject just the day before, but hadn’t had time to read it.  When I finally had a chance to read the article, I learned that it was directly responsive to my friend’s suggestion.    

According to the article, there are three ways of defining poverty in America:

  1. The current (official) calculation.  The official Census Bureau method, which uses a set of income thresholds that vary by family size and composition;
  2. My friend’s proposal.  An experimental income-based method called the Supplemental Poverty Measure that factors in government programs designed to help people with low incomes; and
  3. Another idea.  A consumption-based method that measures what households actually spend.

The NY Times article contains some interesting elaboration of each of these methods:

  • The official definition was established in 1963 by the Kennedy Administration and uses as a point of reference the average dollar value of all the food needed for a week, times three. Income is calculated on a pre-tax basis including earnings, unemployment benefits, Social Security, disability, welfare, pensions, alimony and child support. The poverty threshold is set at the point at which a family would have to spend more than a third of its income on food.
  • The second income-based method of calculating poverty, the Supplemental Poverty Measure, is also published by the Census. It was first released in 2011. The S.P.M. adds together cash income, tax credits (in particular, the Earned Income Tax Credit, the benefit most important to the working poor), plus the value of in-kind benefits used to pay for food  (food stamps), clothing, shelter and utilities, and then subtracts taxes paid, work expenses (including child care), out-of-pocket medical costs and child support paid to another household.

Depending on which method you use, you will come up with dramatically different conclusions about poverty in America.  For example, “according to the two income-based methods of calculation, poverty is increasing; according to the consumption-based method, it is decreasing, especially for the elderly.  The poverty rate for poor children, under the official measure, is 22.3 percent; under the S.P.M. it is only 18.1 percent. The rate of poverty for those 65 and older is 8.7 percent under the official measure, but it nearly doubles to 15.1 percent under the S.P.M.  If the S.P.M. were adopted as the official measure used by government agencies to define poverty, millions of poor children would either lose, or face reductions in, benefits from means-tested programs, while millions of those over the age of 65 would qualify for government assistance.”

As America attempts to resolve its deficit problem, means-testing will play an increasing role.  That makes selecting a definition for “poor” an important decision.  The current, official definition is outdated, and both of the alternatives (supplemental and consumption) have solid arguments in their favor.  My preference would be to keep both methods available and then to make a reasoned choice, depending on the situation in which it is applied.

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