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February 24, 2014
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Why is Congress still measuring poverty based on a 1963 trip to the grocery store?
To
determine who is officially poor in America, the federal government
compares a family’s annual cash income to a figure produced by an arcane
formula that's based on the
price of food
in 1963, when a loaf of bread was 22 cents and a burger less than a
quarter. Starting under President Lyndon Johnson, the government's
official way of defining who is poor comes from
calculating
a minimum food budget for a family of four, tripling that figure to
cover other living costs, and then indexing it annually for inflation.
The
result is the federal poverty level. For 2014, that threshold was
$23,850 for a family of four. Smaller families can subtract $4,060 per
person. Individuals making $11,670 or less in 2014 were officially poor.
Many government programs, from School Lunch to the Earned Income Tax
Credit to Obamacare's subsidies, decide eligibility by comparing one’s
annual cash income to the official poverty level—or to a multiple of it,
say 150 percent.
Cities, states, advocates and academics have
known for years that this measure of who is poor undercounts millions of
Americans. They know that the 1960s-based formula ignores modern living
costs, such as today's cheaper food but higher housing and other
expenses. And they have
developed
alternative ways to track living costs that confirm poverty and
economic insecurity of households just above the poverty line is far
more widespread than Congress wants to admit.
But the 1960s
poverty formula persists, and not without other pernicious effects. This
heads-in-the-sand approach works against Congress spending more on
current programs because lawmakers aren't using numbers that honestly
depict the extent of economic insecurities. And an outdated methodology
pre-empts a contemporary discussion of what a basic, dignified living
standard costs, based on variables such as family size, one’s age and
stage in life, and location.
“In the 1960s, the poverty measure was a focal point for the nation’s growing concern about poverty,” an April 2013
report
by New York City’s Center for Economic Opportunity said, recounting
this history and shortcomings. “Over the decades, society evolved and
policies have shifted, but the official poverty measure remains frozen
in time. As a result it has lost its credibility and usefulness.”
“In 2011, our poverty line for the two-adult, two-child family comes to $30,945,” the NYC agency
said,
after using a more sophisticated modern formula. “The 2011 official
[federal] poverty threshold for the corresponding family was $22,811.”
Looking
back to 2005, New York City found that its poverty rate consistently
was 2 percent higher than the official federal rate. The federal formula
did not just ignore changes in real life expenses, but also decades of
government programs that didn’t pay out cash but kept more money in
poorer people’s pockets.
“In recent years an increasing share of
what government programs do to support low-income families takes the
form of tax credits and in-kind benefits," the Center for Economic
Opportunity said. "If policymakers or the public want to know how these
programs affect poverty, the official measure cannot provide an
answer.”
There have been notable efforts in
recent decades by government institutions, including Congress, to
update, expand and replace the 1963 formula. But those efforts, while
drawing a more realistic picture of who is poor in America, still aren’t
framing federal policy. That’s because when it comes to Congress,
better metrics aren’t used to create policy and law. One result is that
anti-poverty advocates continually urge Congress to look at real living
costs, and use more up-to-date numbers.
“Policymakers considering
changes to social insurance programs such as Social Security and
Medicare must consider the economic realities confronting older
Americans,” a 2013
report
by the Economic Policy Institute said, in one such example. EPI based
its analysis on a more comprehensive but unofficial measure used by the
Census Bureau—the same one used by New York City. Not surprisingly, EPI
found that poverty and near-poverty were more widespread among the
elderly than the government admitted.
“Many of America’s 41 million seniors are just one bad economic shock away from significant material hardship,” it
reported.
“Most seniors live on modest retirement incomes, which are often barely
adequate—and sometimes inadequate—to cover the costs of basic
necessities and support a simple, yet dignified, quality of life.”
But
official Washington holds firm, using its arcane 1960s formula instead
of adopting a more honest measure of tracking poverty and economically
insecure Americans.
A Better Baseline
Social
scientists have known for decades that the 1963-based poverty line
didn’t include necessities such as shelter, utilities, healthcare,
childcare, clothes, commuting and other out-of-pocket costs. In 1995,
Congress asked the National Academy of Sciences (NAS) to create a
formula including those factors. It did, but for years that sat on the
shelf. It was used for academic research but not to recalibrate
government policy and actions.
However, a decade after it was created, the NAS formula was
adopted
by several cities and states. Starting in 2005, New York, Philadelphia,
Connecticut, Georgia, Illinois, Masachusetts, Minnesota and Wisconsin
used the NAS formula and soon found out there were many more households
living just above and below the poverty line.
Starting in March 2010, the Census Bureau started
applying
the 1995 formula, which it called the Supplemental Poverty Measure
(SPM), and started issuing reports comparing the official and unofficial
measures. For 2012, the “official measure” of poverty level income for
“two-adult, two-child” households was $23,283, while the SPM was
$31,060. For seniors, the Census Bureau
said,
“Note that poverty rates for those 65 years of age and over were higher
under the SPM measure compared with the official measure.”
This
Obama administration initiative, which was not embraced by the Congress,
was noticed and praised by New York City Mayor Michael Bloomberg, who
encouraged his city’s Center for Economic Opportunity to do a better job
measuring poverty even if it meant acknowledging that New York had more
poor people than previously thought.
“If we are going to
successfully fight poverty, we need data that captures the challenges
that poor households face as well as the benefits conveyed by our most
significant government supports,” he said in 2011, when the Census
released its first report using the NAS formula. “The decision to adopt
this measure is not one that was made lightly; we know that a greater
proportion of the American people are poor under this Supplemental
Measure, and this is, if course an attention-grabbing finding. But it is
important to have a measure that can accurately tell us what is going
on.”
What’s going on, as Bloomberg puts it, is that Congress is
in the dark about the extent of economic insecurity and the role of
government programs to offset it. Perhaps the best example is Social
Security, which is not just an anti-poverty program paying the elderly a
monthly benefit, but also helps
millions of people with disabilities as well as children in families who lose a parent.
A recent Boston College
study
found that the country’s latest generation of retirees lack $6.6
trillion to maintain current lifestyles as they age, underscoring just
how important Social Security will be for their quality of life. For
millions of baby boomers, especially people of color and women, it will
make up 90 percent or more of retirement income, according to experts
like the non-partisan National Academy of Social Insurance.
In June 2013, the Social Security Administration
said
that there were 37 million retirees receiving benefits. Of those
recipients, 23 percent of married couples and 46 percent of unmarried
individuals relied on Social Security for 90 percent or more of their
income. Those percentages are expected to grow in coming years,
advocates say.
Washington’s current budget debate highlights this
omission. President Obama is pushing to raise the minimum wage to $10.10
a hour, or $21,000 a year—saying that's a living wage. But absent from
public debate is what it costs to keep vulnerable Americans, young and
old, from falling into poverty or hovering above it by paying for
household necessities.
How Much Is Needed?
When EPI experts Elise Gould and David Cooper
looked
at replacing the official poverty line with the more modern
Supplemental Poverty Measure, they found that seniors with a household
income (via any mix of social insurance benefits or savings) that was
less than double the SPM could be thrown into poverty by a “single
economic shock.”
“There is a large share of elderly Americans who
are economicaly vulnerable; a single shock could push them precariously
close to or into outright material deprivation,” they
wrote.
“With nearly half of all seniors in the United States falling below the
threshold of economic vulnerability, policymakers must be especially
careful when considering changes to social insurance
programs—predominantly Social Security and Medicare—that protect this
group.”
EPI’s conclusion that elderly Americans needed a monthly
income twice that of the SPM is backed up ny an even more detailed
poverty-line tool developed by the Washington-based advocacy group,
Wider Opportunities for Women. It has an online
index
where anyone, from families with children to seniors, can plug in
information on family type, income, location, savings and other expenses
to calculate basic living costs
below which one becomes impoverished—not being able to pay for necessities.
All
of these tools and indices—the Supplemental Poverty Measure, EPI’s
finding that elderly Americans need to earn double the SPM to weather
inevitable crises, WOW’s economic security index—are a far cry from the
official federal poverty threshold. They suggest that Congress and the
White House should be looking at a different big picture: what it costs
to live today and how far social insurance programs fall short of that
line.
There's no need to measure poverty and economic insecurity
by indexing family food budgets based on large eggs costing 45 cents a
dozen and macaroni-and-cheese dinners 39 cents, as they did in Wisconsin
in 1963.
Steven Rosenfeld covers
democracy issues for AlterNet and is the author of "Count My Vote: A
Citizen's Guide to Voting" (AlterNet Books, 2008).
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