Video: Fixing the Federal Poverty Measure
“If you can’t measure it, you can’t manage it,” said New York City Mayor and business magnate Michael Bloomberg in 2007 describing the need for an updated poverty measure.
Now it seems he is getting his wish. The U.S. Census Bureau announced today that it will be developing an alternative way to measure poverty. This new method will better reflect the realities facing struggling families and ways in which current government programs can help them to get back on their feet. Unlike the traditional poverty measure, which is based in a 1960s reality, this supplemental measure will provide a more accurate accounting of household budgets and better determination of whether a family has enough resources to meet its most basic needs.
The Census Bureau has published a number of different alternative poverty data for many years and will continue to do so. But this new measure will accommodate updated research and modeling, and will be released alongside the traditional poverty data in 2011, ushering in a new public understanding of how well we are doing in ensuring that more families are able to meet basic needs and ultimately to join the middle class.
The new measure is not designed to replace the traditional measure. Eligibility for more than 80 public benefits is tied in some form to the current federal poverty measure, which will continue to be a useful tool in administering programs. Issuing a supplemental measure will not change eligibility for any government benefits or in and of itself cost the government one penny in additional poverty program expenditures.
But the new measure could prove transformative if it becomes the central basis by which we establish whether we are making progress on reducing poverty. Public debate on poverty and policies to alleviate it should be focused on this measure because it will more accurately capture whether the actual resources families have available are enough to meet their most basic needs. For the same reasons, public servants should be accountable for what progress they make according to this metric. The objective of this new poverty statistic can be compared to that of the unemployment rate, which in and of itself does not make a family eligible to receive unemployment benefits, but provides an aggregate picture of how the economy is faring and prompts action to create jobs and better target public policies.
The development of a supplemental poverty measure is an important step forward in the fight against poverty in our nation, but it is an equally important opportunity to focus policy on what works.
CAP Action and its partners the Coalition on Human Needs and the Leadership Conference on Civil and Human Rights launched the Half in Ten campaign in order to build the political and public will to cut the U.S. poverty rate in half over the next decade. And last month CAP launched a major project called Doing What Works that will focus on making sure that federal spending is targeted on initiatives that are proven to work. Understanding what works and what does not allows us to ensure that the most effective policies and programs continue and expand, and that the least effective programs are reformed or eliminated. We are coming together with the shared philosophy that better data drives better policy solutions, and that the United States is better positioned to bring more families into the middle class when we have a measure of poverty that more accurately reflects the realities that struggling families are facing.
Why do we need a supplemental poverty measure?
When policymakers set out to tackle a complex problem, they must ask themselves important questions such as: What outcome are they trying to accomplish? And what does the data tell them about how best to achieve that? What programs are currently working and where are there gaps or inefficiencies? How can we make the best use of limited resources to solve this problem?
Yet our traditional measure of poverty is seriously deficient in allowing us to answer these questions. The current federal poverty measure was developed in the 1960s and is based on taking the cost of an emergency food diet and multiplying it by three. At the time the measure was developed, food constituted one-third of the average family’s budget. But since then the measure has only been indexed to inflation, and the poverty line therefore currently amounts to only about $22,000 per year for a family of four.
There are several problems with this approach. First off, a lot has changed since the 1960s. Food used to be one-third of the average family’s budget, but it now amounts to around one-seventh as the costs of housing, childcare, and health care have all risen disproportionately.
This has important consequences for how our poverty measure stands up against America’s progress as a whole. Since food is now a smaller share of family budgets, the poverty threshold has fallen far behind the actual cost of meeting basic needs. When the measure was first instituted, a person living at the federal poverty line earned about 50 percent of the average American’s income; today that proportion has fallen to approximately 28 percent. This pushes the families our society considers “poor” further and further out of the mainstream and masks the struggles of working families earning slightly above the outdated threshold.
Secondly and shockingly, our traditional poverty measure does not actually register the impact of many critical antipoverty policies. Families who benefit from tax measures such as the Earned Income Tax Credit or spending programs such as the Supplemental Nutrition Assistance Program—formerly known as food stamps—are seen as no better off than families who are not enrolled in these programs. This creates the false impression that poverty is intractable and that we’ll never make a dent in this problem no matter what government does. In reality, research commissioned by Center for American Progress in 2007 reveals that just four policy recommendations to improve the Earned Income Tax Credit, Child Tax Credit, child care assistance, and minimum wage would cut the U.S. poverty rate by 26 percent over 10 years if we used an updated measure such as the one that will be adopted by the administration.
Finally, the traditional measure includes no adjustment for geographic disparities in cost of living. This means that two families with the same income—one in Tate County, Mississippi and the other in Seattle, Washington—are considered equally as well off despite the fact that fair market rent for a two-bedroom apartment is $574 per month in the former and $987 per month in the latter.
How does the supplemental measure address problems with the traditional measurement?
The new supplemental measure will address these concerns by adopting recommendations along the lines of the nonpartisan National Academy of Sciences. The NAS panel recommended that the federal government set the alternative federal poverty threshold at a level intended to accommodate basic needs such as food, housing, and clothing. A family’s income that is not available to meet this set of basic needs because its resources are going toward paying taxes, meeting child support obligations, or paying for work-related or out-of-pocket medical expenses will have those expenses discounted. But income in the form of housing vouchers, the earned income tax credit, and other work supports will register on the measure, showing where policies are in fact having an impact on lifting families out of poverty. The alternative measure will also include some form of geographic adjustments that present a more realistic relationship between cost of living and what it takes to meet basic needs. All of these improvements will be dynamic, meaning that the Census will update the measure according to the best available data and statistical methodology.
No one measure—even the supplemental measure—can provide a complete indicator of economic well-being. The supplemental measure will give us a better understanding of how many families are able meet a set of basic needs, but it cannot tell us how many people are able to do so without relying on any public or private assistance. And because the measure is only connected to changes in spending on basic goods, it cannot tells us how good a job we are doing to ensure that all Americans are moving forward together.
We should remember as the Census Bureau moves forward with developing this supplemental measure that getting a more complete picture of economic well-being in America will require using this new measure in combination with other statistics. It will also require working to develop additional indicators that could ultimately represent a more secure level of income for families to not only to meet immediate basic needs, but to save for the future and have a cushion for emergencies.
How will the supplemental measure promote good government?
Why does this supplemental poverty measure matter for those concerned about good and efficient government? First, the new measure will provide a more accurate picture of how families are faring and what types of expenditures are driving household budgets. This data can help us understand how well the federal government is responding to the recession and what types of policies are most effective at helping those families striving to join the middle class. For example, a recent study using an NAS-type poverty measure revealed that just seven provisions of the American Recovery and Reinvestment were helping keep more than 6 million Americans out of poverty and reduced the severity of poverty for 33 million more.
Second, it will help us to better understand the impact of current antipoverty programs, which will allow the government to focus policy approaches on what works in alleviating poverty and distinguish between well-functioning programs and those in need of reform.
Finally, we will be able to better evaluate future policies. Mayor Bloomberg has been testing and evaluating innovative strategies to tackle poverty in New York. Some of these proposals could end up lifting many families out of poverty and saving considerable money over the long run. Of course, some might not work at all, and if that is the case, then that’s a reason to try a different approach and keep trying until the toolkit of approaches is the one that is most effective and most efficient.
It is likely that there will be little to celebrate in the new data. Given the depth and length of this recession, the supplemental measure will likely confirm what we’ve known for a while—that more and more working families are living on the brink. Yet if the old adage, “what gets measured gets done” is true, this development gives both antipoverty advocates and proponents of smart government cause for hope.
Video: Fixing the Federal Poverty Measure