Discussion: (1 comment)
Comments are closed.
View related content: Poverty Studies
This report presents estimates of consumption and income based poverty in the United States derived from information collected in the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey and the U.S. Census Bureau’s Current Population Survey.
Summary of findings
The Office of Management and Budget established the procedure for measuring the official poverty rate in the United States through a Policy Directive in 1978. This official rate is determined by comparing the pre-tax money income of a family or a single unrelated individual to poverty thresholds that vary by family size and composition. For example, in 2016, the poverty threshold for a one-parent, two-child family is $19,337. The underlying data on pre-tax money income come from the Current Population Survey Annual Social and Economic Supplement. If a family has income below the poverty cutoff for that size family, all family members are classified as poor. Except for a few minor changes, the only adjustment to these thresholds over the past five decades has been for inflation using the Consumer Price Index for all Urban Consumers (CPI-U).
The release of this report is motivated by several longstanding criticisms of the Official Poverty Measure (OPM). Many criticisms can be found in sources such as Citro and Michael (1995), Blank (2008), and U.S. Census Bureau (2016b), but two are probably of greatest importance. First, the price index that the OPM relies on to adjust the poverty thresholds for inflation, the CPI-U, is known to overstate the extent of inflation (e.g. Hausman 2008). Second, the OPM does not reflect in-kind transfers and tax credits that have grown over time, such as the Supplemental Nutrition Assistance Program (SNAP), housing benefits and the Earned Income Tax Credit (EITC). The first problem means that the poverty cutoffs rise too quickly over time, leading more and more people to be below the cutoff in the absence of countervailing increases in income. The implication of the second problem, is that the OPM fails to reflect much of what the government does to reduce poverty.
The first problem can be reduced by using an unbiased price index. A potential solution to the second problem is to include SNAP, housing, tax and other benefits in the measure of income used to determine poverty status. This is the approach taken in the Census Bureau’s Supplemental Poverty Measure report that is also being released today. Unfortunately, the data sources for these benefits suffer from substantial reporting problems, and consequently they substantially understate the in-kind and tax benefits mentioned earlier: SNAP, housing benefits, the EITC (Meyer, Mok and Sullivan 2015). Some forms of income included in the OPM are also sharply under-reported such as cash welfare and pension income (Bee and Mitchell 2017).
Comments are closed.
A newsletter highlighting work on poverty—and efforts to reduce it—from AEI’s Poverty Studies team.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2017 American Enterprise Institute