Federal poverty guideline methods are outdated, but experts disagree on how to fix them

Policy wonks, academics grapple with how to define who’s really poor

Federal poverty guidelines are the foundation for deciding who gets aid from government and other programs designed to help disadvantaged Americans. But there’s strong consensus the guidelines are flawed, while philosophical divides are wide on both the shortcomings and the solutions.

Some experts believe the official poverty benchmarks leave people out who really need substantial help. Others say they fail to count all resources people have, making some seem poorer than they are.

The well-being of families experiencing economic hardship often depends on being able to access assistance like free or reduced-price school lunch and other food help, or housing and medical supports. But federal safety net programs cost taxpayers a lot and don’t meet all the need, so making sure funding targets the right people is crucial, experts across the political spectrum agree.

“The reason we should improve on the official poverty measure is that it does a poor job of identifying who the neediest Americans are, how much our antipoverty programs reduce poverty, how we have done over time reducing poverty, and how different groups or regions compare against each other,” Scott Winship, resident scholar and director of poverty studies at the American Enterprise Institute, told the Deseret News.

The poverty threshold is the dollar amount the U.S. government sets indicating the minimum income necessary to meet basic needs based on family size. Households below that poverty level, are “poor.” The number is the same for all mainland states, regardless of cost-of-living differences. The numbers are higher for Alaska and Hawaii, because it costs considerably more to live in those states, the Institute for Research on Poverty at the University of Wisconsin said. 

According to the U.S. Census Bureau’s 2019 data, the median U.S. household income was $68,703, up 6.8% from 2018, while a family of four with a household income of $25,750 or less was considered poor. The overall share of people living in poverty was 10.5%, down 1.3% and the lowest since 1959. Among children, 14.4% lived in poverty in 2019, while 9.4% of working-age adults 18 to 64 lived in poverty. Among older adults, 65 and older, the poverty rate was 8.9%.

How accurate, though, is the definition of poverty? There’s broad agreement the methodology underpinning federal poverty guidelines is outdated and needs improved.

‘Archaic assumptions’

There are two measures. The Official Poverty Measure, adopted in 1969 and derived by using a very basic meal budget from 1963 times three, estimates whether or not people can afford essentials. In its 50-plus years, the measure has only been adjusted for inflation. Critics say underlying assumptions are no longer valid.

“It is based on archaic assumptions, including, as Mollie Orshansky, who designed the measure, has noted: that households include a ‘housewife’ who is ‘a careful shopper, a skillful cook and a good manager who will prepare all the family’s meals at home,’” said Shawn Fremstad, a senior fellow at the Center for Economic Policy Research in Washington, D.C.

The Supplemental Poverty Measure, developed by the Office of Management and Budget during Barack Obama’s presidency and used since 2011, considers income including noncash benefits like food stamps and the earned income tax credit and expenses like child care costs to try to create a better picture of a household’s finances. The measure includes regional cost adjustments since housing and other expenses vary.

A few adjustments to that measure are expected in September, including the value of some in-kind benefits and replacing the cost of a telephone with the cost of internet, among other changes, according to The American Action Forum’s Tara O’Neill Hayes.

Many policy wonks and academics are talking about how best to measure poverty. Last week, Brookings Institution and the American Enterprise Institute teamed up for an online discussion of how measures could or should be refined, based partly on a report from an integrated working group issued in January.

The working group — 25 people from 11 agencies including the Census Bureau and the Bureau of Labor Statistics, meeting 46 times for at least two hours each time— suggested the federal government create a poverty measure that blends administrative and survey data with a consumption poverty measure. The new measures would be added to the existing poverty measures, not replace them.

Agree to disagree

The guidelines are important for determining eligibility for a number of programs and services, which sometimes identify income eligibility as a percentage: up to 125% of poverty or 400% of poverty. Programs that use a poverty line vary, but include block grant funding, Head-Start, Supplemental Nutrition Assistance Program (food stamps), home weatherization services, Job Corps, Temporary Assistance for Needy Families and others.

Not all of the services that use the guidelines are governmental. Utility companies, for instance, may provide help to low-income households and use federal poverty guideline to determine if someone qualifies.

“Conservatives typically argue that the official poverty line is too high because it over- adjusted for inflation, particularly in earlier decades,” said Fremstad. He noted that the argument was made in a report produced by the Trump administration’s Council of Economic Advisors, which he said “implied that the poverty line for a family of four today should be about $17,000.

“Less partisan conservatives will acknowledge that the poverty line needs to be reset to reflect modern economy/society and that this should be done in a transparent fashion,” according to Fremstad. Meanwhile, progressives and many others, he added, “think the poverty line needs to be higher because it needs to reflect a modest, basic basket of goods and services, and that the public’s understanding of what it takes to have a modest, basic standard of living is different than it was in, say, the early 1960s.”

The U.S. government’s poverty line is much lower than what the public generally considers poor; it’s also lower than poverty lines used by Canada, the U.K. and other wealthy countries, Fremstad said.

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One criticism of only adjusting the original poverty measure for inflation is that some things now cost more even after accounting for inflation — like housing — and because the idea of what’s necessary or basic for families has changed today, as well. Internet, for example, proved to be a necessity when schools went online during the pandemic. And mothers working outside the home — some families have no choice — moved supports like child care and after-school programs into a basic-needs column, too, experts told the Deseret News.

Using administrative data that links official information on what people receive in benefits would help with what technical working group co-chairman Bruce D. Meyer, a University of Chicago professor who’s a visiting scholar at the American Enterprise Institute, called a persistent problem with under-reporting of income.

He said formation of the working group was driven partly by concern about misreporting of income, most often under-reports of income. The group said the real administrative data instead of self-reported survey numbers could weed out inaccuracies. The working group reported that the Current Population Survey misses half of Temporary Aid to Needy Families benefits, 42% of the benefits from the Supplemental Nutrition Assistance Program and one-third of unemployment insurance payments, Meyer said.

The working group verified the patterns of underreporting by linking individual survey records to individual payment records, Meyer said in the online discussion. “And it’s not just social insurance and welfare benefits that are under-reported. It is also earnings in pension income, interest, dividends, capital gains and other sources.”

He noted that while folks might say poor people don’t have capital gains, that’s the point. “If you don’t include a key source of income, people who aren’t poor can look poor. And the problem is getting worse.” 

Neither of those recommendations would solve the question of what to do with health insurance benefits or their lack, said Gary Burtless, a senior fellow with Brookings’ Future of the Middle Class initiative, during the online panel. The working group recommended the Census Bureau come up with both an income-based resource measure that includes the value of health insurance and another that excludes it.

Oren Cass, executive director of American Compass, a conservative think tank, said that just adjusting a poverty measure for inflation does little to bring calculations up to date. “Inflation does not measure affordability. Key assumptions built into inflation indexes for the purpose of measuring the underlying, economy-wide upward pressure on prices are different from, and often counter to, the key assumptions necessary for assessing the economic choices and constraints faced by households,” he wrote in a report for the Manhattan Institute, “The Cost-of-Thriving Index: Reevaluating the Prosperity of the American Family.”

He’s created a measurement he calls the “Cost-of-Thriving” Index.

“The point isn’t to validate some specific policy agenda, but to introduce a new set of facts that should help inform the starting point for our debates. How to get higher wages? How to get lower costs? Let’s at least acknowledge these are pressing and long-worsening problems,” he said in a Twitter thread.

Measuring safety net success

Figuring out whether programs designed to help disadvantaged people actually do help is important, according to Winship.

“Of these, the most important deficiency is that the current measure doesn’t let us evaluate the effectiveness of our antipoverty programs. Take the child allowance debate. Since the official poverty measure doesn’t consider taxes or tax credits, the most generous child tax credit that could be designed would have no impact on reducing ‘poverty.’ All the estimates of their poverty-reducing effects rely on the Supplemental Poverty Measure,” which Winship said has its own flaws.

Winship said deciding where to draw the poverty line is arbitrary, “so we don’t care so much about where the lines are drawn, but we have to be able to redraw them consistently back in time, so that we can see the progress that has been made in reducing poverty. We don’t want new poverty lines that don’t allow us to compare hardship today to hardship in the past. “

Were he designing a poverty measure, it would account for all the noncash benefits and taxes included in the Supplemental Poverty Measure, he said. And it would include health insurance benefits as income, which that supplemental measure ignores. Updating poverty thresholds to reflect inflation requires a better measure than those in use and “should incorporate administrative data on earnings, safety net benefits and other income sources to correct for underreporting in our surveys.”

If administrative data is used, Marianne Bitler, of the University of California at Davis, said it’s crucial states all participate and provide their data. “This idea that states get to decide whether a federally funded program’s data is shared is something we need some political movement on — and not just us thinking that it’s important,” she said.