FACT SHEET
Measuring Poverty in the United States
Sarah Fass April 2009
This fact sheet discusses how the U.S. government measures poverty, why the current measure is inadequate, and what alternative ways exist to measure economic hardship.
How does the U.S. measure poverty?
The U.S. government measures used to determine eligibility for poverty by a narrow income stan- public programs. A similar but dard that does not include other more complex measure is used for aspects of economic status, such calculating poverty rates. as material hardship (for example, living in substandard housing) or The current poverty measure was debt, nor does it consider financial established in the 1960s and is assets (including savings or prop- now widely acknowledged to be erty). The official poverty measure flawed.2 It was based on research is a specific dollar amount that indicating that families spent varies by family size but is the about one-third of their incomes same across the continental U.S. on food – the official poverty level According to the guidelines, the was set by multiplying food costs poverty level in 2009 is $22,050 by three. Since then, the figures a year for a family of four and have been updated annually for $18,310 for a family of three (see inflation but have otherwise re- table).1 The poverty guidelines are mained unchanged.
Federal poverty guidelines, 2009
Persons in family or household 48 contiguous Alaska Hawaii states and D.C. 1 $10,830 $13,530 $12,460 2 $14,570 $18,210 $16,760 3 $18,310 $22,890 $21,060 4 $22,050 $27,570 $25,360 5 $25,790 $32,250 $29,660 6 $29,530 $36,930 $33,960
215 W. 125th Street, 3rd Floor 7 $33,270 $41,610 $38,260 New York, NY 10027-4426 8 $37,010 $46,290 $42,560 Ph. 646-284-9600 For each additional person add: $3,740 $4,680 $4,300 www.nccp.org Why is the current poverty measure inadequate?
The current poverty measure is More accurate estimates of typical in-kind government benefits that flawed in two ways. family expenses, and adjustments assist low-income families – food for local costs, would produce stamps, Medicaid, and housing 1) The current poverty level substantially higher dollar and child care assistance – are not – that is, the specific dollar amounts. taken into account. This means amount – is based on outdated that official poverty statistics can- assumptions about family 2) The method used to deter- not be used to analyze the effec- expenditures. mine whether a family is poor tiveness of these programs. Food now comprises only one- does not accurately count seventh of an average family’s family resources. expenses, while the costs of hous- When determining if a family is ing, child care, health care, and poor, income sources counted transportation have grown dis- include earnings, interest, divi- proportionately. Thus, the poverty dends, Social Security, and cash level does not reflect the true cost assistance. But income is counted of supporting a family. In addi- before subtracting payroll, in- tion, the current poverty measure come, and other taxes, overstat- is a national standard that does ing income for some families. not adjust for the substantial On the other hand, the federal variation in the cost of living from Earned Income Tax Credit isn’t state to state and between urban counted either, underestimating and rural areas. income for other families. Also,
Are there alternative ways to measure poverty?
Considerable research has been ▶ Adjust thresholds by region to If the NAS recommendations conducted on better methods to account for variation in the cost were adopted, millions more measure income poverty. In the of living. people would be considered early 1990s, Congress asked the ▶ When counting families’ officially poor. But even these rec- National Academy of Sciences resources to determine whether ommendations underestimate the (NAS) to investigate alterna- they fall below the poverty line: cost of family expenses and thus tive measures. The NAS panel of produce poverty thresholds well experts issued a report in 1995 – use families’ post-tax income; below what it takes to make ends that recommended revising the – include earned income tax meet, for example, increasing the poverty level and the method of credits and the value of poverty level for a family of four determining which families are near-cash benefits (such as by only about $3,000 annually.4 poor.3 The panel’s recommenda- food stamps and housing tions included the following: assistance); and ▶ Create new poverty thresholds – subtract the cost of work- that more accurately reflect related expenses (such as the cost of food, clothing, and child care and transportation) shelter. and medical care. Measuring Poverty in the United States
How much does it really take to make ends meet?
Given that the federal poverty level grossly understates how Basic needs budgets for a family of four, in selected urban, much it takes to support a fam- suburban, and rural localities* ily, researchers have developed Urban Urban Suburban Rural budgets that realistically quantify New York, Houston, Aurora, Decatur basic living costs in specific locali- NY TX IL County, IA 5 ties. Building on earlier efforts, Rent and utilities $15,816 $10,224 $11,328 $6,324 NCCP has developed Basic Needs Food $7,878 $7,878 $7,878 $7,878 Budgets that include only the Child care $20,684 $15,422 $18,793 $11,682 most basic daily living expenses Health insurance premiums $2,609 $2,834 $2,265 $2,436 and are based on modest assump- Out-of-pocket medical $732 $732 $732 $732 tions about costs. For example, the budgets in the table at right Transportation $1,824 $4,808 $4,808 $6,288 assume that family members have Other necessities $6,397 $4,887 $5,185 $3,834 employer-sponsored health cov- Payroll taxes $5,113 $3,873 $4,437 $3,270 erage, even though the majority Income taxes (includes credits) $5,787 -$34 $2,572 $304 of low-wage workers do not have TOTAL $66,840 $50,624 $57,998 $42,748 6 employer coverage. NCCP’s Basic Percent of federal poverty level 315% 239% 274% 202% Needs Budgets do not include *Assumes two-parent family with one preschool-aged and one school-aged child. money to purchase life or dis- Source: NCCP’s Basic Needs Budget Calculator (available online at www.nccp.org/tools/budget). ability insurance or to create a Results are based on the following assumptions: children are in center-based care settings while their parents work (the older child is in after-school care); family members have access to employer-based rainy-day fund that would help health insurance; in New York family relies on public transportation, in all other locations, costs reflect a family withstand a job loss or private transportation. other financial crisis. Nor do they allow for investments in a fam- ily’s future financial success, such In short, even if the official as savings to buy a home or for a Basic Needs Budget Calculator poverty measure is revised along child’s education. In short, these the lines suggested by the NAS, NCCP’s Basic Needs Budget Calculator budgets indicate what it takes for it would remain a measure of provides access to budgets for nearly a family to cover their most basic 100 localities across 14 states, with deprivation and severe hardship. living expenses – enough to get more states coming soon. Users select the In contrast, Basic Needs Budgets by but not enough to get ahead. number of parents and number and ages provide a way to think about what of the family’s children. Budgets assume families need to maintain a mini- that all families include at least one full- Across the country, families typi- time worker; for two-parent families, users mally decent standard of living. cally need an income of at least make choices about the employment status of the other parent. Users may twice the official poverty level to also substitute their own numbers for meet basic needs. In high-cost cit- one or more expense estimates, and the ies such as New York, it may take Calculator adjusts the family’s tax liability an income of over three times the and overall budget totals accordingly. poverty level to make ends meet, See
1. The federal poverty guidelines are 4. Bernstein, Jared. 2007. More Poverty used for administrative purposes, such than Meets the Eye (Economic Snap- as determining financial eligibility for shots, April 11, 2007). Washington, DC: benefit programs. For statistical purposes, Economic Policy Institute. Accessed April researchers use a different – but quite 23, 2007 at
NCCP wishes to give special acknowledgement to Nancy K. Cauthen, PhD, principal author of the original iteration of this fact sheet.