Who is poor in America? Beginning in the late 1960s, the federal government has tried to answer that question with an annual poverty count. Politicians and pundits alike await the government’s numbers, now published each September. The shape of the September numbers and the interpretive stories accompanying their release frequently affect the election debate in November.
Although most people recognize that poverty measurement is subjective and not entirely scientific, ever since Lyndon Johnson’s “War on Poverty,” the United States has tried to put a quantitative gauge on economic deprivation. The government’s poverty line is used to determine eligibility in many means-tested assistance programs such as Medicaid, food stamps and cash welfare. The poverty counts are used to measure the economic well-being of at-risk groups of families and individuals and the effectiveness of government anti-poverty programs. Increasingly, poverty income thresholds are being used in proposals to set minimum wages or living wage mandates.
Social Activists Say the Poverty Line Should Be Raised
Many in the policy community recognize that the current poverty measure has flaws. For example, it does not reflect in family income in-kind government subsidies, or consider geographic difference in the cost of living. However, there is no consensus as to whether the measure needs radical surgery or merely a band-aid.
The problem with expert approaches is that people may not recognize the elements of judgment involved and may prefer the experts’ budgets because they appear more objective.—Citro and Michael, Measuring Poverty: A New Approach, 108
Social activists have recently begun to exploit this lack of consensus by arguing that the current measure greatly understates the extent of poverty and hardship in America. These groups, including the union-funded Economic Policy Institute, the Ms. Foundation for Women and Wider Opportunities for Women, have developed so-called basic needs budgets for different family types and localities. The budget numbers in these studies typically range from 150 to 300 percent of the official government poverty line. For example, the Economic Policy Institute’s median basic needs budget for a two-parent, two-child working family in 1999 was $33,511, or roughly twice the government’s poverty threshold for such a family.
The activists who conduct and promote these studies have also organized a campaign to discredit the official poverty statistics. Some argue that their methodology should replace the official government approach to measuring poverty. The activists also use their higher thresholds to support proposals for an $8.00 national minimum wage or $13.00 or higher local government living wage mandates.
In view of the wide disparity between the activists’ estimates of poverty and hardship and the official government numbers, the American public has a right to know which perspective on the poverty issue has more validity.
The Activists Rely on an Arbitrary, Discredited Budget Methodology
In 1995, in response to a request from Congress, the National Academy of Sciences (NAS) published a report on poverty measurement in the United States. After assessing various possible approaches, including needs budget methodology, the NAS Panel recommended setting a poverty threshold at 78 to 83 percent of median spending on food, clothing and shelter plus an additional 15 to 25 percent for other items.
The Panel expressly rejected the methodology of needs budgets as excessively arbitrary, relativistic and political, and having a misleading appearance of objectivity. According to the Panel, expert budgets were not really “expert” at all, but in the final analysis looked to actual spending of the population at rather high levels of income or spending. For example, many of them used Department of Housing and Urban Development (HUD) Fair Market Rents (FMRs) to assess the needs budget. The HUD FMRs are set at the 40th percentile of the distribution of rents in decent, safe and sanitary rental units. The use of FMRs in needs budgets arbitrarily rejects 40 percent of acceptable quality housing as “beneath” the poverty population.
Other items in needs budgets are similarly overpriced. In fact, the threshold range recommended by the NAS Panel was below the thresholds used in four of the six budget studies reviewed, demonstrating that the budget studies were not only arbitrary, but their thresholds were biased upward as well.
Furthermore, defining poverty thresholds at a roughly fixed percentile of actual spending guarantees that poverty will not fall by much even when the incomes of the poor increase in absolute and relative terms. For example, if poverty status is defined as all families below the 20th percentile of spending, this guarantees that 20 percent of all families will always appear to be in poverty.
In the hands of the activists, the concept of needs budgets has been elevated to a new art form intended not to measure poverty in America, but to exaggerate its presence. The activists’ basic needs budgets are not compiled by true experts in the physiology of basic needs. Rather, they are intended to build political support for increases in government regulation and permanent income support programs for families who are above the poverty line.
The Activists’ Poverty Estimates Should Be Rejected as Wildly Off Base
The activists’ estimates of families in hardship or poverty should be rejected as a transparent attempt to build political support for an agenda that includes higher minimum wages, living wage ordinances, higher taxes and mandated employee benefits. The Census Bureau currently publishes a wide variety of statistics on the poverty population, including its “experimental” poverty measurements that incorporate many of the NAS Panel’s recommendations.
In contrast to the activists’ budget studies, the Census program is important, and serious research that should be continued and extended. For example, the Census Bureau’s experimental poverty estimates show that if all the NAS recommendations had been adopted (at the mid-point of its threshold recommendations), the poverty rate from 1997 to 1999 would have averaged 14.8 percent compared with an average official poverty rate of 12.6 percent. While this may seem like a large discrepancy to some (about 17 percent), it certainly does not approach the 187 percent increase over the official rate the Economic Policy Institute claims based on its basic needs budget.
The Census’ “experimental” estimates also show that for two important population subgroups, children and persons in female-headed households, the official poverty estimates are very close to the estimates based on NAS methodology. For 1997-1999, the official child poverty estimate averaged 18.6 percent compared with an average of 19.3 under the NAS methodology. For the same period, poverty in female-headed households officially averaged 29.6 percent compared with 30.1 percent under NAS methods. This establishes that the official methods are certainly acceptable for two groups of women and children frequently the focus of policy concerns, particularly in light of welfare reform.
