The Census Bureau, in cooperation with the Bureau of Labor Statistics (BLS), developed the SPM after years of research and collaboration. The SPM is based on the 2010 recommendations of an Interagency Technical Working Group, which included representatives from the Census Bureau, the Bureau of Labor Statistics, the U.S. Department of Commerce, the Council of Economic Advisors, the U.S. Department of Health and Human Services, and the Office of Management and Budget. The Working Group’s suggestions drew on the recommendations of a 1995 National Academy of Sciences report and the extensive research on poverty measurement conducted over the past 15 years.
The SPM makes changes to how income is measured. Compared to the official measure, where only gross before-tax income is included, the SPM:
- Counts the value of federal in-kind benefits that are available to satisfy basic food, clothing, shelter, and utility (FCSU) needs, including nutritional assistance from the Supplemental Nutrition Assistance Program (SNAP) and school meals.
- Subtracts income and payroll taxes paid and adds refundable tax credits received.
- Subtracts from income other necessary expenses such as the cost of child care, other work expenses, child support payments, and out-of-pocket medical expenditures.
The SPM makes changes to the poverty thresholds. Compared to the official poverty threshold, which is set at three times the cost of the minimum food diet in 1963 and updated annually for inflation using the Consumer Price Index (all items), the SPM poverty threshold incorporates the following changes:
- The SPM poverty threshold is the 33rd percentile of out-of-pocket FCSU expenditures of consumer units with two children multiplied by 1.2.
- The SPM threshold varies based on the shelter and utility expenses of three groups: home owners with mortgages, home owners without mortgages, and renters.
- The SPM threshold is adjusted for geographic differences in housing costs to account for regional cost of living differences.
- The SPM uses the five-year moving average of FCSU expenditures to account for inflation. Five years are data have the effect of “smoothing” the effects of the business cycle.