How is Official Poverty Measured?
Official poverty is calculated by comparing families’ incomes to a specific dollar value, which is called a poverty threshold. Thresholds differ by family size, but for any particular family, values are the same for all 50 states. If a family’s yearly income falls below the poverty threshold then each person in the family is counted as poor. The official poverty measure looks only at cash income such as earnings, TANF, or Social Security payments. Only pre-tax income is counted against the poverty threshold. That is, taxes and tax credits are not considered when calculating official poverty. The 2013 official poverty threshold for a family of four, with two adults and two children, was $23,600.
Absolute dollar value thresholds, reflecting consumption at one point in time, were developed in 1963 and 1964 by Mollie Orshansky, an economist in the Social Security Administration. Two tools were necessary, the U.S. Department of Agriculture’s (USDA) food plans and costs and the 1955 Household Food Consumption Survey. USDA food plans provided the dollar amounts necessary to feed a family at a minimal level.30 Orshansky estimated the poverty thresholds by multiplying the cost of a minimal diet by three. Subsequently thresholds were adjusted for family size and composition and each year since 1964 the threshold values have been updated for inflation.31
As a widely-used barometer, the official poverty measure offers a consistent metric by which to view changes in poverty over time. The official poverty measure has been criticized over the years for not reflecting families’ current circumstances. Some families receive government benefits but these are not counted by the official measure. For example, in-kind benefits such as SNAP and WIC are not counted as income. By this logic, poverty may be overstated. Alternatively, the official measure ignores nondiscretionary expenses, such as payroll and Social Security taxes, work-related expenses and medical care costs. Such expenses reduce the amount of income that families can use for subsistence needs. Thus poverty could be understated. These and related criticisms led to the development of a research supplemental poverty measure described in detail in the next section.
Poverty status is based on family relationships and household residence. Therefore, for some groups poverty status cannot be determined. Excluded groups include foster children, and those living in college dormitories, institutional group quarters, or military barracks. The new supplemental poverty measure is inclusive of foster children and unmarried partners.
Introducing the Supplemental Poverty Measure
An alternative poverty measure emerged from decades of research by poverty scholars and government agencies called the Supplemental Poverty Measure, or SPM. Following many years of debate and discussion among experts, the National Academy of Sciences (NAS) released a report in 1995 outlining recommendations for improving the nation’s measure of poverty.32 In the 15 years following the NAS report, researchers at the Census Bureau, the Bureau of Labor Statistics, and elsewhere experimented with implementing and refining these recommendations. In 2011, the Census Bureau began formally releasing estimates of poverty levels under the SPM based on the results of this exploratory research, as well as recommendations produced under an Interagency Technical Working Group in 2010.332
The official poverty measure continues to serve as a benchmark for program eligibility and remains the official source of poverty statistics for the U.S. The SPM does not replace the official poverty measure but it is a critical tool for understanding the impact of the social safety net for those struggling to meet basic needs.
30 USDA food plans were: Liberal, Moderate, Low-cost, and Economy. The economy food plan was intended for “temporary or emergency use when funds are low.” For detail see “The Development of the Orshansky Poverty Thresholds and Their Subsequent History as the Official U.S. Poverty Measure” by Gordon M. Fisher. 1992.
31 The poverty thresholds were calculated separately for farm and non-farm families until 1980.
32 Citro, Constance F.and Robert T. Michael. (Eds.) 1995. Measuring Poverty: A New Approach. Washington, DC: National Academy Press.
33 U.S. Census Bureau. 2010. Observations from the Interagency Technical Working Group on Developing a Supplemental Poverty Measure. Available at www.census.gov/hhes/povmeas/