The White House announced yesterday that for the first time in over 40 years, the commerce department is adopting a new formula for measuring poverty. Called the “supplemental measure of poverty,” it will not replace the current official measure of poverty. However, it will factor in expenses such as the local cost of housing, clothing, transportation, health care, and taxes, as well as benefits including food stamps and tax credits when determining the minimum subsistence income.
You may be surprised to learn that the official measure of poverty does not take into account these expenses and these benefits when setting the federal poverty line. Instead, the formula is based solely on the cost of food. It was established in the early 1960s on the premise that every family spends approximately one-third of their income on food. Thus, to calculate the minimum amount of money that an individual or a family would need to subsist upon, the formula multiplies a low estimate of the cost of food for a day times 3, times 365.
Here’s how it works: the current poverty estimate for Jefferson County calculates the minimum cost of food for an individual for one day as only $9.40. So, by this estimation,
$9.40 x 3 x 365 = $10, 296: the federal poverty line for an individual living in Birmingham.
Federal and state governments have long recognized that this measurement is much to low for the average person to live on, and thus grant federal aid to individuals and families living on up to 200% of a so-called poverty income.
The new “supplemental” measure of poverty recognizes that food is no longer the largest expense for a family or individual (comprising only about one-seventh of low-income families’ expenses), and that the arbitrary calculus no longer tells us anything remotely useful about the cost of living with basic necessities. This measure will be applied to the 2010 census data to give us a more accurate picture of true poverty in the United States.
By the way: under the old measurement, 1 in 4 children and seniors in Alabama are living below the poverty line. An AP article asserts that the new measurement nearly doubles the number of seniors considered to be living below the poverty line. If that holds true for Alabama, then nearly half of our senior citizens may be living in poverty. Can we live with that measurement?
Posted by Robyn Hyden
While I definitely agree that the current poverty line “doesn’t tell us much about the cost of living with basic necessities,” we need to be careful before concluding that the new supplemental poverty measure proposed by the Administration would fix that problem, or even produce a poverty threshold or rate in Alabama that is higher than the current one.
The fact is that we can’t say precisely how the new measure will turn out. Based on the most recently available Census estimates (from October 2009), the reference poverty threshold for a measure similar to the one the Administration is now proposing would have been somewhere between $23,500 and $27,744 (for a family of four in 2007). So likely higher than the $21,027 official threshold that year, but still some roughly $20,000 or more below the average nationwide amount that family budget standards suggest is needed to make ends meet at a basic level (as well as the minimum amount that most Americans say in surveys is needed to make ends meet at a basic level). Because Census has proposed some changes to the measure used to make these estimates, the final numbers may change somewhat from these estimates, but most observers who have been following this issue would agree that we won’t end up with thresholds that are substantially higher than the high end of the current estimates.
Also while the thresholds under an NAS approach will likely be higher by at least a few thousand dollars, the approach would also count benefits like the EITC and food stamps that aren’t currently counted, so one could argue that the higher threshold needs to be discounted a bit for comparison purposes, especially with groups like single parents who may receive several thousand dollars a year in those benefits. While the new approach would subtract amounts parents spend on child care, it wouldn’t make any adjustment for parents who need quality child care, but can’t actually afford it; the same is likely to be the case for health care, although Census suggests it’s open to looking at an adjustment for people who are uninsured and simply can’t afford to get the care they need.
Finally, there’s an specific important issue for Alabama. The figures for the poverty thresholds above are national ones made before applying certain geographic cost adjustments Census is proposing. If made, these adjustments will almost certainly lower Alabama’s poverty threshold below the national reference threshold, and could lower it below the current federal poverty threshold. According to a recent estimate by the Center on Law and Social Policy, Alabama’s poverty threshold and rate would actually fall under this new approach once the adjustment is applied. The state’s poverty rate, for example, would fall from 15.2% to 12.5%, and Alabama would have a poverty rate lower than the national average.
This simply doesn’t jibe with other data we have about the extent of deprivation in Alabama compared to the rest of the nation. Alabama’s food insecurity rates, for example, are higher than the national average not lower. It’s important to stress that these estimates will likely change, but we simply can’t say right now, at least based on the information we have so far, that the measure will provide a more realistic measure of poverty in Alabama, even when compared to the current very flawed measure.
A related issue of concern is that the Administration is not currently proposing to provide a real measure of what it takes to “make ends meet” at a basic level. Such a statistic, which would be about twice the current poverty line or more, is vital to provide essential context for the new supplemental poverty measure being proposed by the Administration.
Shawn Fremstad
Inclusive and Sustainable Economy Initiative
Center on Economic and Policy Research
Washington, DC
A single person cannot live a decent life in Huntsville, AL, unless he/she makes a minimum of $25,000/yr. It is impossible to live on less than that without some sort of help. After all, that person is actually going to reap only about $20,000 (or less) after taxes. Figure it out by each expenditure. What the country does is just as stupid as saying this new company is coming into tow and the average wage is $50,000. Yipppeeee! Ha! A few of the 300 new employees will be making that much and more and the rest will be close to minimum wage! I’ve seen it happen here. Baloney to that kind of publicity! Lies! Lies! Lies!
Please don’t publish my email address.
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