It has always been hard to measure poverty, because poverty is as much a state of mind as a condition of material well-being. Still, we seem to have made a bad situation worse.
Consider the Census Bureau’s latest estimates. In 2018, the official poverty rate was 11.8%, down from 12.3% in 2017 and the lowest rate since 2001. This translates into 38.1 million Americans living under the poverty threshold of $20,212 for a three-person household. But a second set of numbers, called the Supplemental Poverty Measure, or SPM, shows no improvement at 13.1%, compared with 13% in 2017.
To confuse matters further, a strong case can be made that a more realistic estimate is much lower than both — somewhere in the range of 7% to 9%.
The history of the present poverty line dates to mid-1960s, when Mollie Orshansky, an analyst for the Social Security Administration, devised the original guidelines. They were set as three times the Department of Agriculture’s “economy food plan.” If people had income — mostly from work, Social Security or unemployment insurance — above this amount, they were not considered poor. People below the line were poor.
At the time, Orshansky’s approach seemed a pragmatic breakthrough: Measure people’s incomes and then compare them with a common-sense threshold for poverty. But over the years, this approach became increasingly outdated. The main reason was the advent and expansion of non-cash government benefits, such as food stamps and school lunches. Excluding these benefits overstated poverty.
To rectify that defect, an interagency task force ordered the creation and design of the SPM, while also separately retaining Orshansky’s basic framework as the “official” poverty rate. There were now two sets of poverty numbers, because the earlier version was still used to allocate federal funds to states. The SPM’s role was simply to provide a more accurate picture of poverty. But does it? That’s arguable.
In some ways, the SPM departs dramatically from Orshansky’s approach. It does set a poverty threshold, based on the costs for food, clothing, shelter and utilities. But in measuring income, the SPM subtracts from income the spending that is deemed mandatory: out-of-pocket medical expenses; work expenses; child support; and federal payroll and income taxes. Put simply, the poor are assumed to have less income than they actually do.
The Census position is that because this spending is mandatory, it detracts from the purchasing power of the poor. Deciding who’s poor and who isn’t can occur only after those basic needs have been satisfied. Although this sounds plausible, it also is self-serving. It justifies a lax definition of poverty. In addition — and for reasons not entirely clear — the official SPM does not include either Medicare or Medicaid spending, which would add billions of dollars to the incomes of the poor.
The result is that the SPM increases reported poverty. The effect is sizable. In 2018, estimates Census, 13% of the population was deemed poor by the SPM. If all their income is included, only 7% would be poor. There would be 20 million fewer poor. Not subtracting just work expenses and medical expenses from income would reduce the total to 9%, almost 14 million fewer poor.
As a practical matter, we have three sets of poverty figures: the original Orshansky estimate as updated; the official SPM as reported by Census; and the unofficial, modified SPM that counts all the poor’s income. It’s hard to avoid the conclusion that the SPM was constructed to maximize the presence of poverty.