On Monday, the Census Bureau released a report on the new Research Supplemental Poverty Measure (SPM), a metric designed to address longstanding criticisms of the official federal poverty threshold. The official “poverty line” is a set pre-tax income level, established in 1969 at essentially three times what was considered necessary to afford a “minimal, but adequate” amount of food. The measure has been adjusted for family size and inflation, but has otherwise remained unchanged for more than 50 years.
What’s different about the SPM?
The SPM attempts a more holistic appraisal of family expenses. It takes the average between the 30th and 36th percentiles of spending by a family of three on food, clothing, shelter, and utilities, and adjusts this amount to reflect other necessary expenses, such as child care, federal income taxes, FICA payroll taxes, out-of-pocket medical expenses, and work-related expenses such as commuting costs, uniforms, and tools. At the same time, the SPM also accounts for resources available to low-income families through government programs, like the EITC, SNAP (food stamps), housing subsidies, school lunch programs, heating assistance, and WIC (food assistance for women, infants, and children). Finally, unlike the existing official poverty rate, the SPM does adjust for regional differences in prices and costs.
How do poverty levels under the SPM compare to those under the official poverty threshold?
According to the SPM, more than 49 million Americans—or 16 percent of the population—are living in poverty as of 2010, compared to 46.6 million—or 15.2 percent—under the official poverty line.
Moreover, the figure below highlights changes in the distribution of people by the ratio of their income to the poverty line. Note the enormous growth in the number of people with incomes 1.0 to 1.99 times the poverty threshold. This means that the number of Americans with incomes at or below 200 percent of the poverty line—a level often thought of as an adequate, but modest standard of living – rises from 34 percent under the official measure to 47.5 percent under the SPM. That’s nearly half of all Americans.
One clear reason is that the official poverty line’s method of pegging the poverty threshold to three times a minimum food bundle assumes that the growth in all expenses other than food will remain proportionate to the growth in food costs. But we know this is not true: case in point, healthcare. In fact, the SPM report shows that when you factor in individuals’ out-of-pocket medical expenses, it increases the poverty rate by 3.3 percentage points – in other words, the poverty rate would be 12.7 percent instead of 16 percent if individuals faced no medical costs. This contrast is even starker for seniors. Without accounting for out-of-pocket medical expenses, the poverty rate for seniors would be 8.6 percent; once you factor in medical costs, the poverty rate among seniors jumps to 15.9 percent! (Let this be a big warning to policymakers advocating benefit cuts to seniors, under the illusion that the current indexing of benefits has been too generous.)
There’s another interesting point to be made when you look at the effect that the additional necessary expenses (childcare, payroll taxes, etc.) and government-provided resources (EITC, SNAP, etc.) has upon the estimated poverty rate. The sum of the effects of the additional government-provided resources is to lower the SPM rate by 5.2 percentage points. However, the sum of the effects of all the additional expenses is to increase the SPM rate by 6.7 percentage points. So on net, the additional expenses that families face are overshadowing the benefits that government programs provide at a level sufficient to raise the poverty rate by 1.5 percentage points. At a time when so much of the political discourse is on reducing and eliminating federal programs, this finding at least suggests that the question should not be which programs to cut, but whether the programs we currently have to combat poverty are actually doing enough.
The Census Bureau acknowledges that the new measure is a “work in progress” and there are certainly some glaring concerns about the SPM that other researchers have dutifully pointed out. On a more fundamental level, there will always be questions around measures that define poverty in quasi-absolute terms. Simply because a family is spending on healthcare (childcare, food, shelter) at a level commensurate with the 33rd percentile of spending does not mean that they are receiving adequate healthcare. For these reasons, the SPM may be one step towards better ways of identifying poverty, but it cannot and should not be the end of the conversation.