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Creating a more accurate poverty measure

Feb 25, 2015

The child poverty rate is a critical indicator of our nation’s economic and social health. Child poverty costs the U.S. some $500 billion annually in health and crime costs, as well as in lost productivity and wages.

The Supplemental Poverty Measure considers food assistance programs like food stamps.
Credit FLICKR USER ACONAWAY1 / FLICKR

However, a new report called Measuring Access to Opportunity from the Annie E. Casey Foundation questions the accuracy of the official poverty measure – a measure the nation has been using for the past half-century.

According to the foundation's Laura Speer, the official poverty measure was established back in the mid-1960s. She said it’s grounded in the idea that a 1960s family dedicated about a third of its budget to food. That number has since been adjusted for inflation and multiplied by three. But Speer pointed out that today’s average family budget only allots around 10% to food.

“So we have this poverty threshold, or this dollar amount, where families are considered above or below poverty – about $24,000 a year – and it’s the same if you’re in New York City as if you’re in Tuscaloosa, Alabama,” Speer said. “Same exact poverty threshold, which is a problem because we know cost of living varies a lot across the country.”

Another gap in the nation’s poverty measure, Speer said, is that it doesn’t consider programs like food stamps, housing subsidies, or tax credits.

“So it’s definitely got some problems and we think that there’s a better tool out there to really look at the needs of families and the impact of our investments in the safety net program,” Speer said.

She went on to say the disparity occurs because in only looking at income, the poverty measure shows no “real improvements” since 1990. When government programs like the Earned Income Tax Credit and the Child Tax Credit are considered, however, the results change.

“People don’t really think of them as safety net programs, but in reality those refundable tax credits are lifting more children out of poverty than any one program that the federal government sponsors – it’s actually lifting about 5 million children above the poverty line,” she said.

When these government programs are factored into the poverty measure, child poverty rate decreases from around 33% to around 18%.

In Michigan about 30% of children live below the poverty line. When government programs are included in the picture, however, that number decreases to 15%. Child tax credits, food stamps, and other similar programs have raised around 340,000 Michigan children out of poverty.

“So what’s important about this is that we need to recognize the fact that these programs work, that they actually are making a difference and kind of helping these families keep their heads above water,” Speer said. “It still is a basic subsistence and we know that we need to do more, especially for children, if we want them to be successful as adults. But it’s important to recognize that these safety net programs are critical, that we need to support them and maintain them and that they have an impact.”

The Annie E. Casey Foundation hopes to replace the official poverty measure with the Supplemental Poverty Measure, created by the U.S. Census Bureau. This measure is a “research measure” and is not being used nationwide.

However, according to Speer, it more accurately encompasses the modern family’s budget. It considers child care expenses, housing and food, is adjusted for the nation's differences in cost of living, and includes assistance from government programs.

“We think it’s a much better way to track progress over time,” she said.

Read our story from 2012 for another look at the nation's way of measuring poverty.

-- Lindsey Scullen, Michigan Radio Newsroom