Atelier 15, article 7


© Barbara R. Bergmann :
(from Dollars & Sense, March/April 2001)
 

                                 Deciding Whoís Poor 

                                                            by Barbara R. Bergmann 

                   For decades, now, right-wing think tanks 
                   have urged a reform of the official method of defining poverty
                   and counting the poor. They have quite rightly complained that,
                   in deciding whether a family should be considered poor or not,
                   the Census Bureau pays no attention at all to valuable
                   government benefits the family may receive. These include the
                   Earned Income Tax Credit, food stamps, housing aid, and
                   Medicaid, whose total worth can run to thousands of dollars a
                  year. Right-wing commentators have gone on to assert what
                   seemed to them an obvious corollary ó that if those benefits
                   were properly counted, we would find that there was a lot less
                   poverty in America than the official statistics had led us to
                   believe. 

                   As we all know, you should be careful what you ask for, because your
                   request might be granted. The Census Bureau is moving (perhaps) toward a
                   method of deciding who is poor that would take account of all those
                   previously ignored benefits. But surprise, surprise ó its preliminary estimate
                   is that if it did so properly, the poverty rate would go up, not down. 

                   How can that be? To understand that, we have to look at the bad old (but
                   still used) way of counting the poor, and contrast it with some of the new
                   ways that have been proposed. When we do, we see that these revised
                   figures have deep implications for policy and for where the government
                   should spend its money if it truly wants to fight poverty, particularly among
                   women and children.

               The Flawed Way We Decide Whoís Poor

                   Official U.S. poverty lines were set up in the early 1960s based on how much
                   the U.S. Department of Agriculture calculated it would cost to feed an
                   adequate diet to a family of four (working father, housewife mother and two
                   children). The poverty line was set by multiplying the cost of this "economy"
                   food plan by three, since low-income families were thought to spend about a
                   third of their income on food. The only change in the poverty line through time
                   has come from adjustments for inflation. In classing a family as above or
                   below the designated poverty line, the Census Bureau considers only the
                   familyís before-tax cash income. 

                   There is a lot to complain about in that methodology, besides its neglect of
                   important government benefits. The food plan on which it is based was
                   intended only for temporary or emergency use. A USDA survey found that
                   90% of the families spending the amount allowed under the food plan were
                   not obtaining a nutritionally adequate diet. The average family of four living
                   close to the poverty line devotes only 18% of its expenditures to food. It
                   makes no sense to triple that inadequate food budget to come up with the
                   total a family must spend to meet all their needs, including housing and
                   clothing. 

                   There is a further important objection. The official method does not set
                   minimum standards for any element of the budget other than food, to which a
                   seemingly "natural" nutritional standard can be applied. But food is not the
                   only budget item that merits serious concern; housing, medical care, child
                   care, transportation also qualify. A valid "poverty line" needs to include
                   appropriate provision for these. Taxes ó particularly Social Security payroll
                   taxes ó affect a familyís ability to consume, but are ignored in the official
                   method. 

                   The only family characteristics that the official food-times-three methodology
                   takes into account are the number of family members and their ages, which
                   are used to set the food budget on which the poverty line is based. But other
                   family characteristics and location also matter. The price of housing, for
                   example, varies considerably by area of the country. Child care and
                   transportation needs, which are large items, depend on parentsí jobholding.
                   People living in rural areas might need a car. Without listing a set of standards
                   for what families consume besides food, we canít take account of these
                   differences among families. We have no way to ensure that the poverty-line
                   budget for a particular family in a particular place is sufficient to provide a
                   standard deserving of the description "not poor." 

                   Polling-based Methods 

                   A number of Dutch economists, reviving a line of thought that originated with
                   the Harvard sociologist Lee Rainwater, suggest that the population be polled
                   about how much income they think is necessary to keep a family decently.
                   Then the poverty line should be set according to the results. Since setting
                   poverty lines and counting the poor are acts that are intended to have
                   consequences for public policy, it is certainly reasonable that public opinion
                   about such matters should be taken into account. Further, polling would get
                   rid of another troubling feature of the U.S. official method: the real standard
                   of living achievable with a poverty line income never changes, no matter how
                   the average living standard of the country advances. The polling method
                   would allow the poverty line to change through time as the publicís ideas
                   change about what constitutes a style of life for fellow citizens that the public
                   can contemplate without disquiet. 

                   When the public is polled about where to set the poverty line, the average
                   response turns out to be a dollar figure that is about half of whatever the
                   median family income is at the time of the poll (half of the populationís income
                   falls above and half below the median income). This suggests a simple way of
                   setting the poverty line each year ó compute the median income and divide
                   by two. As the median income advances over time, so will the standard of
                   living designated as the poverty line. Like the polling method, the
                   half-the-median method abandons the "absolute" view of what poverty that is
                   enshrined in the current U.S. official methodology: namely, that a family is
                   poor if it lacks a certain unchanging (although unspecific) set of commodities.
                   The half-the-median method embodies a "relativistic" view of poverty: that
                   people are to be designated poor if their income is far below the norm of the
                   society they live in. This method of defining poverty was humanely endorsed
                   by Adam Smith in The Wealth of Nations, who said, "By necessaries I
                   understand, not only the commodities which are indispensably necessary for
                   the support of life, but whatever the custom of the country renders it indecent
                   for creditable people, even of the lowest order, to be without." 

                   The half-the-median method has another virtue. It makes it easy to compare
                   poverty rates across borders, even though the real bundle of goods and
                   services that can be bought with a poverty-line income differs from country to
                   country. 

                   The polling method and the half-the-median method share important
                   weaknesses with the official U.S. method, however. They donít permit a
                   detailed check that needed items of all kinds are covered, and donít take
                   account of differences in the situation and location of families. For example,
                   some parents need money to pay for child care (which can run above
                   $15,000 for a family with two children under 6) while other parents donít.

                   The Detailed "Basic Budget" Methods 

                   To make sure a poverty-line budget provides for everything a family is
                   deemed to need, one has to do the messy work of making a long list of
                   goods and services, with fairly precise specifications as to quantity and
                   quality. It is not a cut-and-dried matter: for example, in housing standards,
                   should a family be allowed separate rooms for their male and female children
                   to sleep in? Should they be allowed a living room? In 1993, Trudy Renwick
                   and I proposed a method of designating poverty lines which we called the
                   "Basic Needs Budget" (BNB) approach based on such a long list. It set up
                   basic standards separately for food, housing, health care, transportation,
                   clothing, child care, and personal care/miscellaneous. We derived basic
                   standards for each commodity group almost entirely from U.S.
                   government-set standards, and took into account whether the parent or
                   parents were in the labor force, the ages of the children, and the place of
                   residence. We also took into account the taxes the family had to pay, and the
                   noncash benefits available to the family from government, an employer, or a
                   relative. 

                   The BNB approach took full account of the government benefits that the
                   right-wing commentators wanted to include as income, and, in addition,
                   accounted for some nongovernmental benefits, such as employer-provided
                   health insurance or child care provided by a relative. Yet it produced a
                   significantly higher poverty rate than the official method. Among single-parent
                   families, the poverty rate given by the BNB method was 47%, while the
                   official method gave 39% for that group. Most notably, the poverty rate
                   among full-time year-round workers who were single parents was 23% by
                   the BNB method, as compared with 9% by the official method. 

                   How could that happen? The difference in the poverty rate shown by the two
                   methods was due largely to how child care and health care expenditures were
                   treated. If we take the BNB budget, and subtract expenses for those two
                   categories, what remains is quite close to the official poverty line. The official
                   method, of course, is silent about what the family is expected to spend on
                   child care and health care. However, if we think back to conditions in the
                   1960s, when the official poverty lines were set up, we can see that the real
                   answer is that the government expected families to spend absolutely nothing
                   on those items. Married mothers of young children were expected to stay
                   home with their children while their husbands worked. So were unmarried
                   mothers, thanks to welfare. As a result, family spending for child care was
                   assumed to be nil. As to health care, the hospitals and the medical profession
                   had a centuries-old tradition of giving free services to the poor and
                   near-poor, a system that was largely still in place in the 1960s. 

                   In the 1990s, with many more married mothers in the labor force, and new
                   requirements that single mothers get jobs, the assumption that child care costs
                   are nil is no longer tenable. As to medical care, hospitals and physicians have
                   markedly reduced the provision of free services in recent decades, except in
                   emergencies. So in considering whether a family has enough resources to be
                   considered nonpoor, child care and health care needs canít be ignored, as
                   they were in the past. 

                   When we compare the increase in the poverty rate on account of the newly
                   recognized needs and the reduction because of the newly counted benefits,
                   the new needs turn out to be larger than the benefits. For families with
                   Medicaid benefits, the cost of the medical care they need is included in their
                   poverty-line budget, while the benefits can be thought of as added to their
                   income. So the two cancel out. But lots of low-income families who are
                   eligible for Medicaid donít get it because they donít know how to apply.
                   There is little outreach to help them apply. When you put the medical care
                   they need into their poverty-line budget, with no benefits to balance it, their
                   resources cannot pay for that budget, and those families get added to the list
                   of the poor in the BNB method. In the case of child care, only about one or
                   two in 10 of the low-income families eligible for subsidies under federal and
                   state programs actually receive them. For those lucky ones, the need and the
                   benefit cancel out. For the 80% or 90% of families that donít get that help,
                   but do need the service, the poverty line goes up, and their resources are not
                   enough to cover it. 

                   A Shift to a New Official Method? 

                   In 1995, a panel of experts appointed by the National Academy of Sciences
                   (NAS) recommended that the Census Bureau consider adopting a method
                   very close to that of the BNB approach. Now the Census Bureau has
                   responded by calculating poverty rates using this kind of an approach. Its
                   outside estimate is that under the NAS method, the poverty rate in 1998
                   would have amounted to 15.7% instead of the 12.7% that the current official
                   method gives. This represents a striking increase of 24%, almost all of it
                   concentrated in families with children under 5. 

                   Already, there are rumblings that we canít make a change that would give the
                   poverty rate that big a leap. Sheldon Danziger of the University of Michigan
                   and Gary Burtless of the Brookings Institution want to change to the new
                   method, but avoid the controversy that such a leap would arouse. They imply
                   it might be best just to ignore the fact that the new method tells us that the
                   poverty rate is worse than we thought. They say that the level is far less
                   important than the changes that occur over time. So they propose using the
                   new method just to compute future percentage changes in the poverty level.
                   The truth is, however, that a poverty standard does more than track changes
                   ó it tells us about the extent of the national problem that should be closest to
                   our consciences. If a more cogent way of measuring poverty says the
                   problem is worse than previously understood, we should respond with better
                   policies, not by introducing fudge factors into the calculation. 

                   Using the new method, it would become very clear that the surest and
                   handiest way to reduce deprivation in the U.S., without reducing work and
                   marriage incentives, would be to make sure that all low-income families are
                   provided with subsidized medical insurance, and that those with children
                   under 6 have access to subsidized child care. Hiding behind the old numbers
                   allows the dire poverty of 15.7% of America to be swept under the rug,
                   along with the consciences of those with the resources to meet all of their
                   familiesí needs. 

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