Time to revamp the federal poverty threshold

According to a study from the Colorado Fiscal Policy Institute (CFPI) (and reported in the Rocky Mountain News), 20% of Colorado families are struggling. Two-thirds of these families are not below the federal poverty line, but are married couples with children where one or both parents are working full time to support the family. While only 7% of families were below the poverty line, an additional 13% were below the “self-sufficiency standard” used by the CFPI.

Self-sufficiency was defined by the CFPI as a measure the cost of housing, food, health care, child care, transportation, and other factors (the actual publication isn’t yet available on line at the CFPI’s website, or I’d detail the factors more accurately). According to the Census Bureau’s description of how the official poverty thresholds are calculated, the thresholds are calculated largely using a method developed in 1963 and ’64 using Dept. of Agriculture food budgets and the estimated percentage of income spent on food.

The difference between 20% of families truly struggling vs. 7% according to the official federal tallies is perhaps the most damning evidence that the way we’ve calculated poverty in the United States is out of date. According to the Census Bureau, the threshold is flat across the country, yet anyone who has moved between California, Colorado, Connecticut, or Alabama knows that the standards of living vary radically between different regions of the country (and can vary widely within a single state). Food and transportation cost more in rural areas, housing costs less, child care costs a lot everywhere, etc.

The disparities between standards of living are so extreme that, when I was unemployed for nearly 6 months, I was still turning down offers in California simply because my wife and I couldn’t afford to live there without a raise so massive that no company in their right mind would ever pay it. And going the other direction, I know people who left California for Colorado, bought a house with cash and took a year off from work just on the profits they made from selling their house in California.

Additionally, the Census Bureau’s measure of income doesn’t include things like non-monetary income (like food stamps) or tax-related income in the form of credits and taxes paid to various government entities. Including factors like the costs of housing, transportation, child care, health care, taxes, and the income from tax credits or food stamps would create a much more accurate picture of poverty nationwide.

The Public Policy Institute of California produced a study in 2006 that compared the official poverty threshold for 2004 (the latest year for which data was available at the time) vs. a regionally adjusted measurment that included housing alone. The differences were stark: the housing cost-adjusted numbers put 16.1% of Californians below the poverty threshold, as opposed to 13.3% according to the official federal figures. This amounts to an increase of 1 million Califorinians living in poverty. The same study looked at some other regions of the country and found that only Washington D.C. and New York would have had higher rates of poverty than the state of California over the period of 2001-2004. To put this in more concrete terms, the official poverty threshold nationwide for a family of 4 in 2004 was $19,157, but the “fair market rent” for a 2 bedroom appartment in San Francisco was over $21,000 per year. (Link to the complete study)

Given that the study for California included only the additional factor of housing, the disparity including transportation, child care, etc. would probably be significantly higher. After all, anyone who has road-tripped from outside of California can tell you that the cost of gasoline in California is usually much higher than it is nearly anywhere else in the country.

So, if the official poverty threshold is so obviously inaccurate, why hasn’t the federal government updated it since 1963? To be fair, the government has updated it some. The poverty threshold originally wasn’t indexed for inflation, an error that was corrected in 1969. Minor changes (like eliminating gender as a category) have been implemented since, but that was really the last major change to the calculation. The problem is that updating the official poverty threshold to include more people isn’t politically popular for a variety of reasons. Moving people off the rolls of welfare (an idea that most people agree with, so long as they’re moved into jobs instead of off the radar) has become such a huge issue that defining more people as poor could be political suicide for any politician who dared to suggest it.

But I think it’s more than that. The poverty threshold determines how many people get access to federal money – money like Medicaid funds. Medicaid is currently about 1.5% of the entire federal budget, but without any changes to the eligibility threshold, it’s projected by the Congressional Budget Office to grow to 5.3 percent of the federal budget by 2075. Imagine how fast Medicaid would grow if you increased the number of people who qualified by making the definition of poverty more inclusive instead of less.

There’s another factor I think is in play here. According to the PPIC study, the largest single factor contributing to the adjusted poverty threshold in California is the disparity in income growth between the highest and lowest income levels. Because California’s income disparity grew faster than the national average, the income growth drove up California property values faster and thus the very factor used to calculate the adjusted poverty rate. Growth in income disparity between the wealthiest and the poorest members of society is an issue that the Republican-dominated presidencies since the 1970s have conveniently ignored or, more recently, actively and (IMO) intentionally accelerated. Income disparity has been a significant issue with the Bush Administration, and so there was no way that the wealthy Republicans in power for the last six years would have given their critics more leverage to harp on a ostensibly Democratic issue – poverty.

And finally, if you read the study closely (and go through Ms. Reed’s presentation on the subject), you find that only New York and Washington D.C. had higher poverty levels than the state of California under the more inclusive number calculated in the study. In fact, the 3-year average of housing-cost adjusted poverty has the following:

  • Washington D.C.: 21.0%
  • New York: 16.3%
  • California: 15.7%
  • Texas: 15.0%
  • Louisiana: 14.5%

Notice anything interesting about the states? Of the four states with the highest poverty level, two of them almost always vote Democratic, and combined they carry 86 electoral votes vs. the other two (Texas and Louisiana) carrying 43 electoral votes. Essentially, updating the federal poverty thresholds to include housing costs (and maybe other costs as well) would send more money to the most populous, highly urbanized states, which tend to be Democratic states, and the Republicans don’t want to give the Democrats any more money than they have to. The cynic in me can’t help but wonder if part of the push to move people off the welfare rolls is also a political drive to strip money away from traditionally Democratic districts as much as it is to drive down welfare spending.

Politics isn’t fair, and playing politics with the poor is nothing new – both major parties can be, and regularly are, fairly accused of instigating class warfare. But, as with so many issues these days, some issues should be beyond politics. Addressing poverty is one of those issues. It’s impossible to truly address the problem of poverty with public and/or private resources without first having good data, and it’s quite obvious that the current method of calculating poverty is unable to provide accurate data. For that reason it is time to revamp how the federal government calculates the poverty line.

Unfortunately, changing how poverty is calculated is unlikely over the next two years. The expanded threshold would benefit Democrats both practically (by directing more federal money into generally Democratic districts) and politically, and so it will almost certainly draw a veto from President Bush. The Democrats don’t have enough seats and Republican allies on this issue to override a veto. However, guaranteed failure doesn’t mean we shouldn’t pressure Congress to raise this issue – the attention a veto would garner could only be good for the country by way of educating people about this problem.

Crossposted: The Daedalnexus and The 5th Estate

4 replies »

  1. This is a great analysis, and I’m glad you had the patience to slog through it all. As I read, I realized that something has happened to me along the way – I look at these lines, like the poverty line, and then I see a term like “struggling,” and them I look at my life and the lives of a lot of people I know. There are MILLIONS of people who are, by any reasonable definition, struggling, and who are nowhere near any kind of official poverty line. In fact, on paper we probably get filed as “middle class.”

    I have no idea how people do it. How a family with children exists in Colorado on less than $50K years is a mystery. All of which adds up to me sort of automatically disregarding any and all official reports on the subject, I guess. The numbers seem to bear no meaningful relationship to the world as I know it. So either the system is absolutely rigged to lie or I’m beyond clueless.

    Sound like “despair”?

  2. Excellent summary, Brian. When I worked for the Census Bureau in the late seventies, it was already understood that the sixties methodology should be revamped. Studies were underway when Reagan’s election closed the window, and ever since (except, arguably, ’92-’94) we’ve had either the White House or the Capitol controlled by people who want to minimize the pervasiveness of poverty by distorting the statistics in various ways. The most egregious factor, as you point out, is treating every location as equivalent, whatever the local cost of living. Another is that residents of group quarters

  3. The only way I can see how a family with children could make it work on under $50k/year is if one of the parents stays home and health care is self-rationed. Child care is insane, especially for infants, and the economic value of a stay-at-home-parent is so high in comparison that staying home is the only economically viable solution. And even assuming that a family making $50k/year has company-provided health care, they could only afford the high-deductible plans, which means going to the doctor only when it’s a broken bone or appears to be a life-threatening emergency.

  4. Wonderful analysis, Brian – I echo Sam and Robert in thanking you for wading through these stats and giving us such a lucid analysis.

    Since I live in VA, I was struck by your comparisons between the wide variations of living conditions in a given state – we, in that way, are like CO (northern VA is like the Denver area, southern and southwestern VA is like rural CO). It is exactly as you describe – a trade-off between affordable housing and higher food/fuel/utilities/health care costs of southern/southwestern VA and the unspeakable real estate prices of northern VA but with more affordable/accessible services and goods. And the poverty rate in both areas expresses itself according to those delineations – more working homeless in north, more working hungry in the south/southwest.

    But the suffering is equal – and seems to be something no one wants to face.