New measure provides insights into poverty and public programs

Earlier this fall, the Census Bureau released its annual report on poverty in the United States. In 2010, 15.1 percent of Americans, or 46.2 million persons, lived below the poverty level, which was $22,050 for a family of four. Among children the poverty rate was 22.0 percent, while for seniors, it was 9.0 percent. In Oklahoma, the poverty rate overall was 16.9 percent, with just under one in four children living in poverty (see our Oklahoma Poverty Profile fact sheet and this blog post).

As a measure of a household’s financial situation, the official poverty measure is deeply flawed. As we noted a year ago:

 Census Bureau numbers [are]  based on a measure that looks strictly at a household’s cash income and that is pegged to the cost of a 1950’s basic food diet, adjusted for inflation.  The measure has long been criticized as inadequate: among other limitations, it fails to reflect the real costs families face in meeting basic needs; it fails to adjust for regional differences in the cost of living; and it excludes non-cash income and benefits received by low-income families.

This year, the Census Bureau took a major step toward addressing some of the flaws with the official poverty measure by releasing the Supplemental Poverty Measure (SPM). Unlike the traditional poverty measure, the SPM determines poverty status by comparing a more expansive definition of family’s income with a more meaningful threshold designed to reflect the cost of meeting basic needs, like food, clothing, and shelter. The SPM counts tax credits, such as the Earned Income Tax Credit and Making Work Pay credit, and non-cash benefits, such as food assistance and housing vouchers, as income that help families afford basic needs. It also acknowledges the burden of work expenses, like child care, and out-of-pocket health expenses for many Americans. The Poverty and Policy blog provides a clear summary of the new measure’s assumptions and methodology.

The Supplemental Poverty Measure demonstrates the vital role that public work support and safety net programs play in keeping millions of Americans above the poverty line. According to the Center on Budget and Policy Priorities:

(I)n 2010, poverty rates without government income assistance of any sort would have been nearly twice as high as they actually were: 28.6 percent rather than 15.5 percent. This shows the impact of public programs, including not only tax credits, unemployment insurance, and SNAP benefits but also Social Security, Supplemental Security Income, veterans’ benefits, public assistance (including Temporary Assistance for Needy Families), and housing assistance, among others, and the net effect of the tax system.

The 2010 SPM also illustrates the impact of medical expenses, child care costs, and other necessary expenses.  Out-of-pocket medical expenses are a major contributor to poverty among children and the elderly. The poverty rate increased from 8.6 to 15.9 percent for the elderly and from 15.4 to 18.2 percent for children when medical expenses were factored in.  Parental work expenses, including child care costs, raised the child poverty rate by 2 percentage points. On the one hand, these findings demonstrate the critical importance of programs like Medicaid, SCHIP and child care subsidies in reducing poverty. On the other hand, as Andrew Leonard notes at Salon.com, 0ut-of-pocket medical costs alone wipe out the benefits of food stamps or the Earned Income Tax Credit.

Overall, the new Supplemental Poverty Measure puts the national poverty rate in 2010 at 16.0 percent, slightly higher than the official rate of 15.2 percent.  State-level SPM data is not yet available for 2010. As the chart below from the Working Economics blog shows, with the inclusion of non-cash benefits, a smaller share of the population was found to be living in extreme poverty(under 50 percent of the poverty level), dropping from 6.8 percent to 5.4 percent for the overall population and from 10.4 percent to 5.3 percent for children. At the same time, when essential household expenditures are factored into the equation, significantly more individuals are found among the ranks of the ‘working poor’: the SPM identified more than one in three Americans having incomes between 100 and 200 percent of poverty.

If the SPM underscores the crucial role that public benefit programs play in helping families meet basic needs, then the coming period is one of serious peril. Key support programs that were passed as part of the 2009 stimulus bill have expired or are set to expire in the coming months, and deficit reduction efforts at the federal and state levels are putting all public support programs at risk. The Center on Budget and Policy Priorities concludes:

These expirations, combined with continuing high rates of joblessness and budgets cuts by federal, state, and local governments, raise questions about what will happen to struggling families and to the level of poverty and hardship in the period ahead.