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Changing the Federal Poverty Measure...or Not

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Change in the outdated federal poverty measure is long overdue. Nevertheless, the Department of Commerce's announcement of a new Supplemental Poverty Measure (SPM) should be greeted with caution. It will not change things nearly as much as its proponents hope, and may have some unexpected effects.

What the SPM will do, is rise as living standards rise, rather than fall further and further behind -- as is the case with the current poverty measure. Indeed, the latter is "frozen" at the level of a basket of goods and services adequate for families in the 1950s, updated only for inflation. It does not allow for rapidly increasing costs, such as health care and taxes or "new" costs such as child care.

What the SPM won't do is raise the thresholds very much. Because it only includes some costs -- housing, utilities, food and clothing -- it starts at not much above the current, much too low level. In fact, since it will also introduce geographic adjustments reflecting differences in housing costs, the SPM is likely to result in lowering thresholds in less expensive areas such as rural counties or the South below the current federal poverty measure. In short, the SPM is a measure of deprivation, not a full measure of what people and families need to meet their basic needs.

What the SPM will do is take into account the impact of cash and some in-kind benefits, as well as taxes and tax credits. Thus it can measure the impact of aid that improves the well-being of the poor, a good thing. But there is a catch: it only does this for aid that mirrors costs that are in the threshold, such as housing and food. For work-related costs and health care, it only subtracts actual spending from income. As a result, those with enough for the bare basics of food and housing, but are too poor to afford sufficient health or child care, ironically do not get counted as poor.

When the SPM changes are combined, they counter each other, so that the count of the poor will likely increase somewhat, but not by much. At the same time, it does change who is counted as poor. Somewhat surprisingly, When New York City implemented a version of the SPM elderly poverty increased substantially, while the count of poor families with children decreased slightly.

The SPM only partly cures what ails the federal poverty measure. The most common critique of the federal poverty measure is that it is too low, resulting in an undercount of the poor and restricting of the Safety Net, as documented in Battered by the Storm http://www.ips-dc.org/reports/battered-by-the-storm . Indeed, most federal aid programs set eligibility at a multiple of the federal poverty line, from 130% (for Food Stamps) to as high as 400% (for S-CHIP, the State Child Health Insurance Program).

As a deprivation measure, the SPM still leaves the need for a measure that takes into account all the needs of a family, including not only food and housing (including utilities) but also health care, child care, transportation, as well as taxes and tax credits. That would require a measure like the Self-Sufficiency Standard or the Economic Policy Institute's Basic Family Budgets which do assess the cost of all needs, and are varied by place and family type. Those who would like to see a more accurate and realistic count of poverty should push for the Census Bureau to open the SPM development process to public comment, to the end of creating a measure that truly reflects the 21st century realities facing the working poor. Only then can we hope to find who, where and why we still have poverty in the richest nation on earth.