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Here's Life Inner City

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Exploring America's Poverty Assessment

Posted: 10/26/10 01:32 AM ET

The percentage of Americans living in poverty in 2009 rose to 14.3 percent, up from 13.2 percent in 2008. This is the highest rate since 1994. This means that a total of 43.6 million (one in seven) Americans were below the poverty line (the poverty line is drawn at $22,050 per year, or $1,838 per month).

This disturbing increase in the past year is certainly indicative of the increasingly dire economic situation and the effects of the downturn on American families. But, aside from shedding light on the effects of economic distress, the recently published statistics have placed a spotlight on the potential inadequacy of the criteria used by the government to develop these numbers.

According to critics on both sides of the political isle, there are many problems with the way the poverty rate is compiled. The poverty threshold was originally developed in the 1960s based on the assumption that families spent one-third of their income on food. The rate also takes into consideration family size and age of family members. Five decades after its inception, changes in spending patterns are not reflected in the rating.

Today, families spend an average of 12 percent on food, while the cost of housing takes up a much larger portion of income. In 2006, half of renters and a third of homeowners spent at least 30 percent of income on housing, and 25 percent of renters and 14 percent of owners spent half of their income on housing.

The current cost of living metric does not factor in these proportions and leaves out many substantial costs such as medical, child care, education and transportation. Additionally, it doesn't factor in non-cash government assistance such as food stamps, housing subsidies and low-income tax credits. Income taxes are not factored into a household's spending power, as poverty is calculated based on pre-tax annual income.

Interestingly, geographically-based variations in cost of living are not considered either. Critics claim that this may lead to increasing underestimation in urban areas with above average costs of living. Additionally, the Census does not calculate a person's assets and liabilities. This means that home equity and savings are not considered, nor are the increasingly burdensome debts many Americans hold. Steven Crawford and Shawn Fremstad of Reuters summarize this point:

“As Nobel laureates Joseph Stiglitz and Amartya Sen, along with economist Jean-Paul Fitoussi, write in their new book Mis-Measuring Our Lives, "Income and consumption are crucial for assessing living standards, but in the end they can only be gauged in conjunction with information on wealth." This point is just as relevant to poverty measurement as it is to other measures of living standards.

Beginning next year the Census will publish figures that take into account the costs of medical care, transportation and child care as well tax credits in supplemental data (however, the official poverty rate will not change).

Another area of contention comes into play when discussing millions of 25-34 year olds who are also left out of the official count. As the New York Times reports, though 40 percent of the 5.5 million in this age group who live at home fall below the poverty line of less than $11,121 per year for a single person, they are not included in the official numbers of Americans in poverty. Why, you ask? Because these individuals live at home or with family members.

While some believe that the American government undercounts the actual poverty rate, others feel that the rate is higher than it should be. These individuals believe that people who are not truly poor are often included, because public programs like food stamps, government insurance and other -- in kind -- benefits are not factored into the poverty level. Some also claim that the Consumer Price Index used to calculate cost of living does not factor in the low prices at many big-box stores.

There are also concerns that the indicators we use to look at poverty overlook the long-term improvements in living standards since the 1960s. For example, in 1960 only 12 percent of the population had air conditioning, and only 8 percent of Americans had completed four years of college.

While there is surely debate, what everyone seems to agree on is that the current measures of poverty in America are flawed. Perhaps more comprehensive data being collected for next year’s supplemental poverty measure will be the first step in developing a more accurate standard for assessing American poverty. What do you think?

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