A Better Poverty Measure Shows the Impact of Public Policies

By Indivar Dutta-Gupta and Elizabeth Lower-Basch

This is the third in a series of commentaries from CLASP experts that explore dimensions of poverty ahead of the U.S. Census Bureau’s annual release of poverty and income statistics from the previous year. On September 12, we’ll get a snapshot of the economic hardship children, youth and young adults, and families experienced in 2022. Ahead of the release, CLASP experts will offer key insights on the long-term effects of child poverty, promising policy solutions for ending child poverty, links between poverty and mental health, why it’s important to have a more accurate measurement of poverty, the lived experience of childhood poverty, and what trends we expect to see in this year’s poverty data.

As we look ahead to the Census Bureau’s annual release of poverty data on September 12, it’s important to understand exactly what these numbers measure—and what they miss.

In 1964, when President Lyndon Johnson declared an “unconditional war on poverty,” there was no official definition of poverty. However, the U.S. Department of Agriculture had studied the minimum levels of different food groups to sustain adults and children of various ages and how much it would cost to purchase this food. The first poverty measure was created by Social Security Administration researcher Mollie Orshansky, who multiplied the cost of a 1960s “economy food plan”—designed for temporary or emergency use when household funds are low developed by the U.S. Department of Agriculture—by three, based on a 1950s survey indicating that families spent about a third of their income on food. This measure, now the basis of the official poverty measure (OPM) has been adjusted for price increases over time but otherwise has remained nearly untouched.

However, even before Orshansky’s measure was officially adopted, researchers understood its many problems. In proposing the measure, Orshanksy herself noted that it was “not possible to state unequivocally ‘how much is enough’” but that she was confident that anything below her threshold was “too little.”

A different problem with the OPM showed up when researchers tried to use it to measure progress in reducing poverty: it doesn’t count income from some of the most important public programs that address poverty today. Cash assistance programs like Social Security are counted, but other “in-kind” programs such as food assistance from the Supplemental Nutrition Assistance Program (SNAP), health care covered by Medicare and Medicaid, housing assistance, and child care subsidies are not. And refundable tax credits like the Earned Income Tax Credit and the Child Tax Credit (CTC)—which have increasingly become a major form of income support—are also not counted. Thus, the OPM showed that child poverty in 2021 was barely lower than in 2020 because the historic expansion of the CTC was not counted under this measure.

Fortunately, since 2011, the Census Bureau has reported a second measure of poverty, the Supplemental Poverty Measure (SPM). The SPM is a far better measure of whether public programs are, in fact, reducing poverty because it counts as income those refundable tax credits, as well as in-kind income supports from housing subsidies, food assistance, and school meals.

The SPM also deducts from income any taxes a household may owe, child support paid, out-of-pocket medical expenses, and work expenses, including child care. This measure also counts unmarried partners who live together and unrelated children, such as those in foster care, as part of the household unit. And it bases the needs threshold on families’ actual expenditures on food, clothing, shelter, and utilities, plus a bit more. Finally, it accounts for the fact that living in a state like New York costs more than in Alabama. When we say that child poverty was almost cut in half in 2020, it is the SPM that reflects this extraordinary accomplishment.

But the SPM itself is far from perfect. For example, it doesn’t distinguish between someone who has low medical costs because of excellent insurance and someone who is forgoing needed care because they can’t afford it. Similarly, it can’t tell the difference between a family with low child care expenses because it receives a subsidy that lowers the cost of quality care, and one with similarly low expenses because they leave school-age children unsupervised during the summer. And how it adjusts for housing costs produces some state results that don’t align with measures of hardship. For example, California has a higher SPM poverty rate than Mississippi, even though food insecurity is higher in Mississippi.

A recent panel of the National Academies of Sciences, Engineering and Medicine (NAS)—on which CLASP’s President and Executive Director, Indivar Dutta-Gupta served—recommended several improvements to the SPM to try to address these issues. For example, instead of only counting out-of-pocket medical costs as expenses, the panel recommends that the cost of health insurance should be added to both the needs threshold and the resources available to a household. The panel also recommends that the SPM should be elevated to the nation’s headline poverty statistic and renamed the Principal Poverty Measure or PPM. This report is significant in part because NAS recommendations led to the development of the SPM in the first place.

Understanding the role that public policies play in keeping people out of poverty is important, and even more important is understanding who—by race, gender, age, region, and more—is left behind, and why. CLASP will be closely looking at the SPM data when the Census releases it in September. But it’s also important to recognize that even an improved PPM will not capture all aspects of poverty.

The PPM will better measure resources and needs, but it won’t measure access to higher education, or whether the same program that provides needed food assistance simultaneously increases stigma and shame by the ways recipients are treated. CLASP is committed to working in partnership with people experiencing poverty to address all these aspects of poverty. As President Johnson said in his speech calling for a war on poverty, “It is an effort to allow them to develop and use their capacities… so that they can share, as others share, in the promise of this nation.”