Another Wrong Way to Measure Poverty

The real rate is 2.5%, but the Census Bureau inflates it by excluding most social-welfare benefits

By Phil Gramm and John Early. Excerpts:

"Though government payments for social benefits rose by $1.5 trillion, or 47%, between 2019 and 2021, they didn’t dent the official poverty rate. The rate rose to 11.6% from 10.5%. President Biden claimed that the pandemic increase in the refundable child tax credit would cut child poverty in half, but the subsequent official census rate rose from 14.4% to 15.3%. These results were predictable because the official poverty measure fails to count 88 social benefits that low-income Americans receive from the government as part of their income, including almost all of the pandemic benefits."

"the Biden administration is pushing the experimental Supplemental Poverty Measure, which counts about half of the social benefit payments as income but redefines the income thresholds that determine who is counted as poor in a way that ensures the poverty threshold rises as median income rises. The official poverty measure has hardly changed for more than 50 years, even as social benefit payments to the average household in the bottom 20% of income earners have risen from $9,700 to $45,000 in inflation-adjusted dollars, because most of these payments simply aren’t counted as income to the recipients."

[the Supplemental Poverty Measure] "This newer measure, which counts refundable tax credits and other pandemic benefits as income, produced a poverty rate that declined from 11.7% in 2019 to 7.8% in 2021 and the politically desired effect of reducing child poverty from 12.6% to 5.2% over that period."

"it doesn’t count most government subsidies, such as Treasury checks beneficiaries receive from refundable tax credits, debit cards loaded with food-stamp allowances, and Medicaid payments as income to the recipients. When all benefits are counted, the percentage of Americans living in poverty falls to only 2.5%. Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame arrived at a similar figure by comparing the actual goods and services consumed by poor households in 1980 with the actual level of consumption of households that were being counted as poor in 2017. They found that only 2.8% of households in 2017 were consuming at or below the actual poverty consumption level. These findings also comport with the Census American Housing Survey, which has found that 42% of poor households own homes with an average of three bedrooms, 1½ bathrooms, a garage and a porch or patio. The average poor American family lives in a home larger than the average home of middle-income families in France, Germany and the U.K., and 80% of poor American households have air conditioning."

"the Supplemental Poverty Measure . . . defines poverty in relative terms so that it rises as median income rises. The Census Bureau defines the official poverty measure as “the inability to satisfy minimum needs.”"

"The thresholds used in the official measure are the cost of a defined quantity of goods and services required by a specific size and type of family to satisfy its minimum needs. The thresholds have been adjusted for inflation, increasing in current dollars by 776% since 1967, but the definition hasn’t changed."

"The Supplemental Poverty Measure defines the poverty threshold in relative terms as the amount of income necessary to purchase 83% of the median family’s consumption of food, apparel, shelter and utilities plus an additional 20% of that total for other smaller necessities."

"Since its inception in 1999, the supplemental poverty thresholds have risen by 42% more than the official poverty thresholds"

"Adopting the Supplemental Poverty Measure as the official measure would assure that economic growth that raises the level of income and consumption across the entire economy wouldn’t significantly reduce the poverty rate."