Between 1980 and 2022, consumption poverty fell by more than 27 percentage points

See Annual Report on U.S. Consumption Poverty: 2022 by Jeehoon Han, Bruce D. Meyer and James X. Sullivan. Excerpts:

"This report presents estimates of consumption- and income-based poverty in the United States derived from information collected in the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey and the U.S. Census Bureau’s Current Population Survey. A poverty rate visualization tool, additional results, and resources can be found at povertymeasurement.org.

Summary of findings 

Simple adjustments to account for well-known flaws with the official poverty measure make clear that poverty in America has fallen sharply over the past 50 years. 

Between 1980 and 2022, consumption poverty fell by more than 27 percentage points, from 33.8 percent to 6.0 percent, while the official poverty rate fell by only 1.5 percentage points over that period.1 

Three factors explain why consumption poverty shows a long-term decline but the official poverty measure does not. First, the official federal poverty line is adjusted over time using a price index with well-documented flaws. The official poverty line for a family with two adults and two children in 1980 was $8,351. In 2022 it was $29,678. If one corrects for the flaws in how the poverty line is adjusted for inflation, based on the 1980 standard, the threshold today would be about $20,430. Second, the official poverty measure is based on cash income only, which fails to capture all the resources available to a family including tax credits and in-kind transfers. Finally, the official measure of family resources is biased due to under-reporting of certain types of income that are commonly received by those with low reported income.

While the general pattern of after-tax income poverty is similar to that of consumption poverty for some periods, these two measures diverge quite noticeably over the past 2 years, particularly for child poverty. For example, changes in child poverty between 2008 and 2020 are virtually the same across these two measures. However, after-tax income poverty for children fell much more than consumption poverty in 2021, and then rose sharply in 2022, while consumption poverty continued to fall. This divergence is driven by large, temporary payments to families with children, especially the Economic Impact Payments with the expanded Child Tax Credit also playing a role. We do not see noticeable fluctuations in consumption poverty because, at least in part, families saved a share of these temporary payments."

"The Case for Consumption 

A better approach to addressing the well-documented limitations of the OPM is to use consumption to create a poverty measure. This approach has been recently adopted by the Bureau of Labor Statistics Garner et al. (2023). Consumption measures what families can purchase in terms of food, housing, transportation and other goods and services. Consumption offers several important advantages over income. First, conceptually speaking, consumption does a better job of capturing the material circumstances of individuals and families. For example, annual income will not reflect the standard of living of individuals who smooth consumption by drawing upon savings or by borrowing. This distinction is particularly relevant when income is fluctuating significantly, as was the case for families with few resources during the pandemic due to sharp changes in employment and sporadic cash transfers including the Economic Impact Payments and the advanced Child Tax Credit. Income-based measures of well-being will not capture differences over time or across households in wealth, ownership of durable goods such as houses and cars, or the ability to borrow. In addition, many anti-poverty programs provide insurance against income loss or high medical payments that may make households more secure in their spending decisions but will not be reflected in their income. The conceptual benefits of consumption are the subject of a large literature (Cutler and Katz 1991; Poterba 1991; Slesnick 1993, Meyer and Sullivan 2003, 2011, 2012a, 2012b). 

Another advantage of consumption is that at the individual level it is a more reliable indicator of deprivation than income; in particular, material hardship and other adverse family outcomes are more severe for those with low consumption than for those with low income (Meyer and Sullivan 2003, 2011; Fisher et al. 2009). Consumption appears to be more accurately reported than income for the most disadvantaged families (Meyer and Sullivan 2003, 2011). While consumption data also suffer from under-reporting, the problem is not as severe as that for income, and alternative methods using the well-measured components can be used to check results. Finally, changes in consumption-based poverty measures are more consistent with other indicators of long-run changes such as improvements in housing and mortality (Meyer and Sullivan 2011b, 2018). Consumption also does a better job than income of capturing short-run changes in other measures of well-being such as a lack of housing problems or the ability to pay one’s bills (Meyer and Sullivan 2018), and despite consumption being better suited to capture long-run, as opposed to short-run, changes in economic activity, it does at least as well as income in reflecting short-run changes in unemployment and GDP (Meyer and Sullivan 2011a)."