Deep Thoughts: The Poverty Line

I’ve been giving some thought lately to the poverty line, and poverty in general.  One of the major goals of just about every reformer, on the left and the right alike, is to reduce the number of people currently living in poverty and to improve the ability of those who do to earn more money and get out of poverty.

A Brief History of the Poverty Line

That’s where the poverty line comes in; if we don’t keep track of how many people experience poverty, how can we know if public policies and private enterprises designed to decrease the prevalence of poverty are working?  The United States government has a definition of poverty that attempts to define the level below which it is impossible for for a person (or a family) to provide themselves with the necessities of life.  In particular, the government adopted the Orshansky poverty line as its official measure of poverty in the country.

This definition dates back to the 1960’s, when then President Johnson declared a ‘War on Poverty’.  In order to fight something (and in this case, attempt to eradicate it), you need to be able to define and measure it.  Luckily for Johnson, around the same time, Molly Orshansky, who was an economist working in the Social Security Administration, developed a rather simple method of measuring and defining poverty, the ‘Orshansky Poverty Thresholds

Orshansky’s method was fairly simple.  At the time, the average family spent about one third of their income on food.  By measuring the cost of a bare, but nutritionally adequate diet and multiplying by three, Orshansky determined an income amount below which an individual or family would have a hard time keeping themselves fed.  This same figure has been adjusted yearly to account for inflation, but the same initial calculation forms the basis of our current poverty line, the same as it did back in the sixties.

Should the Poverty Line Calculation Change?

But as time goes on, lifestyles and spending habits change.  Rather than spending one third of after-tax income on food, today’s families spend closer to one-sixth; a poverty line determined now using the same method as Orshansky would likely be twice as high.  To complicate matters more, there are differences in the cost of living between states (and between urban, suburban, and rural areas in the same state) that are not reflected in the official poverty line (although, Alaska and Hawaii have higher poverty lines set to reflect the higher costs of living in those states).

It’s not purely an academic question; much federal spending and significant amounts of state and local welfare programs are aimed at those below the official poverty threshold.  About $320 billion in federal spending at the national level (between Medicaid and other anti-poverty programs) is directed at those below the poverty line, or influenced by the current roles of those in poverty.  Changing the definition and level of the poverty line could have a major impact on which people receive government benefits, and how much the government devotes to such programs.

The debate over the poverty line also extends to other issues, like the minimum wage.  If the minimum wage provides insufficient income to meet the minimum needs of a family (the minimum wage of $7.25 provides about  $15,000 in annual income, just above the current federal poverty limit for a family of two), it means more federal spending to make up the difference.

Changing the Poverty Calculation

Given how much government spending depends on the definition of poverty, defining it smartly is a major priority.  Rebecca Blank of the University of Michigan proposes one such method, which would make a more accurate measurement of where people are capable of supporting themselves and determining who falls below that level.  It would redefine how income is calculated; rather than using pre-tax income, it would use post-tax income and add in near-cash benefits like food stamps.

It would also try to provide a more accurate picture of what amount of money is needed to provide a minimal existence, taking into account not only food spending, but housing, clothing, and out of pocket medical expenses.  It would also try to take into account the differences in family size and composition.  (If I may be so bold as to suggest my own recommendation, adding in a ‘cost of living’ factor to adjust for areas where housing and other expenses are higher would make it easier to determine who might be struggling to survive in higher income areas.)

How likely is it that these changes (or other updates to the federal poverty line) will actually be made?  That depends; the only politician who can change the poverty measure is the President.  While this would seem to make it much easier to change the formula by which the poverty line is determined (after all, you only need one politician to agree, rather than a consensus agreement), it also means that the President, and the President alone would bear the consequences of any changes.  In our polarized (and some would argue, falsehood laden) political environment, even the most reform oriented President is likely to way the good of changing the poverty line to be more inclusive against the chance that rivals would crow about ‘the vast increase in poverty’ during his term.

That said, I’m hopeful that we’ll see a more reasonable definition for poverty in the near future.  There seems to be growing consensus that our current definition is at best, out of date and more likely completely incorrect.  Having an accurate measure of who is unable to meet their minimal spending needs is important to determine how much anti-poverty spending should be done, and how it should be targeted.

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