“Supplemental” Poverty Measure Shows Uneven Redistribution of Poverty by Government

“Supplemental” Poverty Measure Shows Uneven Redistribution of Poverty by Government
November 7, 2013

Clifford Thies

Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah... (read full bio)

The release of a supplemental poverty measure by the Census Bureau is being touted in the media as indicating the government is not doing enough to ameliorate poverty in the country.

The number of poor people, as officially measured, is at an historical high, 47 million. The number of poor people, per the supplemental measure, is even higher, 50 million. But, the problem isn't that the government isn't doing enough. Rather, the problem is that the government is already doing too much.

The official poverty line is equal to three times the cost of food in 1963. Over time, the poverty level, by family size and composition, is simply adjusted for inflation. The official measure has the great advantage of being simple and at least approximately in line with what most people considered to be poor back in 1963.

For example, the official poverty line roughly corresponded to the average amount of money people said a family needed “to get by” when queried by organizations such as the Gallup Poll.

Using this definition of poverty, and historical statistics, it could be seen that the percentage of people who were poor by the 1963 standard was falling dramatically going into the 1960s. But, from the 1960s until the past few years, the percentage of people who are poor has merely fluctuated. And, during the past few years, it has gone up.

As to whether this recent movement is merely cyclic or the start of a new trend is a very important question.

A big problem with the official poverty line is that it does not reflect the impact of non-cash aid to low-income people, such as food stamps and housing subsidies; and, it does not reflect the impact of taxes paid by low-income people.

Back in 1963, the Social Security payroll tax was 3.625 percent. Today, the Social Security and Medicare payroll tax is 7.65 percent.

Non-consideration of non-cash assistance and of taxes has been a bone of contention for years. These are routinely discussed in college textbooks, were included in a National Academy of Science review, and were incorporated into some exploratory analysis conducted by the Urban Institute. A couple other issues with the official measure seem unexceptional.

For example, court-ordered spousal and child support payments count as income when received, but do not count as deductions to income when paid.

Why the asymmetry?

Unfortunately, the supplemental poverty measure also includes a number of other adjustments that seem presumptive. Out of pocket health care expenses, for example. Is health care a right, such that it is not income to those receiving health care through Medicaid; and, is a deduction from income to those not in that part of the welfare system?

It would best to separate the measurement of poverty from current political controversies. But, putting aside any qualms with the supplemental poverty measure, let us see what we are doing in the name of fighting poverty.

• As between men and women, poverty among men is higher by 2 million with the supplemental measure, and among women lower by 2 million.

• As between persons under and over 18, poverty is lower among those under 18 by 8 million, and higher among those higher by 8 million.

• As between married couples and singles, poverty is higher by 8 million among married couple, and lower among singles by 6 million.

• As between blacks and whites and Asians (and why some people are described as a color and others not, I do not know), poverty is less by 3 million among blacks, and higher by 2 million among whites and by 1 million among Asians.

• As between native and foreign born, poverty is lower by 4 million among native-born Americans, and higher by 4 million among foreign born.

• As between people with private health insurance and people with government health insurance, poverty is higher by 10 million among people with private health insurance, and lower by 11 million among those with government health insurance.

• As between people who work and those who do not work, poverty is lower by 2 million for those who do not work, and higher by 6 million among those who work.

The re-distribution of poverty affected by the government seems to be guided by a combination of randomness and perversion. What’s wrong with being married, or with working? Why are those behaviors punished; and, being single and not working rewarded? Is this the result of an intentional anti-poverty system? Or, is this the result of a hodge-podge Rube Goldberg contraption, and of reacting to perceived needs without concern for long-run consequences?

And, is it just a coincidence that the re-distribution of poverty seems to roughly align with the tendencies of groups of voters to vote for the candidates of a certain political party as indicated by exit polls?

Clifford Thies

Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah... (read full bio)