September 17th, 2010
11:21 AM ET

What's the best way to determine poverty?

Dave Schechter
CNN Senior National Editor

As the nation struggles with its worst economy in a generation, it's hardly a surprise that the government officially considers more people as being poor.

Related: Poverty in the U.S. spikes

The official poverty rate for 2009 was 14.3 percent – the highest since 1994 – up from 13.2 percent in 2008. The number of people living in poverty in 2009 was estimated at 43.6 million – roughly one in seven Americans – up from 39.8 million in 2008.

The full report contains a wealth of information on levels of income, poverty and health insurance in this country.

As I wrote here a year ago, the poverty rate is something of a fraud because the government still uses a formula that was introduced in 1964 based on data from 1955.

For those who don't remember 1955: Ike was in the White House; the Rev. Martin Luther King Jr. led a bus boycott in Montgomery, Alabama; Disneyland opened in California and the Brooklyn Dodgers beat the New York Yankees in the World Series.

The basis of the formula used today is the percentage of household income a family of four in 1955 spent for food – on a diet "designed for temporary or emergency use when funds are low" – multiplied by three to account for one-third of household income, with the Consumer Price Index used to adjust the line upward annually. The poverty threshold for a family of four was set at $2,442 in 1964; in 2009 it was $21,954.

In 1955, Americans spent about one-third of their household income on food. Today's it's more like one-seventh. Compared with 1955, we spend greater percentages now on health care, energy, housing and child care (a concept that barely existed in 1955, when it was assumed most mothers stayed at home). The "one size fits (almost) all" formula does not account for various forms of non-cash benefits, such as food stamps or subsidized rent, nor differences in the cost-of-living between various regions or between big cities vs. small towns. Critics maintain that if food stamps and other programs were counted as income at the current poverty level, many people would no longer be classified as poor.

The good news is that the government has devised a more comprehensive formula that it wants to unveil in September 2011. But unfortunately the government will only make the new formula "supplemental" and continue using the outdated equation to determine eligibility for federal assistance.

"The official poverty measure . . . will remain the definitive statistical measure. The supplemental measure will be a more complex and refined statistic, including such additional items as tax payments and work expenses in estimating family resources. Unlike the official administrative measure, the supplemental measure will not be the measure used to estimate eligibility for government programs. Instead, it will be an additional macroeconomic statistic, providing further understanding of economic conditions and trends."

This is too bad, because making full use of an updated formula would allow for policy making based on reality, not an America that no longer exists.

As for the future, CNNMoney.com reports that poverty is expected to continue climbing, reaching a high of about 16 percent over the next decade, adding another 10 million Americans to the poverty rolls, according to an analysis by the Brookings Institution, a Washington, D.C.-based think tank. "The recession makes finding jobs very difficult and has hit low-income families especially hard," said co-author Isabel Sawhill.

All the more reason to use the most accurate, up-to-date formulas for measuring the problem.

Filed under: David Schechter • Opinion
soundoff (One Response)
  1. Kim

    Check the Control Reports from State to State on how many jobs the stimulus money has created and how much each state has recieved. LA has a 55 jobs. The banks are sitting on our stimulus money ! Which banks ?

    September 17, 2010 at 8:01 pm |