Watch CBSN Live

How Poor Is Poor?

Every year, the Census Bureau uses a 40-year-old formula to determine how many poor people there are in America, a method that many experts think was outdated years ago.

The Census Bureau acknowledges the issue by also announcing alternative poverty rates based on different measurements of income and poverty. This approach has fueled an academic and political debate, but has yet to produce policy changes.

In August, the bureau announced that 12.7 percent of Americans lived in poverty in 2004, making it the official poverty rate. Last week, the bureau said the rate might be as high as 19.4 percent, or as low as 8.3 percent, depending on how income and basic living costs were defined.

One outside analyst said he could cut the poverty rate in half using census data and a pocket calculator. But his exercise would change only the definition of poverty. It wouldn't make anyone richer.

"I know virtually no one who thinks the current poverty line is an accurate measure of poverty," said Rebecca Blank, co-director of the National Poverty Center at the University of Michigan.

Blank served on a National Academy of Sciences panel that recommended changes to the poverty measure 10 years ago. But the issue was too politically sensitive to resolve, she and others said.

Some proponents of change want a higher poverty rate to encourage spending on the poor; others want a lower rate to make it easier to cut spending.

"Everybody's got their favorite way of measuring it because the outcome fits their needs," said Martha Farnsworth Riche, who headed the Census Bureau under President Clinton.

The Office of Management and Budget dictates how poverty is measured. But Congress has a keen interest in the issue because it affects so many programs, dollars and lives, Riche said.

"The Census Bureau can't go around changing the poverty rate," Riche said.

The official poverty level is used to decide eligibility for federal health, housing, nutrition and child care benefits. The official poverty rate helps shape national debate on the health of the country's economy.

"There are hundreds of programs moving hundreds of billions of dollars in benefits that are tied to the poverty line," said Douglas Besharov of the American Enterprise Institute.

Part of the problem is that the experts don't agree on how to define income and basic living expenses.

The official poverty level is $19,307 for a family of four, $12,334 for a family of two. But the calculation includes only cash income before deductions for taxes. It excludes capital gains and it does not take into account accumulated wealth or assets, such as a home.

It was based on a calculation of basic living expenses in the 1960s, and has been updated only to reflect inflation.

The result is that a single parent making $13,000 a year is living above the poverty line, while someone with a $1 million house who takes a year off work to travel the world could be below it.

The current system has defenders, but even many of those would like to see changes.

John Cogan, a senior fellow at the Hoover Institution at Stanford University, said the current system does a good job of gauging whether poverty increases or decreases from year to year.

"Can the way we measure poverty be improved? Absolutely," Cogan said. "Does that mean we should just ignore the country's poverty statistics? Definitely not."

Among the proposals to change the way the government measures poverty:

  • Add food stamps, health and housing benefits to incomes. The benefits were intended to decrease poverty, and they would if they were counted as income.
  • Subtract taxes, child care and medical costs from incomes, increasing the poverty rate for working Americans.
  • Count assets such as homes and securities when determining poverty levels, lowering the poverty rate for seniors on fixed incomes.
  • Create regional poverty lines to account for the fact that some places are more expensive to live than others.

    Chuck Nelson, an economist at the Census Bureau said, "We see ourselves as the research arm telling people what the effect would be if poverty were based on different measurements. If and when the time comes to change it, people will have information."

  • View CBS News In
    CBS News App Open
    Chrome Safari Continue