Reports on the poverty rate are useful in many ways. While so many
economic statistics focus on broad economy-wide averages, the poverty
rate gives us a sense of how the poorest families and individuals are faring. It also
gives us a sense of how the economy affects different groups of
Americans differently.
However, measurement of the poverty date is decades out of date and suffers from a number of widely acknowledged drawbacks.
The method
The federal method for calculating whether or not a family is poor is quite simple. The Census publishes a table
annually that gives an income amount depending on the family size,
called the poverty line or the poverty threshold ($15,735 for one
parent with two children in 2005). If the total family income is less
than the poverty threshold, the family is considered to be living in
poverty.
This method of measuring poverty was established in the 1950s and has
only been adjusted for inflation since that time, meaning that the
poverty threshold is, at best, measuring a family's income against a
standard of living from half a century ago. It was based then on an
assumption that a family spent 1/3 of their budget on food. A food plan
was developed that would be nutritionally sufficient temporarily and
the cost of that food plan was multiplied by three.
Drawbacks
This method fails to account for many changes in the economy since
then. The cost of housing and health care has risen dramatically. More
family members are working, incurring additional work-related expenses,
especially child care, expenses not reflected in the current
measure. On the other side of the ledger, the income measure used to
determine poverty status does not account for key changes in
government policy, especially the boost to incomes given by the
Earned Income Tax Credit.
Of special note for measuring poverty between various regions in our
state, which is now possible with the ACS, is the fact that the poverty
rate makes no allowance for regional differences in the cost of living.
The cost of a two-bedroom apartment in Seattle is 50% higher than a
similar apartment in Pend Oreille County, and yet the income level at
which we say a family is out of poverty is exactly the same. This lends
a note of caution to comparisons between poverty in different areas of
the state.
An important benchmark
While it widely acknowledged that a more accurate poverty measure would
show higher poverty than the current measure, it is still an important
benchmark by which to measure our economic prosperity that adds to the
normal measures of the size of the stock market or gross national
product.
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