Thursday, April 28, 2011

Redefining the Federal Poverty Line

Many low-income people rely on the federal definition of poverty in order to qualify for some sort of aid, but the federal poverty line may not accurately reflect the true number of people in poverty in the U.S.

There are currently 2 measurement of poverty: (1) the poverty thresholds are used for calculating the number of Americans in poverty each year calculated by the Census Bureau and (2) the poverty guidelines, a simplified version of the federal poverty thresholds used for determining financial eligibility for certain federal programs issued by the Department of Health and Human Services (HHS). Both are updated annually.

However, these two measures may not accurately measure poverty as they exclude forms of income many low-income people receive in the form of public assistance. Some critics maintain that the extent of poverty is over-stated. Another critique is that it continues to assume that families spend one-third of their income on food, which is wrong. This may have been true when the measure was devised 40 years ago, but it is not an accurate reflection of current realities. Families no longer spend one-third of their income on food and two-thirds on other basic needs. Food now accounts for something closer to one-sixth of the family budget. Housing, transportation and utilities are much larger components of family spending. Furthermore, expenses most families now regard as crucial elements of their household budget are excluded, such as the cost of childcare, commuting and other travel and work-related expenses, etc.

The HHS Poverty Guidelines are provided below:

Although the current federal poverty calculation may under-represent the number of people in poverty, changing the poverty line has cost implications as most attempts to establish a new measure of poverty would result in higher numbers of people being counted as poor and qualifying for government assistance. Considering current budget shortfalls, it is not politically feasible to change the federal poverty line. However, New York City developed a new measure last year based on recommendations by the National Academy of Sciences that takes into account expenses such as child care and health care costs. The result, according to backers of the new formula, is a more realistic picture of today's world. This may serve as a lesson for the federal government.

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