The official poverty rate last year was 15 percent. Here’s what that misses.

September 12, 2012

The official poverty rate for 2012 is 15 percent, exactly the same as 2011. But you shouldn't put too much credence in that number, as this post (originally posted in September 2012) explains. For more, see this post on the more accurate Supplemental Poverty Measure, and this one on extreme poverty in America. The Supplemental Measure for 2012 is out October 30.

The Census Bureau released its income, poverty and health insurance numbers for 2011 on Wednesday and contrary to expectations, poverty was essentially unchanged, falling from 15.1 percent in 2010 to 15 percent in 2011. But more and more poverty experts are dismissing the official poverty figure. What gives?

As Suzy explained when the 2010 report came out, the poverty measure has not changed much since the Johnson administration and, in many ways, it shows. Transfer payments, such as the Earned Income Tax Credit (EITC) or food stamps, don't show up as income. Moreover, the income threshold used to determine if a person or household is in poverty has not changed, other than inflation adjustments, since 1963-64. It was originally calculated as the amount below which a family of three or more would have to spend more than a third of its income on food. Thus, it doesn't take into account other expenses like housing, transportation, medical care and child care.

To remedy this problem, the Census Bureau and the National Academy of Sciences have both developed alternative metrics taking these factors into account. What they show is that transfer payments are significantly reducing the poverty rate. Here's the Census alternative metric:

Transfer payments are also reducing extreme poverty — the number of households living on less than $2 a day (the same cutoff frequently used to assess global poverty). Kathryn Edin of Harvard and Luke Schaefer of Michigan found that once you take food stamps into account, the extreme poverty rate is much lower (the beige line is without food stamps, the blue line including them):

Source: Kathryn Edin and Luke Schaefer

And transfer payments are reducing poverty by more than they did before the recession. This makes sense. Programs like EITC, unemployment insurance and food stamps use income cutoffs, so when incomes are falling, more people qualify and are lifted out of poverty by those programs. For this reason, economists call programs like these "automatic stabilizers," since they boost the economy during downturns even if legislators don't act.

But in 2009, legislators did act. The Recovery Act boosted funding for a lot of these programs, including unemployment insurance, EITC and food stamps, funding boosts which the Center for Budget and Policy Priorities estimates kept close to seven million people out of poverty in 2010 alone. However, we have fewer automatic stabilizers than we did before welfare reform. Aid to Families with Dependent Children (AFDC), the original Johnson-era welfare program, increased in scope when poverty increased, but Temporary Aid to Needy Families (TANF), the program that replaced it under the 1996 welfare reform law, has failed to track increases in poverty. That means it reduces poverty during downturns much less than AFDC did, and certainly less than EITC or food stamps do today.

The Census didn't release its alternative poverty measure today, and if last year is any indication, it won't do so until November (update: the report says the measure will be out in November). Today's numbers do measure some elements of hardships, but keep in mind what they leave out.

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Dylan Matthews · September 12, 2012