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How Poor Is Poor?

We must meaningfully define poverty in effort to curb it

The word “poverty” undoubtedly reminds many people of Sally Struthers’ Save the Children commercials (help delivered for less than a cup of coffee a day!). These powerful images of poverty deserve our compassion, yet they do not accurately reflect poverty in the United States.

Research has shown that the poor here enjoy a much better standard of living than the poor in many other countries. While this does not deny that there are people in need living in the U.S., it does raise legitimate questions about how we think of the poor, count them, and offer aid.

The Federal Poverty Level (FPL), the U.S. Department of Health and Human Services’ yardstick for poverty, has become the standard for many of today’s entitlement and social welfare programs. The poverty line was first established in 1963 and has remained unchanged, adjusted only for inflation, though it varies with family size.

While the FPL may be a convenient way to categorize income, it is a flawed way to measure need.

First, as programs have been expanded to include more people at higher incomes, we inflate the number of people associated with “poverty,” yet they are not, strictly speaking, poor. When the Children’s Health Insurance Program (CHIP) was created in 1997, Congress set the eligibility threshold at 200 percent of FPL, which in 2006, grants eligibility to a family of four making up to $40,000 annually. By definition, such a family exceeds the poverty level, yet the description of the family’s earnings in relation to “poverty” conjures images that aren’t entirely accurate. When we associate something or someone with the word “poverty” we must be sure such a loaded term is used accurately.

Recent numbers from the Census Bureau report median household income in the U.S. in 2005 was $46,242 and $42,139 in Texas. A family of four earning $38,700 in 2005, the annual income limit for CHIP eligibility, is actually closer to median household income of $46,242 than the poverty level of $19,350.

The second major problem is that the national measurement for poverty does not reflect the differences between regions, states, or even cities. The poverty guidelines apply to all areas of the continental United States, with an adjusted standard for Hawaii and Alaska. The Census Bureau’s income numbers highlight just how dramatic these differences can be, reporting that median household income in New Jersey was $61,672 and only $32,938 in Mississippi. A more accurate measurement of need would surely balance things with the cost of living or standards that apply at least regionally, if not state-by-state.

Similarly, in the Deficit Reduction Act of 2005, in determining Medicaid eligibility for long term care, Congress capped the amount of allowable home equity at $500,000 nationwide, with a state option to increase the limit to $750,000. It was an important move, telling people that they can’t own a high-priced home and gouge the taxpayers for their care when they have other resources to help foot the bill.

However, data published by Money Magazine last year helps illustrate the folly of employing a nationwide standard with a hard dollar figure. The median home price in San Francisco was $750,000 in 2004, while only $123,000 in San Antonio. Again, a half a million dollar home looks very different in one part of the country than it does in another, just as 100 or 200 percent of the poverty level looks very different from one place to the next.

Third, as states use the poverty level to determine eligibility for government programs, they consider a family’s size and income, but ignore the value of each additional benefit. For instance, in Texas in 2004 a single mother with two children earning $6.93 an hour would earn roughly $14,000 working full time, but almost $19,000 in additional benefits, including child care, Medicaid, food stamps, cash welfare and the Earned Income Tax Credit. As a result, her combined wages and benefits approached $34,000—more than double the poverty level for 2004. Of course, the state does not take into account the value of each additional benefit as the family crosses and exceeds the poverty level.

It is also important to realize that while calculations of income in relation to poverty measure monetary wages, they do not look at a family’s full financial resources. They don’t capture the wealth or other resources at a family’s disposal, such as savings and investments.

National standards of poverty, narrowly identifying those in poverty by their income alone, have painted an incomplete picture of being poor in America. What’s more, as government programs have grown to include more people of higher incomes whose eligibility is determined in proximity to a faulty measure of “poverty,” we see a growing population dependent on government programs that were once reserved for the truly needy.

It is certainly a worthy goal to reduce the hardship faced by the least fortunate among us, but ill-defining poverty is a big, first step in making us all much poorer.

Mary Katherine Stout is the director of the Center for Health Care Policy at the Texas Public Policy Foundation, a non-profit research institute based in Austin.