As of late October, 2011, there were more than 1,000 Google News references to “Texas” and “poverty,” with the general theme being that there are a lot of poor people in Texas according to Federal poverty data. But as with many things having to do with the Federal government, there’s far more to the story than a simple reading of official poverty thresholds.
According to the U.S. Census Bureau, it uses, “…a set of money income thresholds that vary by family size and composition to determine who is in poverty. If a family’s total income is less than the family’s threshold, then that family and every individual in it is considered in poverty. The official poverty thresholds do not vary geographically…”
POVERTY: LOCATION, LOCATION, LOCATION
Advocates for the poor, many of whom are harshly critical of Texas for not taxing and spending more, devalue the huge jobs gains seen in the Lone Star State, dismissing these jobs as low-paying. As proof, they frequently cite Federal government data showing Texas has the nation’s 6th highest high poverty rate, with some 18.4 percent of Texans considered impoverished in 2010.
There’s one big problem with the U.S. Census Bureau data though: it uses the same income threshold across the nation. This is a big oversight because, according to data from the Council for Community and Economic Research, the cost of living varies widely within America. Oklahoma is America’s least expensive state in which to live and Hawaii is the most costly – meaning that a dollar goes a lot further in Oklahoma than it does in Hawaii.
Cost of living matters – a lot – especially to people who, for whatever reason, whether it’s inexperience, lack of education, or hard luck, are earning low wages.
The Federal government calculates Texas’ poverty rate at 18.4 percent while California’s poverty rate is estimated at 16.3 percent, higher than the national average of 15.1 percent with New York’s poverty rate set at 16 percent.
But, what would be the picture if the high cost of living in California and New York were taken into account versus the low cost to live in Texas – more than a 40 percent differential?
Federal poverty line is calculated at $22,113 of income for a family of four. But with the cost of living factored in, that family in California would need $29,185 just to reach the national average. In New York, they’d need a bit more: $29,322. In Texas, with a cost of living about 90 percent of the national average, they’d need only $19,946.
When these numbers are considered, then correlated with detailed income data from the U.S. Census, the official poverty rate in California would soar from 16.3 percent of the population to 23.3 percent, almost a quarter of Californians, while New York’s cost of living adjusted poverty rate would jump from 16 percent to 22 percent. Much-criticized Texas has a true poverty rate of 16.1 percent, rather than the reported 18.4 percent.
Perhaps that’s one of the reasons why a California adult is 14 times more likely to be receiving welfare than a Texas adult. California’s rate of people receiving Temporary Assistance to Needy Families (TANF) is even higher than entirely urban Washington, D.C., which has the nation’s second-highest welfare caseload among adults as a percentage of the population. In fact, the average California adult is more than two-and-one-half times more likely to be on welfare than the national average.
THE MINIMUM WAGE AND THE COST OF LIVING
These same calculations can also be run with the minimum wage.
Critics of Texas often cite the fact that 9.5 percent of its hourly wage workers earn the Federal minimum wage of $7.25 an hour. California has its own, higher, state minimum wage, set at $8.00 an hour. While New York follows Federal law at $7.25.
Based on this superficial understanding, someone writing a story about the working poor would likely claim that they are better off in California than in New York or Texas.
But income is only half of the equation – money is spent to live. When the cost of food, housing, utilities, transportation, health care and other services are taken into account, we see that Texas is the second least expensive place to live in America after Oklahoma. The three largest states show a wide range in their cost of living compared to the national average with California at 132 percent of the national average, Texas at 90 percent, and New York at 133 percent.
So, when adjusted for the cost of living at the national average, the minimum wage in Texas is equivalent to earning $8.04 per hour while in California, a state with a higher minimum wage, the effective wage pencils out to $6.06 per hour. New York is even lower, at $5.47 per hour, and yet, we hear little of poverty in New York as compared to Texas. Perhaps that is one reason why 1.6 million New Yorkers moved out of the state from 2000 to 2010.
This post was developed from research done for the upcoming book, “The Texas Model,” by TPPF President and CEO Brooke Rollins and The Hon. Chuck DeVore, Visiting Senior Scholar for Fiscal Policy.