In 1969, the federal government established the Official Poverty Measure (OPM) as its first-ever measure of poverty—created by taking the USDA’s “low-cost” food plan and multiplying it by three, with the assumption that this amount was enough for a family to avoid poverty. More than fifty years later, the OPM has only been updated for inflation.
The Supplemental Poverty Measure (SPM) was implemented in 2011 by the Obama administration in an attempt to make up for the inadequacies of the OPM. But it is still not sufficient, and remains unofficial.
In 2019, the OPM’s poverty line was set at $25,926 for a two-adult, two-child family unit, and the SPM for the same family was $28,881. Surveys show that the American public considers the poverty line, or the minimum income a family needs to avoid poverty, to be much higher than the government does. For example, one 2016 survey found that people thought that the poverty line is far too low and that it underestimates how widespread poverty truly is. A recent report from the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation and the Center for Economic and Policy Research (CEPR) analyzed poverty trends over the past fifty years and put forth recommendations to improve the accuracy of poverty measures.
On October 1, 2020, The Century Foundation and CEPR co-sponsored a webinar, “A New Measure to End Poverty,” to discuss the report’s findings. The webinar featured discussion between the report’s author, Shawn Fremstad, leading thinkers in poverty measurement, and an individual with lived experience in poverty. The event was moderated by Jeff Madrick, a senior fellow at The Century Foundation and director of the Bernard L. Schwartz Rediscovering Government Initiative.
Andrew Stettner, senior fellow at The Century Foundation, and Eileen Appelbaum, co-director of the CEPR, kicked off the event by providing context as to why poverty measures matter. COVID-19 has highlighted the inadequacies of U.S. poverty measures, Appelbaum said, and the poverty line denies thousands of people whose incomes are at or just above the line badly needed resources. The question the report poses, she said, is what the minimum should be to protect families from falling out of the middle class and into poverty.
Jeff Madrick then gave a brief history of the poverty measures in the United States, stating that the Johnson administration chose the lower of the two poverty measures proposed by Social Security Administration economist Mollie Orshansky in the early 1960s, which would become the Official Poverty Measure in 1969.
Flaws in Current Poverty Measures and Recommendations for a More Accurate Measure
Shawn Fremstad, senior policy fellow at the CEPR, kicked off the technical portion of the webinar by presenting the findings in the new report, “The Defining Down of Economic Deprivation: Why We Need to Reset the Poverty Line.”
Fremstad explained how measures are used as indicators of social and economic wellbeing and for rationing social benefits, particularly means-tested programs. Fremstad gave an overview of three measures: the Official Poverty Measure, the Supplemental Poverty Measure, and a Conventional (or relative) Poverty Measure (CPM). The CPM is a poverty measure that many countries use, which ties their poverty line to larger trends, such as median income.
Fremstad reviewed where each measure sets its threshold, the resources it does and does not count, and the expenses it does and does not subtract. The OPM, he said, only counts pre-tax “money” income, does not count any in-kind income such as food stamps, and does not subtract any expenses. The OPM sets the poverty line at 1962’s low-cost food plan multiplied by three and adjusted for inflation.
The SPM counts “money” income, tax credits, and some forms of in-kind income such as SNAP, Fremstad said, but does not count employer-sponsored health insurance, Medicaid, or free/subsidized child care. It subtracts tax obligations, spending on child care for work and health care, and work expenses such as commuting. The SPM sets its poverty line at the 33rd percentile of the average spending on housing, food, utilities, and clothing multiplied by 1.2.
The CPM, Fremstad said, is typically structured similarly to the SPM as to what it counts and subtracts, but, like all relative poverty measures, its threshold is tied to a percentage of median incomes, thus reflecting the growth of the economy. Fremstad noted that at the time the OPM was adopted, it was equal to roughly 50 percent of the median income, but that has drastically fallen since it has only been updated for inflation. The OPM, Fremstad said, has thus defined poverty down over the past fifty years and the SPM has effectively done the same. The OPM is now about 30 percent of median disposable household income, the SPM is roughly about 35 percent.
The first of Fremstad’s five recommendations is to immediately discontinue using the OPM. He clarified that if the Office of Management and Budget were to discontinue the OPM for statistical purposes and did not immediately adopt a new measure as the official threshold, it would need to continue to use the OPM for programmatic purposes, such as the Department of Health and Human Service setting its poverty guidelines to determine SNAP eligibility, until a new set was adopted.
The second recommendation is to adopt a relative poverty measure tied to 50–60 percent of median income, with the caveat that it is not a standalone measure but should be one of several poverty measures.
The third recommendation is to modernize SPM’s thresholds based on a broader array of goods and services.
The fourth recommendation is to include health care and child care in SPM thresholds. Specifically, it should include the cost of health insurance in the threshold, and count employer-sponsored health insurance and government health care benefits as income.
The fifth and final recommendation is to review the treatment of lump-sum refundable tax credits in the SPM and CPM. The SPM currently assumes a 100 percent take-up rate of these tax credits, but this is often not the case.
To Dump the OPM or Not?
After Fremstad’s presentation, Jeff Madrick asked an expert panel whether they think the OPM should be immediately discontinued, as the report suggests.
Arloc Sherman, vice president of data analysis and research at Center on Budget and Policy Priorities, agreed that the OPM is out of date, the SPM is too low, and a modernized poverty line is needed. However, Sherman argued that the OPM should not be discontinued, for pragmatic reasons, given that the OPM tables from the Census Bureau are used by the Department of Health and Human Services to generate the poverty guidelines and set eligibility rules for programs like SNAP. The United States should “absolutely” adopt a relative measure of poverty, said Sherman, but should include it in the toolkit of measures rather than making it the lead measure.
To Sherman’s point, Fremstad noted in the report that it is possible to both discontinue the OPM as a statistical tool while still allowing programs to use the measure for programmatic purposes until a new official measure is adopted. Such a staggered approach would likely spur momentum to adopt a new official measure to be used for both statistical and programmatic purposes.
Anne Price, president of the Insight Center, said the OPM should no longer be used, given its inability to accurately measure poverty in the country. The suggestion to discontinue the OPM, Price said, should help to foster new conversations and deep thinking about what is needed to live comfortably.
Price pointed out the distressing gap between the poverty line and the true cost of living, epitomized by the fact that the OPM for a family of four in 2018 was about $2,100 a month, compared to the basic standard of living being roughly $8,100 for the same family living in California. The cost of living, Price said, has far outpaced the OPM. Price noted that the cost of health care and child care alone in California make up roughly $2,800 in expenses a month, higher than the overall OPM. The poverty measure is out of balance with the lived experience, she said, and so replacing the measure is more than just a technical fix, but rather encompasses larger realities of income inequality, Price said.
Sandra Killett, an activist and social justice organizer who lived in poverty while raising her two sons as a single parent, said that people can “absolutely not” live comfortably on an OPM poverty threshold. Killett said that the narrative of what someone in poverty looks like and what they go through is not accurate. Killett said that it is possible to scrap the OPM while simultaneously working towards a more humane measure for those living in poverty.
Killett said that when her sons were small children in 2006, the minimum income needed to raise two children was $53,000–$55,000 at that time. Almost fifteen years later, Killett said, $53,000 is nowhere near close to what a family with two children needs to live comfortably, despite it being more than double the OPM poverty line.
What Should Be Included in a Modern Poverty Measure?
Madrick asked the panel about whether savings or assets should be included as a factor in the poverty measure, and what it could tell us about the state of poverty today.
Price said that a core element of economic mobility is being able to save money regularly to be able to handle unexpected expenses, such as your car breaking down. Savings are a signal of economic security and whether you are able to weather daily existence, she said.
Sherman said that including savings or assets is difficult to operationalize, but doing so would gather information about people who are living on savings and their circumstances, such as retired people, which could be fruitful for research.
Killett said that, from her experience, people who are in poverty have absolutely nothing left over to put into savings. If basic needs such as food, housing, health care, and child care are being addressed, she said, then a person in poverty can absolutely save money, but right now every penny in their tight budgets is already spoken for by the basic needs. Poor people are not able to build toward anything that resembles wealth because there is nothing left over every month to put towards those savings.
While food and housing are obviously important, people should not have to choose whether they need one over the other.
When asked what resources were most important to prioritize, Killett responded that food would likely be the priority, but pointed to a larger reality. People in poverty are asked to prioritize what they need to survive, but the question should be more focused on what people need to thrive, Killett said. She said that while food and housing are obviously important, people should not have to choose whether they need one over the other.
“The intersectionality of all of these systems, including housing, food, and health care are drivers [of inequality],” Killet said. “If we want to stop this, we must be courageous, we must have the will, and we must be bold, because that is what it is going to take.”
Moving Toward a Conventional/Relative Poverty Measure
Madrick asked the panel about the political context surrounding poverty measurement, and the stakes of it today while more and more children slip into poverty because of COVID-19.
Fremstad responded that opponents of the relative poverty measure often worry that it doesn’t distinguish enough between inequality and poverty, to which he would argue that the two are already similar. He drew a sharp distinction between the statistical use of the poverty measure and the programmatic use for social policies—that the statistical measure is inaccurate, but the OPM cannot necessarily be axed because it is used for programmatic purposes. “The Census Bureau is violating its own statistical principles by continuing to use this as a ‘statistical measure’ that it published hundreds of reports on and treats like a serious measure of poverty,” Fremstad said.
Sherman reiterated that many countries use a relative poverty measure linked to 60 percent of the standard median income. Because there are so many poverty measures, it can become confusing to nail down the true definition of poverty, exacerbated by the increasingly politicization of poverty, Sherman said. Sherman suggested a “get along” standard that would reflect what people actually feel they need to live on. The poverty debate gets clouded in personal prejudices and often racial undertones, as shown through focus groups, Sherman said.
On moving forward in poverty measurement, Price said that more conversations are needed to challenge the deep-seated narratives surrounding poverty, and that the OPM is stopping us from having those conversations or getting public input on a new measure. No matter the political affiliation, she said, it often comes down to the perceived idea of who deserves what.
Killett said that while there are many problems to confront, we cannot be afraid to tackle them simultaneously, and we must be courageous, bold, and we must not let up. Amid a dual pandemic and recession, she said, roughly eight million people are being pushed into poverty, a figure based on the SPM because the OPM is widely recognized as deeply flawed.
How many people are undercounted and being pushed into unrecognized poverty with no support because the poverty line is set drastically too low? As the webinar drew to a close, the consensus among the participants was that it was long past time to make serious changes to the way the U.S. measures poverty throughout the country. It is time to move away from the OPM as a statistical measure and toward an array of tools to measure poverty, including a relative measure. How can America seriously confront poverty without accurately understanding how many people are truly in poverty? Now is the time to reset the poverty line.
header photos: New Yorkers in need wait in a long line to receive free produce, dry goods, and meat at a Food Bank For New York City distribution event at Lincoln Center on July 29, 2020 in New York City. Source: Scott Heins/ Getty images
Tags: economy, poverty line, opm
It’s Time to Reset the Poverty Line
In 1969, the federal government established the Official Poverty Measure (OPM) as its first-ever measure of poverty—created by taking the USDA’s “low-cost” food plan and multiplying it by three, with the assumption that this amount was enough for a family to avoid poverty. More than fifty years later, the OPM has only been updated for inflation.
The Supplemental Poverty Measure (SPM) was implemented in 2011 by the Obama administration in an attempt to make up for the inadequacies of the OPM. But it is still not sufficient, and remains unofficial.
In 2019, the OPM’s poverty line was set at $25,926 for a two-adult, two-child family unit, and the SPM for the same family was $28,881. Surveys show that the American public considers the poverty line, or the minimum income a family needs to avoid poverty, to be much higher than the government does. For example, one 2016 survey found that people thought that the poverty line is far too low and that it underestimates how widespread poverty truly is. A recent report from the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation and the Center for Economic and Policy Research (CEPR) analyzed poverty trends over the past fifty years and put forth recommendations to improve the accuracy of poverty measures.
On October 1, 2020, The Century Foundation and CEPR co-sponsored a webinar, “A New Measure to End Poverty,” to discuss the report’s findings. The webinar featured discussion between the report’s author, Shawn Fremstad, leading thinkers in poverty measurement, and an individual with lived experience in poverty. The event was moderated by Jeff Madrick, a senior fellow at The Century Foundation and director of the Bernard L. Schwartz Rediscovering Government Initiative.
Andrew Stettner, senior fellow at The Century Foundation, and Eileen Appelbaum, co-director of the CEPR, kicked off the event by providing context as to why poverty measures matter. COVID-19 has highlighted the inadequacies of U.S. poverty measures, Appelbaum said, and the poverty line denies thousands of people whose incomes are at or just above the line badly needed resources. The question the report poses, she said, is what the minimum should be to protect families from falling out of the middle class and into poverty.
Jeff Madrick then gave a brief history of the poverty measures in the United States, stating that the Johnson administration chose the lower of the two poverty measures proposed by Social Security Administration economist Mollie Orshansky in the early 1960s, which would become the Official Poverty Measure in 1969.
Flaws in Current Poverty Measures and Recommendations for a More Accurate Measure
Shawn Fremstad, senior policy fellow at the CEPR, kicked off the technical portion of the webinar by presenting the findings in the new report, “The Defining Down of Economic Deprivation: Why We Need to Reset the Poverty Line.”
Fremstad explained how measures are used as indicators of social and economic wellbeing and for rationing social benefits, particularly means-tested programs. Fremstad gave an overview of three measures: the Official Poverty Measure, the Supplemental Poverty Measure, and a Conventional (or relative) Poverty Measure (CPM). The CPM is a poverty measure that many countries use, which ties their poverty line to larger trends, such as median income.
Fremstad reviewed where each measure sets its threshold, the resources it does and does not count, and the expenses it does and does not subtract. The OPM, he said, only counts pre-tax “money” income, does not count any in-kind income such as food stamps, and does not subtract any expenses. The OPM sets the poverty line at 1962’s low-cost food plan multiplied by three and adjusted for inflation.
The SPM counts “money” income, tax credits, and some forms of in-kind income such as SNAP, Fremstad said, but does not count employer-sponsored health insurance, Medicaid, or free/subsidized child care. It subtracts tax obligations, spending on child care for work and health care, and work expenses such as commuting. The SPM sets its poverty line at the 33rd percentile of the average spending on housing, food, utilities, and clothing multiplied by 1.2.
The CPM, Fremstad said, is typically structured similarly to the SPM as to what it counts and subtracts, but, like all relative poverty measures, its threshold is tied to a percentage of median incomes, thus reflecting the growth of the economy. Fremstad noted that at the time the OPM was adopted, it was equal to roughly 50 percent of the median income, but that has drastically fallen since it has only been updated for inflation. The OPM, Fremstad said, has thus defined poverty down over the past fifty years and the SPM has effectively done the same. The OPM is now about 30 percent of median disposable household income, the SPM is roughly about 35 percent.
The first of Fremstad’s five recommendations is to immediately discontinue using the OPM. He clarified that if the Office of Management and Budget were to discontinue the OPM for statistical purposes and did not immediately adopt a new measure as the official threshold, it would need to continue to use the OPM for programmatic purposes, such as the Department of Health and Human Service setting its poverty guidelines to determine SNAP eligibility, until a new set was adopted.
The second recommendation is to adopt a relative poverty measure tied to 50–60 percent of median income, with the caveat that it is not a standalone measure but should be one of several poverty measures.
The third recommendation is to modernize SPM’s thresholds based on a broader array of goods and services.
The fourth recommendation is to include health care and child care in SPM thresholds. Specifically, it should include the cost of health insurance in the threshold, and count employer-sponsored health insurance and government health care benefits as income.
The fifth and final recommendation is to review the treatment of lump-sum refundable tax credits in the SPM and CPM. The SPM currently assumes a 100 percent take-up rate of these tax credits, but this is often not the case.
To Dump the OPM or Not?
After Fremstad’s presentation, Jeff Madrick asked an expert panel whether they think the OPM should be immediately discontinued, as the report suggests.
Arloc Sherman, vice president of data analysis and research at Center on Budget and Policy Priorities, agreed that the OPM is out of date, the SPM is too low, and a modernized poverty line is needed. However, Sherman argued that the OPM should not be discontinued, for pragmatic reasons, given that the OPM tables from the Census Bureau are used by the Department of Health and Human Services to generate the poverty guidelines and set eligibility rules for programs like SNAP. The United States should “absolutely” adopt a relative measure of poverty, said Sherman, but should include it in the toolkit of measures rather than making it the lead measure.
To Sherman’s point, Fremstad noted in the report that it is possible to both discontinue the OPM as a statistical tool while still allowing programs to use the measure for programmatic purposes until a new official measure is adopted. Such a staggered approach would likely spur momentum to adopt a new official measure to be used for both statistical and programmatic purposes.
Anne Price, president of the Insight Center, said the OPM should no longer be used, given its inability to accurately measure poverty in the country. The suggestion to discontinue the OPM, Price said, should help to foster new conversations and deep thinking about what is needed to live comfortably.
Price pointed out the distressing gap between the poverty line and the true cost of living, epitomized by the fact that the OPM for a family of four in 2018 was about $2,100 a month, compared to the basic standard of living being roughly $8,100 for the same family living in California. The cost of living, Price said, has far outpaced the OPM. Price noted that the cost of health care and child care alone in California make up roughly $2,800 in expenses a month, higher than the overall OPM. The poverty measure is out of balance with the lived experience, she said, and so replacing the measure is more than just a technical fix, but rather encompasses larger realities of income inequality, Price said.
Sandra Killett, an activist and social justice organizer who lived in poverty while raising her two sons as a single parent, said that people can “absolutely not” live comfortably on an OPM poverty threshold. Killett said that the narrative of what someone in poverty looks like and what they go through is not accurate. Killett said that it is possible to scrap the OPM while simultaneously working towards a more humane measure for those living in poverty.
Killett said that when her sons were small children in 2006, the minimum income needed to raise two children was $53,000–$55,000 at that time. Almost fifteen years later, Killett said, $53,000 is nowhere near close to what a family with two children needs to live comfortably, despite it being more than double the OPM poverty line.
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What Should Be Included in a Modern Poverty Measure?
Madrick asked the panel about whether savings or assets should be included as a factor in the poverty measure, and what it could tell us about the state of poverty today.
Price said that a core element of economic mobility is being able to save money regularly to be able to handle unexpected expenses, such as your car breaking down. Savings are a signal of economic security and whether you are able to weather daily existence, she said.
Sherman said that including savings or assets is difficult to operationalize, but doing so would gather information about people who are living on savings and their circumstances, such as retired people, which could be fruitful for research.
Killett said that, from her experience, people who are in poverty have absolutely nothing left over to put into savings. If basic needs such as food, housing, health care, and child care are being addressed, she said, then a person in poverty can absolutely save money, but right now every penny in their tight budgets is already spoken for by the basic needs. Poor people are not able to build toward anything that resembles wealth because there is nothing left over every month to put towards those savings.
When asked what resources were most important to prioritize, Killett responded that food would likely be the priority, but pointed to a larger reality. People in poverty are asked to prioritize what they need to survive, but the question should be more focused on what people need to thrive, Killett said. She said that while food and housing are obviously important, people should not have to choose whether they need one over the other.
“The intersectionality of all of these systems, including housing, food, and health care are drivers [of inequality],” Killet said. “If we want to stop this, we must be courageous, we must have the will, and we must be bold, because that is what it is going to take.”
Moving Toward a Conventional/Relative Poverty Measure
Madrick asked the panel about the political context surrounding poverty measurement, and the stakes of it today while more and more children slip into poverty because of COVID-19.
Fremstad responded that opponents of the relative poverty measure often worry that it doesn’t distinguish enough between inequality and poverty, to which he would argue that the two are already similar. He drew a sharp distinction between the statistical use of the poverty measure and the programmatic use for social policies—that the statistical measure is inaccurate, but the OPM cannot necessarily be axed because it is used for programmatic purposes. “The Census Bureau is violating its own statistical principles by continuing to use this as a ‘statistical measure’ that it published hundreds of reports on and treats like a serious measure of poverty,” Fremstad said.
Sherman reiterated that many countries use a relative poverty measure linked to 60 percent of the standard median income. Because there are so many poverty measures, it can become confusing to nail down the true definition of poverty, exacerbated by the increasingly politicization of poverty, Sherman said. Sherman suggested a “get along” standard that would reflect what people actually feel they need to live on. The poverty debate gets clouded in personal prejudices and often racial undertones, as shown through focus groups, Sherman said.
On moving forward in poverty measurement, Price said that more conversations are needed to challenge the deep-seated narratives surrounding poverty, and that the OPM is stopping us from having those conversations or getting public input on a new measure. No matter the political affiliation, she said, it often comes down to the perceived idea of who deserves what.
Killett said that while there are many problems to confront, we cannot be afraid to tackle them simultaneously, and we must be courageous, bold, and we must not let up. Amid a dual pandemic and recession, she said, roughly eight million people are being pushed into poverty, a figure based on the SPM because the OPM is widely recognized as deeply flawed.
How many people are undercounted and being pushed into unrecognized poverty with no support because the poverty line is set drastically too low? As the webinar drew to a close, the consensus among the participants was that it was long past time to make serious changes to the way the U.S. measures poverty throughout the country. It is time to move away from the OPM as a statistical measure and toward an array of tools to measure poverty, including a relative measure. How can America seriously confront poverty without accurately understanding how many people are truly in poverty? Now is the time to reset the poverty line.
header photos: New Yorkers in need wait in a long line to receive free produce, dry goods, and meat at a Food Bank For New York City distribution event at Lincoln Center on July 29, 2020 in New York City. Source: Scott Heins/ Getty images
Tags: economy, poverty line, opm