Economix Blog: Nancy Folbre: What Percentage Lives in Poverty?

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Do poor people represent the bottom 16 percent of the population or the bottom 15 percent? The answer matters more than you might think.

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The difficulty of measuring economic well-being helps explain why it’s hard for people to figure out what economic percentile they belong to or which public policies would best serve their interests.

A difference of one percentage point in the overall poverty rate is no big deal. But the new Supplemental Poverty Measure, or S.P.M., developed by the Census Bureau, which yields the slightly higher overall estimate, shows lower rates of poverty among children and higher rates among the elderly than the traditional measure. An estimate based on a measure similar to the S.P.M. suggests that poverty has increased less over time.

The S.P.M. goes beyond consideration of money income to estimate the value of such in-kind transfers as food stamps, net taxes paid to government (taxes paid less the value of tax credits received), and medical and work-related expenses (such as child care and commuting costs). It also employs a new standard of need, linked to what low-income families actually spend.

Children are the beneficiaries of more of the in-kind transfers measured by the S.P.M. than people over age 65 and have fewer out-of-pocket medical expenses. As a result, they look less susceptible to poverty under the new measure than the traditional one, especially compared with older adults. Safety net programs such as food stamps expanded during the Great Recession.

Any income-based measure that takes such transfers into account is likely to show a smaller increase in poverty resulting from the recession than one that does not. Indeed, a good measure of poverty should register the impact of major public policies.

Unfortunately, the S.P.M. suffers some painful limitations. Like the traditional poverty measure, it understates the relative economic well-being of older adults because it ignores the value of their wealth – which doesn’t count as income although it can reduce or help cover their living expenses.

Also, some low-income families simply can’t afford expenditures on health and go untreated. They are not necessarily better off than similar families who spend money on health, though the S.P.M. might make them appear so.

Shawn Fremstad of the Center for Economic and Policy Priorities effectively details these shortcomings. But like others who acknowledge the S.P.M.’s limitations, including Arloc Sherman of the Center for Budget and Policy Priorities and Heidi Hartmann of the Institute for Women’s Policy Research, he agrees that it provides important new information.

Much depends on how researchers, journalists and public policy makers interpret the measure and how they explain the difficulties of measuring economic well-being.

The in-kind benefits that people receive from government go far beyond those measured in the S.P.M. and include big-ticket items such as spending on public education and Medicare expenditures. Tax benefits range from implicit tax subsidies for employer-provided health insurance to the mortgage-interest tax deduction.

The value of these benefits to individual families is not measured in any comprehensive survey. Both in-kind and tax benefits to the poor are more politically visible, and they phase out rapidly as family income increases above the poverty line, where both federal income and Social Security taxes begin to bite harder.

This differential visibility probably intensifies political resentments that some middle-income working families feel toward the poor.

Yet taking net taxes and work-related expenditures into account shows many families closer to the poverty line than they would otherwise seem. Using the traditional income-based measure, about 36 percent of Americans lived in families with income more than four times the poverty level in 2010. Using the S.P.M. measure of economic well-being, the size of that top group declines to 17 percent.

Major government transfers and benefits are directed at different age groups. As a result, age-based politics now greatly complicates political alignments based on class. Most individuals enjoy large transfers from the government as children (through public education) and as retirees (Social Security and Medicare) paying net taxes only as working-age adults. As a result, voters are often confronted by choices that might help them now but hurt them later, benefit their children or harm their parents.

We are now a demographically diverse population with enormous variation across households in the extent of time devoted to the care of dependents, whether children, individuals with health or disability problems, or the frail elderly. Yet we don’t factor either the costs or the benefits of this work time into estimates of family living standards.

When differences across income groups are extreme and increasing over time — as between the bottom 99 percent and the top 1 percent – they can trump these complexities.

But any political movement that aims to unify American voters must devise strategies to improve their standard of living. Such strategies should be informed by serious efforts to go beyond conventional measures of family income to develop more comprehensive measures of economic well-being.

Article source: http://feeds.nytimes.com/click.phdo?i=7155f47120d8927b8ab31f63288116b7