Progress Against Poverty (1959-1983): The Recent Poverty Debate

:iTf O r d e r C o d e IB84013 18 3 ) : THE RECENT POVERTY 1/07 / 8 5 be Wel f a r e D i v i s i o n ear ch S e r v i c e DEBATE CRS- 1 ISSUE DEFINITION Over the last quarter century, poverty in t h e United S t a t e s has been considerably reduced. From 1 9 7 8 t o 1 9 8 2 , h o w e v e r , the poverty rate increased dramatically. T h e r a t e of increase abated somewhat i n 1983. In 1 9 8 3 , 35.3 million people, 15.2% of the p o p u l a t i o n , were considered poor by the official definition. The poverty r a t e was 3 3 % higher than when it began to rise in 1 9 7 8 , and was a t its highest level since 1 9 6 5 , but 32% lower than its f i r s t measured l e v e l i n 1959. About 9 0 0 , 0 0 0 m o r e people were counted a s poor in 1 9 8 3 than in 1982. While the number of poor increased over this period, so too did the size of the population a s a whole. Consequently, the poverty rate in 1 9 8 3 was a b o u t the same a s i n 1 9 8 2 -- 15.2% compared to 15.0%. This change is judged to be statistically insignificant. The recent trend has stirred considerable debate among scholars and policy i s s u e s , including ;?e makers allke. The debate has focused on a number of way in which poverty i s measured, how the economy a n d income transfer programs affect pOVerty, and h o w different g r o u p s in t h e population have faired over time relative to the poverty standard. BACKGROUND AND POLICY ANALYSIS HISTORICAL BACKGROUND 1960s, after The Census Bureau began counting the poor i n the mid wlth President Johnson declared "an unconditional war on poverty." In tandem the President's i 9 6 4 declaration, the Council o f Economic Advisors (CEA) addressed the problem of poverty i n i t s annual report proposing the use o f a measure to help identify the l o w income population and the problems they f a c e , to provide policy g u i d a n c e , and to help gauge past and f u t u r e progress z s w a r a z n e g o a l sf s r r a a i c 2 ; l n g ?overzy. Al-- , e n e a s u r e prsposfa 3y c n e ZEA .*:as eiaborated on by Dr. Mollle O r s h a n s ~ yzf the S o c l a l Securlty Admin~stratlon. Sy As early as 1 9 6 5 , the "Orshansky poverty guidelines" were being used various Government a g e n c i e s , for administrative a n d planning purposes, but i t was n o t . u n t i l 1 9 6 9 that the measure become official. -- - P r e s e n t l y , the Federal Government uses two slightly different definitions of poverty. O n e , the statistical definition, is maintained a n d updated by the Census Bureau and i s used to arrive a t o f f i c i a l estimates o f the number and characteristics o f the poverty population. Census Bureau poverty estimates are also used to distribute Federal f u n d s to States under various programs. Each f a l l the Census Bureau releases i t s report o n poverty from the March Income Supplement to the Current Population Survey (CPS). In addition to the statistical d e f i n i t i o n , the Department of Health and Human of Management and Budget Services, using a method developed by the Office (OMB), is responsible f o r maintaining the "Federal poverty i n c o m e guidelines" used to determine eligibility f o r some F e d e r a l programs. The OMB (administrative) definition of poverty i s derived from the Census Bureau definition and for a four-person family is a l m o s t iaentical to it. This paper examines issues and trends relating to the Census Bureau's (statistical) poverty measure. CRS- 2 THE OFFICIAL DEFINITION OF POVERTY T h e methods for deriving the official poverty standard, except for minor adjustments, essentially have remained unchanged since being developed originally by Mollie Orshansky i n the early 1960s. T h e measure thereby provides a relatively consistent basls for assessing c h a n g e over time. The Census Bureau's definition provides an estimate of the amount of income required by families of varying size and composition to Furchase a "minimally adequateg' market basket of goods and services cn a n annual basis. to what constitutes a micimally While there is n o general agreement as adequate standard of l i v i n g , the poverty thresholds a r e based upon one component of consumption which most would a g r e e i s essential to maintaining a the amount of income required to purchase a minimal standard of living minimally adequate diet. For this purpose, the U.S. Department of Agriculture's 1961 Economy Food 2ian was used to arrive a t :he r e q u ~ s i ~feo o e size and composition that budget which would a l l o w a family of a given follows the plan to purchase foods that would meet basic nutritional standards -- Recommended Daily Allowances (RDAs), established by the National Academy of Sciences, National Research Council. The plan assumes that a l l meals are prepared at home and all food i s purchased at retail. 1t a l s o assumes the consumer purchases the types and quality of food on che p l a n , a n 5 has skill to prepare it properly. The poverty thresholds were then estimated by ~ ~ u l t i p l y i n the g cost of the economy food plan by three (for single-person ianilies, a slightly higher multiplier was used), to take into account ocher necessities such a s clothing and shelter. The multiplier is based on results from the U.S. Department of Agriculture's 1 9 5 5 Food C ~ n s u m p t i o n S u r v e y , which found that on average families spend one-third of their after tax cash income on f o o d , and two thirds on all other items. -- On the basis of these methods, the Census Bureau arrlves a t 48 (124 prlor to 1981) separate poverty thresholds for ~ u r ~ o s eof s conntlns t h e ~ o o r . T h e :nresr,;its v a r : ~ sy fan;:: s;ze arc a g e car-,pcsr;:on. Zacs y e a r , -e, :ex2 ,Bureau adlusts tne povercy tnresnclds for cnanges rn prrces u s ~ n g the thresholds, Consumer P r i c e Index (CPI). Also, the Bureau publishes average w h ~ c hare produced by the 48 separate thresholds, and welghted by the s h a r e of the poverty population z n each of these cells. These thresholds a r e shown below ln Table 1. In 1 9 8 3 , the threshold for a family of 4 was $ 1 0 , 1 7 8 . CRS- 3 TABLE 1 Poverty Thresholds i n 1 9 8 3 ...................... ................................... ................................ ............................................ 1 person (unrelated individual) 1 5 to 64 years 6 5 years and over 2 persons Householder 1 5 to 6 4 years Householder 6 5 years and over 3 persons 4 porsons 5 persons 6 persons 7 persons 5 Fersons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 persons or more ....................... .................... ............................................ ............................................ ............................................ ............................................ ............................................ .................................... Source: Bureau of the Census. Current Population Reports. series P - 6 0 . n o . l45. p . 2 - . U.S. . 7 CWS- 4 Counting t h e Poor An i n d i v i d u a l o r f a m i l y a n d i t s m e m b e r s a r e c o u n t e d a s p o o r i f i t s annual before-tax cash income, a s r e p o r t e d o n t h e CPS, is less than the corresponding poverty threshold f o r t h a t s i z e and type of family. Several t y p e s of income a r e counted a g a i n s t t h e t h r e s h o l d , i n c l u d i n g : Market ( P r e - t r a n s f e r ) Cash Income: wages, s a l a r i e s , farm income, i n t e r e s t and dividends, i n t e r f a m i l y t r a n s f e r s (alimony and/or c h i l d s u p p o r t ) , p r i v a t e and government pensions; S o c i a l I n s u r a n c e (?re-Welfare) Cash Income: Social s e c u r i t y payments, unemployment c o m p e n s a t i o n , workers compensation, v e t e r a n s payments; and A i d t o Families with Dependent W e l f a r e C a s h Income: -+. b,.;Ldrer, :AF3C' ? a y T , e n t a , S u p p l 2 m e n z a l 3 2 ~ 2 r l c y income ( S S I ) , StaLe and l o c a l Generai A s s l s c a n c e ( G A ) . ' 7 E x c l u d e d f r o m i n c o m e c o u n t e d t o d e c i d e who is poor: in-kind Government lunches; a s s i s t a n c e such as food stamps, Medicare, and Medicaid, f r e e s c h o o l a n d i n - k i n d f r i n g e b e n e f i t s s u c h as employer-sponsored h e a l t h b e n e f i t s . TRENDS I N TXE POVERTY R A T E (1959 t o 1983) characterized 2y The = r e n d i n t 3 e ? o v e r t ? r a t e o v e r t 3 e l a s t 25 y e z r s i s t h r e e S l s t i n c c ~ e r l o c s . Prom 1959 zo 1969, the poverty rate decline6 the next decade, the rate s t e a d i l y , from a h i g h of 2 2 . 4 % t o 1 2 . 1 % . C v e r Since i978, r e m a i n e d r e l a t i v e l y s t e a d y , f l u c t u a t i n g i n t h e 11 t o 1 2 % r a n g e . 15.21 in 19% -- 2 3 % t h e p o v e r t y r a t e h a s L n c r s a s e d eac"'ear, reac3Fnc - - .. - .- 2 y -..a,- - . - - '7-2 . - 2 2 :z;-= .. = -..' .--.. -= - -. . -- I --,2 - P - 21. < .a - - i i 5 - i; A n . . CRS- 5 TABLE 2 Poverty Rates f o r S e l e c t e d Groups CY Total Aged NonAged Adults (1959-1983) Related Children U n d e r Age 18 FemaleA l l Headed Other FarniFamiTotal l i e s lies 7C -- A l l Ages Whites - 2- ST;. - 68.4 72.2 Source: U.S. Bureau series P-60, of t h e Census Current Population no. 145. Reports, Blacks CRS- 6 IB84013 UPDATE-06/07/85 RECENT TRENDS IN THE POVERTY GAP Accompanying t h e i n c r e a s e i n t h e p o v e r t y r a t e o v e r t h e l a s t s e v e r a l years has been a n i n c r e a s e i n t h e poverty gap. T h e p o v e r t y g a p , a l s o known a s the poverty income d e f i c i t , i s t h e d i f f e r e n c e between a poor f a m i l y ' s income and the poverty threshold. In 1983, the aggregate poverty gap amounted t o in real approximately $47.1 b i l l i o n , which i s n e a r l y t h r e e - q u a r t e r s h i g h e r , t e r m s , t h a n i n 1 9 7 5 , when i t was $ 2 7 . 3 b i l l i o n . The i n c r e a s e i n t h e poverty as w e l l as d e c l i n i n g g a p r e f l e c t s a l a r g e r number o f families i n p o v e r t y , In 1975, the poverty gap per poor i n c o m e among f a m i l i e s t h a t a r e p o o r . f a m i l y member w a s $ 1 , 1 3 6 , b u t i n 1 9 8 3 h a d i n c r e a s e d t o $ 1 , 3 3 5 . TABLE 3 A g g r e g a t e a n d P e r C a p i t a P o v e r t y Gap i n S e l e c t e d Y e a r s * ( i n 1983 d o l l a r s ) A g g r e g a t e Gap (in millizns) $47,082 Gap p e r P o o r F a m i l y Member * Poverty gap f i g u r e s reported h e r e a r e from s p e c i a l CRS t a b c l a t i o n s o f t h e M a r c h C u r r e n t P o p u l a t i o n S u r v e y s from 1980 t h r o u g h 1 9 8 4 , a n d t h e 1 3 7 6 S u r v e y of Income a n d S d u c a t i o n ( S I E ? . The numbers a r e s l i g h t l y h i g h e r t h a n t h c s e r e p o r t e d by t h e Census Bureau b e c a u s e of the inclusion of unrelated subfamilies. R E L A T E D TRENDS Changes in the demographic composition of the population, economic c o n d i t i o n s , a n d p u b l i c p o l i c y t o w a r d s s o c i a l p r o g r a m s a l l a f f e c t t h e t r e n d in t h e poverty r a t e and poverty gap. E a c h o f t h e s e f a c t o r s a f f e c t i n g p o v e r t y 5s d i s c u s s e d below. Economic T r e n d s Wages a n d s a l a r i e s a r e t h e l a r g e s t c o m p o n e n t o f p e r s o n a l i n c o m e , s o i t is not surprising t h a t poverty rates tend to follow economic trends quite closely. The p e r i o d of s t e a d y d e c l i n e i n t h e p o v e r t y r a t e from 1959 t o 1969 Widespread increases coincides w i t h a period of s u s t a i n e d economic growth. i n t h e s t a n d a r d o f l i v i n g l i f t e d a g r e a t many A m e r i c a n s a b o v e t h e "abs.oluteW t h i s period per c a p i t a wage and salary income poverty threshold; over the i n c r e a s e d a t a n ' a n n u a l a v e r a g e r a t e of 3.3% p e r y e a r i n r e a l t e r m s w h i l e 1969 through p o v e r t y r a t e d e c l i n e d a t a n a n n u a l a v e r a g e r a t e o f 6 . 0 % . From 1 9 7 8 , t h e r e was l i t t l e c o n s i s t e n t e c o n o m i c g r o w t h ; p e r c a p i t a wage a n d s a l a r y i n c o m e grew by a b o u t 1 . 2 % p e r y e a t , a n d t h e p o v e r t y r a t e declined by about 3 . 7 % p e r y e a r , on a v e r a g e . CRS- 7 IB84013 UPDATE-06/07/85 Most analysts a g r e e that the recent r i s e i n poverty reflected a deteriorating trend i n the economy. From 1 9 7 8 to 1 9 8 2 per capita wage a n d salary income decreased a t a n annual average r a t e of 2.2% w h i l e the poverty A recession beginning i n rate increased at a n annual average rate of 7.7%. t h e worst recession January 1 9 8 0 , after a brief reversal, was followed by since the Great Depression. In 1 9 8 0 , prices were increasing a t a n a n n u a l average r a t e o f 13.5%. By 1 9 8 2 , the inflation r a t e had been c u t i n half, to 6.1%, but a t the expense of a n increasing unemployment rate; in 1982 the unemployment rate reached a post-war high of 9.7%. In 1 9 8 3 , the unemployment rate remained relatively h i g h , a t 9.6%, while the annual r a t e of inflation continued to drop to a level of 3.2%. Demographic Trends Denographic changes typically occur g r a d u a l l y , and thus tend mostly to affect the long term trend in poverty. S e v e r a l demographic factors a r e A doubling likely to have had a n impact on the trend in poverty since 1959. of the divorce rate aEd a z r ~ p i l n qof ,he race of out-of-wedlock b ~ r c h s have resulted i n a doubling of the proportion of children in s i n g l e female headed families from 1 9 5 9 to 1982. The incidence of poverty i s especially high for this type of family. T h u s , the increasing number of f e m a l e headed families has pushed upward the overall poverty r a t e , a n d t h e r a t e a m o n g children, i n particular. Another demographic change that may have affected the poverty rate was the movement of the post war baby boom generation into eariy adulthood, a n age of relatively l o w income f o r many. Increases in longevity Typically o u t s i d e the l a b o r have resulted in a growing elderly population. f o r c e , a n d having to to rely upon sources cf i n c o m e other than earnings, t h e elderly h a v e , until recent y e a r s , tended to be poor. A r e c e n t Census Bureau report estimated that the poverty r a t e for f a m i l i e s composition had noc in 1 9 8 0 would have been 29% lower if changes i n family occurred during the 1970s. Government cash transfer programs play an. important r o l e i n combatting poverty. Since the early 1 9 6 0 ~Federal ~ social insurance expenditures such as social security a n d unemployment compensation have increas,ed a t a much more rapid pace than Federal cash welfare expenditures. F e d e r a l expenditures on cash social insurance programs a r e a l s o much greater than Federal cash welfare expenditures -- $202.2 billion (social security a n d unemployment compensation) compared to $20.5 billion (public a s s i s t a n c e , Supplemental Security I n c o m e , non-service connected veterans pensions) i n FY83. After having grown by about 7 0 % , i n real dollars, from 1 9 6 5 to 1 9 7 5 , Federal c a s h welfare expenditures have not grown significantly since. However, assistance to low-income persons in the form of non-cash welfare b e n e f i t s , which has no affect o n the number of persons counted a s p o o r , increased considerably over the y e a r s , accounting for about 1 0 % of total Federal welfare expenditures i n 1 9 6 5 , 52% i n 1 9 7 5 , and 6 5 % in 1983. -- For covered workers social insurance programs replace s o m e of the earnings lost because of unemployment, injury or d i s a b i l i t y , or retirement. While n o t directed a t the poor per s e , social insurance programs have a much greater impact upon the reduction of poverty than do cash welfare programs, both due t o t h e number of people receiving benefits and the level of benefits CRS- 8 IB84013 UPDATE-06/07/85 provided. For example, i n 1983, t h e poverty r a t e f o r the total population. would have b e e n 39% h i g h e r t h a n t h e o f f i c i a l r a t e (21.1% r a t h e r than 15.2%) i f s o c i a l s e c u r i t y income were n o t counted. The e f f e c t o f s o c i a l s e c u r i t y i n c o m b a t t i n g p o v e r t y among t h e a g e d i s p a r t i c u l a r l y dramatic. In 1983, the p o v e r t y r a t e f o r t h e aged would have been 4 9 . 9 % , o r a b o u t t h r e e a n d one-half t i m e s t h e o f f i c i a l r a t e of 1 4 1 % i f social security benefits were not counted a s income. In comparison t o s o c i a l insurance programs, cash w e l f a r e programs (AFDC, number of persons counted as S S I , G A ) h a v e o n l y a m a r g i n a l e f f e c t on t h e poor. These programs a r e s p e c i f i c a l l y aimed a t t h e poor. If income from t h e s e programs were n o t counted, t h e poverty r a t e i n 1983 would have been o n l y a b o u t 6% h i g h e r (16.1% compared t o 1 5 . 2 % ) . While n o t greatly reducing t h e number o f p o o r , c a s h w e l f a r e p r o g r a m s a r e a n i m p o r t a n t s o u r c e o f income t o t h e poor. I n 1 9 8 3 , c a s h w e l f a r e p r o g r a m s r e d u c e d t h e p o v e r t y g a p by a b o u t 26%. P O V Z R T Y RATZS -4MONG SZLECTED 2EMOGRAPHIC GROUPS T h e Aged I n 1 9 8 3 , t h e p o v e r t y r a t e f o r p e r s o n s a g e 6 5 a n d o v e r was 1 4 . 1 % . Poverty a r a t e s among t h e a g e d h a v e d e c l i n e d s u b s t a n t i a l l y s i n c e 1 9 5 9 , largely as r e s u l t of expanded Government t r a n s f e r programs. In 1959, t h e poverty rate c f t h e a g e d ( 3 5 . 2 % ) was h i g h e r than either that of children (26.9%) o r a "non-aged a d u l t s w ( 1 7 . 4 % ) . Whereas t h e aggregate poverty rate reached p l a t e a u b y 1 9 6 9 , t h e ~ c v e r t yr a t e o f t h e . a g e d c o c t i n u e d t o d e c l i n e . By 1909 by 1974 t o 14.6%. 1 97 4 t h e aged p o v e r t y r a t e h a d dropped t o 25.3%, and m a r k e d t h e f i r s t y e a r i n w h i c h t h e a g e d p o v e r t y r a t e was l e s s than t h a t of c h i l d r e n ; i t h a s remaineC below t h e c h i l d r e n ' s r a t e e v e r s i n c e . the aged poverty rate Most a n a l y s t s a g r e e t h a t t h e d r a m a t i c d e c l i n e i n f r o m $ 9 5 9 t o 1 9 7 4 was t h e r e s u l t o f a d h o c a c l j u s t m e n t s to soclal securlty The i n t r o d n c t ~ o n 3f b e n e f i t s a n d e x ~ a n s l o no f t h e ~ r l v a t e~ e n s i c ns y s t e m . zsst C Z - L ~ / L ~ ;L C ; 's;?sr.;s ,ZZL.-.> t 3 3 r c c ~ c ; SCCLL3eczr:ty 32nef::s agalnst eroslon from prlce ~ n f l a ~ i o n a, n d the establishment of the a Supplemental Security Income (SSI) program in 1974, which provlded g u a r a n t e e d i n c o m e f l o o r f o r t h e a g e d , h a v e h e l p e d k e e p t h e p o v e r t y r a t e among t h e a g e d relatively c o n s t a n t s i n c e 1 9 7 4 . Children The p o v e r t y r a t e f o r c h i l d r e n d e c l i n e d f r o m 2 6 . 9 % i n 1959, to 13.8% i n 1969. From 1 9 6 9 t o 1 9 7 8 , t h e p o v e r t y r a t e r o s e g r a d u a l l y , r e a c h i n g 1 5 . 7 % a t t h e end of t h e p e r i o d . The r a t e h a s grown s u b s t a n t i a l l y s i n c e 1 9 7 8 , r e a c h i n g 21.7% i n 1983. . The p o v e r t y r a t e for children in male headed families tends to be r e l a t i v e l y low, but s e n s i t i v e t o t h e business c y c l e . I n 1 9 5 9 , 22.4% of a l l c h i l d r e n i n s u c h f a m i l i e s were p o o r , a n d i n 1 9 7 8 , o n l y 7 . 9 % . However, since 1 9 7 8 t h e p o v e r t y r a t e f o r c h i l d r e n i n m a l e h e a d e d f a m i l i e s h a s g r o w n by a b o u t Given t h e s t r o n g a t t a c h m e n t two t h i r d s , r e a c h i n g t h e l e v e l of 1 3 . 4 % i n 1 9 8 3 . of non-aged m a l e s t o t h e l a b o r f o r c e , a n d t h e g r e a t e r t e n d e n c y f o r males to b e e m p l o y e d i n s e c t o r s o f t h e economy t h a t are sensitive to the business cycle ( e - g . , mining, manufacturing), t n e poverty rate for these children CRS- 9 tends to be fluctuate with economic conditions. A major portion of the "non-aged male increase in the poverty rate since 1 9 7 8 h a s been a result of headed families" with children becoming poor. T h e growth in single female headed h o u s e h o l d s , combined with a high i n c i d e n c e of poverty a m o n g such households, has put a n upward pressure o n the overall poverty r a t e , and upon t h e poverty r a t e among children, in particular. Since 1 9 5 9 , the proportion of children living i n single female headed families h a s more than d o u b l e d , from a b o u t 9 % i n 1 9 5 9 to about 21% in 1983. Over this period, the poverty rate for children i n these f a m i l i e s has remained high. From 1 9 5 9 to 1 9 6 9 , the poverty r a t e o f children in f e m a l e headed families declined from 72.2% t o 54.4%. By 1 9 7 8 the rate was a t 50.6%, i n 1982. In 1 9 8 3 , the but then began to r i s e , reaching a level o f 56.0% poverty rate for children in female headed f a m i l i e s was 55.4%. Although the majority of poor a r e white (58% i n 1 9 8 3 1 , the poverty rate .. 7 for blacks has been consistently higher than for wkltes over the years. 1 9 8 3 , the poverty rate for blacks w a s three times that of whites (35.7.% a n d 12.1%, respectively). Contributing t o the high incidence of poverty among blacks i s the large proportion of black children who l i v e i n single f e m a l e headed families. In 1 9 8 3 , a b o u t one-half of a l l black children lived in f e m a l e headed f a m i l i e s , and among these children, three-quarters were poor. In comparison, a b o u t o n e in seven white children lived in female heaeee f a m i l i e s , of which two-fifths were poor. While the situation of black children helps to a e c o u n t for the higher r a t e of poverty a m o n g - b l a c k s , it does not expiain it; f o r most any comparison, the incidence of poverty among blacks i s higher than t h a t of whites. - ISSUES RELATING T O THE MEASUREMENT OF POVERTY D e b a t e relatinc to t5e measurement of poverty has focused o n two T 2 - n r a s ~ e c t s : zne ?overty z n r e s h o l d , ~ t s e l f ,and tne z y ~ e s 5f lncome z=u-.zec against that yardstick. Arguments for and Against Changing the Income Standard Kany argue that the poverty threshold i s too l c w , f e w argue that i t i s too high. Analysts i n both groups say that the current threshold i s limited in several ways. S o m e object t o the choice o f a n a b s o l u t e measure based on a fixed market basket. They would prefer a relative y a r d s t i c k , focused on the distribution of i n c o m e in society. T h e y a r g u e that poverty i s more than not having enough to get b y , but a matter of having a lot l e s s than o t h e r s , a n d that this view of poverty is more in line with public perceptions than the present standard. A second criticism is that the present standard, while adjusted for price c h a n g e s , is based upon consumption patterns of the late 1950s and early 1 9 6 0 s and does not reflect changes in the general standard of l i v i n g , snch a s a decreased proportion of income spent o n food. Given the existing measure, poverty might be reduced or even eliminated a s the result of a n increase in the overall standard of l i v i n g , without affecting the basic distribution of income. Some a r g u e that the measure should be tied to changes i n the standard of living, f o r example, by reevaluating the poverty market basket to reflect present consumption patterns, or by relating it to some other measure, such as a percentage of real median income. A third criticism i s that t h e existing poverty thresholds d o not take into account area cost of living differences. These analysts a r g u e that the existing measure tends to overestimate poverty i n some areas and underestimate it i n others. Those who support the existing definition counter the critics by arguing that in spite of i t s weaknesses, i t offers a relatively consistent basis for measuring change o v e r time, a n d t h u s , should not be changed dramatically. They a l s o argue t h a t poverty does have absolute a s p e c t s , such a s hunger and illness, which should be expected to decline a s r e a l income increases. Arguments for and Against Changing the Definition of Income the Standard Applied Against a marked Many argue that Government in-kind (non-cash) benefits make improvement in the poor's standard of living and should thus be counted a s income against the poverty standard; counting such benefits would lead to a reduction ~n the number of persons counted a s poor. They note rhat ~ n - ~ l n d benefits have become a n increasing portion of total Federal welfare expenditures over t h e years, and that f a i l u r e to count them underrepresents the Government's efforts to help the poor. While there i s general agreement that noncash benefits are a n important source of income to the p o o r , there i s little agreement a s to how o r whether such benefits should S e valued fcr purposes of counting the poor. Some analysts a r g u e against counting in-kind benefits as income a g a i n s t the poverty s t a n d a r d , since a wide range of results a r e a t t a i n a b l e , depending A recent Bureau of the Census report s h o w s , on t h e the methods used. depending on the method and combination of in-kind benefits v a l u e d , tne proportion of persons counted a s poor (in 1983) could be reduced by 8 % to 3 3 % o v e r a l l , and by 1 3 % to 77% f o r the aged. Given such r e s u l t s , some analysts argue that it would be difficult to arrive a t a n agreed upon methodology. They a l s o argue t h a t , regardless of the method u s e d , the general trend has been unaffected, a n d , for comparative ~ u r p o s e s ,it is the trend that i s most ~ n p z r z a n c . * nough ugh fewer ?erscns are eaunrea 3.5 poor 3 j h e n noncas:. ~eeef~zs ~ n c r e a s e d at a greater are counted as ~ n c o m e , he povercy rate wouid nave rate from 1 9 7 9 to 1983 had noncash benefits been valued. Depending on the valuation method u s e d , the poverty rate wocld have increased between 38% a n d 50% from 1979 to 1 9 8 2 had noncash benefits been included a s income; this compares to a 3 0 % increase i n the official rate. Some analysts a r g u e that if in-kind benefits a r e counted, then the poverty standard should be revised, since the standard w a s originally based on cash income. Others a r g u e that after-tax income should be used for purposes of counting the p o o r , rather than the pre-tax measure used presently. They argue that the poverty threshold is based upon after-tax income a n d , therefore, so too should be the type of income counted against the standard. They a l s o note that after-tax income is more closely linked to the concept of be spent on consumption. disposible income - - or income that can actually F u r t h e r , they n o t e that the tax system plays a n important role in redistributing i n c o m e a n d , therefore, its effects should be included in the measurement of poverty. For example, they argue that the tax burden on the poor has increased over the y e a r s , since Federal income tax brackets have not been regularly adjusted for inflation. S t i l l , others argue that it might be more appropriate to have a poverty standard based on net-worth, which would take into account t h e value of a s s e t s , such a s a h o m e , or s a v i n g s , which ,could be converted to cash. Methods f o r making adjustments to value in-kind benefits a r e complex a n d controversial. Several ways o f valuing such benefits h a v e t b e e n posed. The simpiest method is to estimate the market value (the cost t o the Government). to the H o w e v e r , most a n a l y s t s agree that the value of a noncash benefit individual i s less than its market v a l u e , since if given c a s h , i n s t e a d , the individual might ch0os.e to spend i t - o n a different market basket of goods a n d services than what the in-kind benefit provides. These analysts suggest that value of the in-kind benefit be estimated i n terms of the a m o u n t of cash the cash equivalent value. A individual would a c c e p t in lieu of the benefit third way of valuing in-kind benefits is to limit the value of the benefit to the percentage s h a r e of the poverty budget which families near the poverty line spend o n such items -- the poverty budget share. One criticism of this approach i s that any benefit i n excess of che poverty budget share would not be c o u n t e d , even though it woula improve the recipients' standard of living. -- Problems o f valuing in-kind benefits vary with the type of benefit. For example, assigning a value to food stamps i s relatively straight f o r w a r d ; they are a i m o s c as good as c a s L , except they may be redeemed for oniy c e r = a i n food items. In other cases assigning a proper value to in-kind benefits is more difficult. This is particularly true i n the case of medical assistance, such as Medicare a n d Medicaid. Some analysts argue that the insurance value of Government provideC medical benefits should be used. H o w e v e r , for those such a s the aged -- the insurance value who a r e a t high risk of Seing ill of such benefits may overstace the antipoverty effectiveness of such programs. In such c a s e s , many of the aged m i g h t - b e counted a s having inzcmes a b o v e the poverty l e v e l , but still have insufficient i n c o m e to purchase other necessities, such a s food an-d shelte'r. -- SUMMARY 3emographic and economic t r e n d s , as well a s trends in Federal and State expenditures, a l l h a v e a n impact on poverty. Most analysts agree that the -- -- " - ,= - --- x .c=;13rrtic z r z r c s J U L = S ; , G s s - ~ , & . $ l p Lu ~ e ~ t e r . z :-? s rea; szandara of ;;v;ng d e r e iargeiy responsibie fcr cne reduction ~n poverty from 1 9 5 9 to 1969. There i s some evidence that the combination of demographic pressures and poor economic performance, caused pretransfer poverty (i.e., poverty based on market income alone) to increase o v e r . the decade of the 1970s. Eowever, growth in social insurance expenditures largely offset the increase i n pretransfer poverty over this period, helping to keep the official poverty rate relatively stable. Social insurance expenditures have been particularly important i n keeping down the poverty r a t e among the aged. Cash welfare expenditures, while a n important source of i n c o m e to the poor, only marginally a f f e c t the poverty rate. Since 1975 cash welfare expenditures have remained relatively constant. The pre-transfer poverty rate increased c o n s i d e r a b l y , after 1 9 7 8 , reflecting a worsening economic trend. H o w e v e r , social insurance and cash welfare programs failed to hold the official r a t e a t its pre-1979 level. In-kind welfare benefits have grown considerably since 1 9 6 5 , but a r e not included as income for purposes of connting the poor. Analysts point out that if in-kind benefits were counted a s i n c o m e , the poverty rate would be lower. However, r e c e n t data show that the rate o f increase i n the poverty rate from 1 9 7 9 to 1983 would have been greater than the change in the Official rate if noncash benefits had been valued. ,- - r r , ^ ) - - . . ^ , -n--., Most analysts a g r e e that a healthy economy i s necessary i n order to r e d u c o poverty. However, even with a n improved economy certain g r o u p s -- children in female headed f a m i l i e s , blacks, the very old -- have a good c h a n c e o f being poor. REPORTS AND CONGRSSSIONAL DOCUMENTS U.S. Congress. House. Committee o n Ways a n d Means. Background material on poverty. Washington, U.S. Govt. Print. Off., 1983. At head of title: 9 8 t h Congress, 1 s t session. Committee print. ADDITIONRL REFERENCE SOURCES Gottschalk, Peter and Sheldon Dangizer. Macroeconomic condizions, income transfers and the trend in poverzy, S e p c . 1983. [unpublished] U.S. Bureau of the Census. Current population reports, s e r i e s P-60, no. 1 4 5 , Money income and poverty status of families and persons in the United States: 1983. (Advance data from the March 1983 Current population survey.) W a s h i n g t ~ n ,U.S. Govt. ?rint. Off., 1584. ----- Estimates of poverty including the value of noncash benefits: 1 9 7 9 to 1983. Technical paper no. 52. Washington, U.S. Govt. Print. Off., 1984.