Welfare

Government Poverty Policies Based on Flawed Data

For more than 30 years, the federal government has based part of its social and economic policy on at least one very badly flawed statistical tool, the so-called 'poverty rate'.

Simply put, it is an estimate of the proportion of the population whose reported annual income falls below a stipulated 'poverty threshold,' which is officially established and varies by household type and size.

The index was cobbled together in an admittedly 'fast and dirty' process by a researcher at the Social Security Administration in the 1960s to satisfy President Johnson's need for statistics to sell his War on Poverty programs.

Over the years, critics have had many complaints about the index, contending that:

  • It fails to account for differences in living costs in various parts of the country.

  • It may be using inappropriate deflators when adjusting for changes in living costs over the years.

  • It does not fully report actual household earnings.

  • It fails to properly measure the value of means-tested benefits and other forms of assistance utilized by low-income households.

Also, critics charge that it does not include the value of the imputed rent that American's tens of millions of homeowners obtain from their houses.

While the Census Bureau has attempted to respond to these flaws, statisticians say a more fundamental problem is that poverty is not defined by income levels, but by consumption levels -- purchasing power, in other words.

According to the Labor Department's Annual Consumer Survey -- which does look at household spending patterns -- households at the bottom end of the income spectrum report spending much more money than they report earning.

  • In 1994, the bottom fifth of consumers reported an average pretax income of under $6,800, but average total expenditures of more than $14,000.

  • Thus, for every dollar they reported taking in, they said they were spending $2.08.

  • Experts suggest that to smooth out year-to-year variations in income, households draw on savings, sell assets, take out loans or get help from friends and family -- all of which help explain the discrepancy.

Official estimates claim the U.S. poverty rate has been gradually rising since the early 1970s. But when estimates are based on consumption, rather than income, one observes progressive and dramatic reductions over the postwar period.

  • A study done at the University of Texas shows that a 31 percent poverty rate in 1949 fell to 13 percent by 1965.

  • By 1989, it had hit 2 percent -- omitting entirely noncash government benefits such as Medicaid, public housing, Head Start, and community social services.

Source: Nicholas Eberstadt (American Enterprise Institute), "A Poor Measurement," Wall Street Journal, April 22, 1996.

Fewer Americans Living in Poverty

Black married families led the categories in those emerging from poverty in Census Bureau figures released yesterday.

  • The poverty rate fell from 15.1% in 1993 to 14.5% in 1994 - representing a decline of 1.2 million persons.

  • Real median incomes for blacks rose 5% to $21,027.

  • Poverty rates for blacks dropped from 33.1% to 30.6%.

  • The rate for whites declined from 12.2% to 11.7%.

Some 38 million Americans are judged at or below the poverty line, which is defined for a family of four at $15,141. Poverty rates for many ethnic groups declined except for Hispanics and Asians, which showed no significant change.

Finally, poverty rates among children declined from 22.7% to 21.8%. The Census Bureau's statistics have come under fire recently for overstating true poverty levels - a criticism even the Bureau acknowledges.

Source: Barbara Vobejda, "U.S. Reports Decline in Poverty Rate," Washington Post, October 6, 1995.

Poverty Rates and the Clinton Administration

The national poverty rate -- which declined steadily each year during the Reagan administration -- has grown during the Clinton administration, according to the U.S. Census Bureau.

  • The number of those under the official poverty income level reached 38.1 million in 1994 -- 5.7 million higher than at the end of the Reagan years.

  • The proportion of Americans below the poverty line increased from 12.8 percent in 1989 to 14.5 percent by the end of 1994.

  • During Reagan's years in the White House, the proportions declined from 14 percent of citizens in 1982 to 12.8 percent the year he left office.

  • This was done without an increase in the minimum wage, which Reagan believed would eliminate entry-level jobs.

The Clinton Administration's response is to raise the minimum wage, which every credible economic study shows will destroy hundreds of thousands of entry-level jobs -- precisely the jobs that are the first step up from poverty.

Source: Donald Lambro, "Rising Poverty Indicators Under Clinton," Washington Times, May 20, 1996.

Maybe There are Not So Many Poor

Poverty level statistics that politicians bandy about and interest groups love to interpret may be suspect to begin with. Even the Census Bureau which releases them admits there are problems.

  • The figures are important since they determine eligibility for 27 federal programs, including food stamps, Medicaid, Head Start and school lunches.

  • The methodology behind the income and poverty data dates back to 1963 and ignores vast changes in poverty programs.

  • Although a committee of 13 academics has spent $1 million and issued a 500-page report recommending an overhaul of the methodology, nothing has happened.

If the index were updated to reflect government payments to the poor, a more realistic inflation figure and other significant impacts, the number of poor measured in 1993 would probably drop from 39.3 million to 25.4 million - a whopping 35% decrease.

Source: Dana Milbank, "Old Flaws Undermine New Poverty-Level Data," Wall Street Journal, October 5, 1995.

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