NCPA - National Center for Policy Analysis

Putting A Price Tag On Poverty

November 2, 1999

The Census Bureau is experimenting with a new formula that would throw an extra 12 million Americans into the poverty category. The official poverty line would escalate to $19,500 for a family of four from the present $16,660.

A number of economists have a problem with that -- pointing out that the proper yardstick is consumption, not income. And by that standard, poverty rates are overstated.

  • Households in the bottom fifth percentile of income distribution made an average of $7,086 in 1997, before taxes -- but they spent an average of $14,670.
  • They were able to do that because their incomes were supplemented by welfare, food stamps, unemployment benefits, Medicare, Medicaid, school lunches, rent subsidies and other programs -- none of which is included in income calculations.
  • Although many retirees have low incomes which put them officially below the poverty line, they also have houses that are paid for, as well as cars, furnishings and nest eggs which allow them to live comfortably.
  • Thus, 302,000 families with incomes of less than $20,000 in 1993 lived in homes worth in excess of $300,000.

Among households below the poverty line, outlays for food, clothing and shelter were 37 percent of consumption in 1995 -- compared with 52 percent two decades earlier and 75 percent in 1920. As the free market brought prices down, more poor households gained more discretionary income.

A recent Heritage Foundation study estimates that only 8.7 million Americans -- just 3.7 percent of the population -- exist in truly hardship conditions.

Source: W. Michael Cox (Federal Reserve Bank of Dallas) and Richard Alm (Dallas Morning News), "Defining Poverty Up," Wall Street Journal, November 2, 1999.


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