NCPA - National Center for Policy Analysis


September 7, 2006

The Census Bureau needs to update its measurement of income and poverty.  At a minimum, it should emphasize the poverty rate after counting all government transfer programs and taxes.  This will allow Americans to see how effective low-income aid is in reducing the poverty rate and what types of relief work best, says Rea Hederman, a senior policy analyst with the Heritage Foundation.

The official poverty measure counts only monetary income.  It considers antipoverty programs such as food stamps, housing assistance, the Earned Income Tax Credit,  Medicaid and school lunches to be "in-kind benefits" -- and hence not income.  So, despite everything these programs do to relieve poverty, they aren't counted as income when Washington measures the poverty rate.   

  • In 2002, the federal government spent $522 billion on low-income assistance programs.
  • But $418 billion was not considered cash income and not included in calculating any family's income.

Did that $418 billion do nothing to alleviate poverty?  Studies that take into account all income and transfer payments to low-income people have found a decline in the number of those in poverty, says Hederman:

  • A 2006 study in the Journal of Economic Perspectives reported that if in-kind benefits are included in income, poverty rates in 2003 would have declined from 12.7 percent to 9.9 percent.
  • By counting all income and taxes, the poverty rate falls by more than 20 percent.

The current system's bad accounting can lead to bad public policy.  The misleading figures make it difficult to accurately judge anti-poverty programs, says Hederman.

Source: Rea Hederman, "Poor poverty yardsticks," Washington Times, September 7, 2006.


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