NCPA - National Center for Policy Analysis


March 27, 2006

The official poverty line or its multiple is the basis of eligibility for dozens of government antipoverty programs, involving the distributions of hundreds of billions of dollars. Change it -- up or down -- and hundreds of thousands of people gain or lose benefits. That's what makes a new data series by the Census Bureau, "The Effects of Government Taxes and Transfers on Income and Poverty: 2004," so significant, says Douglas Besharov of the American Enterprise Institute.

  • The series gets a better fix on "market income" poverty -- poverty before taxes and means-tested transfers like cash welfare.
  • Adding in the correct inflation adjustment, counting the income of cohabitors and coresidents, including the implicit income of home ownership and adding in government estimates of unreported income results in a market income poverty rate of about 7.9 percent, not the official rate of 12.7 percent.
  • Taking into account welfare payments, food stamps and housing assistance (noncash benefits are presently not counted) results in a poverty rate of about 5.1 percent -- and even this excludes the value of Medicaid for the poor, roughly $2,000 per person.

Even with these calculations, about 15 million people are below the poverty line and millions more just above it. But the broader point must not be lost: Millions of low-income Americans are living better lives than they did in the late 1960s, says Besharov.

Source: Douglas Besharov, "Poor America," Wall Street Journal, March 24, 2006; based upon: The Effects of Government Taxes and Transfers on Income and Poverty: 2004," U.S. Census Bureau, February 14, 2006.

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