A fundamental question facing the panel is whether the definition of resources to be used in measuring MCER should be equated with either of the income concepts that the Census Bureau employs in producing the official estimates of poverty in the United States or the new SPM published in November 2011, or whether a different concept would be more appropriate. In this section we discuss the Census Bureau income concepts and some of their limitations, review two alternative income concepts (Haig-Simons and federal income tax) and a consumption-based concept, and discuss the role of assets in meeting financial needs.

Income Concepts in Poverty Measures

The Census Bureau uses a reasonably well-defined concept of money income to produce the official, annual estimates of household income and poverty for the United States. A family’s annual money income, as measured in the Current Population Survey Annual Social and Economic Supplement (CPS ASEC), is compared with a threshold value that varies by family size; the number of children under age 18; and for one- and two-person households, whether the family reference person is age 65 or older. For the SPM, the Census Bureau substitutes a measure of disposable income for money income and uses an alternative set of thresholds. The two sections below define these two income concepts, laying out what they include and what they do not include.

Money Income

The Census Bureau’s concept of money income as applied in the CPS ASEC is defined as total pretax cash income excluding lump sum payments and capital gains (Ruser, Pilot, and Nelson, 2004). Common sources of income that may be received as lump sums and therefore excluded from money income include bequests, life insurance (both survivor benefits and withdrawals of accumulated cash value unless converted to an annuity), and cashouts or withdrawals of pension and retirement funds. In excluding lump sums, the Census Bureau distinguishes between lump sums and regular payments, implying that these are the only two ways that income from these sources can be received. With the growth of new types of retirement accounts, which we discuss below, people make periodic withdrawals that are neither regular payments nor lump sums as these terms are commonly understood. This ambiguity is one of the issues with the application of the concept of money income—particularly for the measurement of economic well-being.

The National Academies of Sciences, Engineering, and Medicine
500 Fifth St. N.W. | Washington, D.C. 20001

Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement