Nondiscretionary Expenses

In addition to accounting for different needs of families by number of adults and children and geographic area of residence, we recommend that the poverty measure take account of different needs due to the fact that some families incur nondiscretionary expenses that are not available for consumption. For example, some families pay for child care in order to earn income, while other families (and individuals) make no such payments, yet the current thresholds are the same for both situations. One way to recognize these different circumstances is to develop additional thresholds, such as thresholds for nonworking families, working families with children who pay for child care, and other working families (see Renwick 1993a, 1993b, for an example of such an approach). We recommend instead that nondiscretionary expenses—which we define as taxes, child care and other work-related expenses, child support payments to other households, and out-of-pocket medical care expenditures (including health insurance premiums)—be deducted from the incomes of families with such expenses.

This approach will more accurately capture the poverty status of families in different circumstances than would the approach of trying to develop a range of different thresholds (see Chapter 4). However, the proposed approach has implications for comparing poverty thresholds across concepts: a reference family threshold developed as we propose will necessarily exclude some expenses that are typically averaged in for all such families.

Updating the Thresholds

The major reason, in our view, to revise the threshold concept for the U.S. poverty measure is its implications for updating the thresholds over time. In this regard, it is important to understand the nature of the current poverty measure. As described below ("Expert Budgets"), the method originally used to develop the official thresholds involved taking the cost of a minimum food diet and applying a multiplier that reflected the share of food in the total expenditures of the average family, but that method has never been used to update the thresholds (although its original author, Mollie Orshansky, urged several times that this be done). The thresholds have been updated only for price changes. In other words, the poverty line of about $3,100 for a two-adult/two-child family that was originally set for 1963 has been treated as an absolute standard of need and kept fixed in real terms ever since. Thus, it no longer represents a current estimate of the cost of the food budget times a food share multiplier. In fact, neither the cost of that original food basket nor the food share underlying the multiplier of three has remained constant over time. The share of food in the typical consumer bundle has declined with economic growth, and the cost updating using the overall Consumer Price

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