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Measuring Poverty: A New Approach
near-money benefits, such as food stamps, that are available for consumption; it should exclude expenditures that are nondiscretionary and not available for consumption: out-of-pocket medical care expenditures (including health insurance premiums), income and payroll taxes, child care and other expenses that are necessary to earn income, and child support payments to another household. Instead of allowing for these kinds of expenses in the poverty budget, we propose, rather, to deduct them from resources for those families that incur them.
Even within the constraints imposed by our choice of a concept for the poverty thresholds, there are alternative ways to define family resources. We considered these from the perspective of two other criteria: that the definition be publicly acceptable and operationally feasible. Data limitations are a particularly important consideration for the family resource definition because of the costs of estimating resources for a large enough sample of the population from which to reliably determine the poverty rate for the nation as a whole and for various population groups. Indeed, data limitations will likely hinder the extent to which complete consistency between a threshold concept and a resource definition can be achieved in practice. Nonetheless, we stress the importance of striving for consistency.
In this respect, the current U.S. poverty measure has been deficient from the beginning. Most obviously, the poverty thresholds were derived from after-tax income data while resources were defined in before-tax terms. The reason for this discrepancy was that the data source for measuring poverty, the March income supplement to the Current Population Survey (CPS), did not obtain information that would readily allow families' taxes to be estimated.1 Income and payroll taxes on the working poor were low when the poverty measure was developed, but they subsequently increased and, more recently, declined again. The official poverty statistics reflected none of these shifts in tax policy, although they affected the resources available to poor and near-poor families.
Other inconsistencies in the measure became apparent as society changed and new government programs were enacted. More mothers went to work outside their homes, thus incurring child care costs, yet the different needs of working and nonworking families were not reflected by modifying either the thresholds or the resource definition. In-kind benefit programs that provide such commodities as food and housing were small in scope when the current measure was developed but have increased enormously since then, yet the resource definition does not include their value.
The CPS surveys 60,000 households each month with a series of questions that are used to determine the official monthly unemployment rate. The income supplement every March asks about sources of income for each adult household member for the previous calendar year (see Chapter 5 and Appendix B).