parisons of the depth of poverty across population groups in relation to their basic consumption needs. Thus, whether child care or other work expenses are included in the thresholds or subtracted from income will not affect the poverty rate or the dollar size of the poverty gap. However, the relative importance of that gap, that is, the welfare ratio (the ratio of income to the poverty threshold), will be affected. Specifically, if the poverty thresholds are adjusted to include work expenses rather than deducting them from income, poor working families will appear relatively less poor than poor nonworking families with the same composition and dollar gap between income and needs. As Watts notes, however, one could argue that a poor working family is less well-off than a poor nonworking family with the same composition and gap between income and needs because of the greater demands on the working family's time (see Appendix C).


For a consistent measure of poverty with the proposed threshold concept, gross money income should be adjusted to obtain a disposable money and near-money income definition of family resources. Although there are issues of precisely how to define and estimate particular components of disposable income (e.g., whether and at what level to cap the deduction for child care expenditures by working parents), they do not affect the logic of the basic approach. The two other alternatives we considered (see below) also can satisfy the consistency principle; however, there are operational reasons and, in the case of the crisis definition, conceptual reasons to prefer the disposable income definition.

RECOMMENDATION 4.2. The definition of family resources for comparison with the appropriate poverty threshold should be disposable money and near-money income. Specifically, resources should be calculated as follows:

  • estimate gross money income from all public and private sources for a family or unrelated individual (which is income as defined in the current measure);

  • add the value of near-money nonmedical in-kind benefits, such as food stamps, subsidized housing, school lunches, and home energy assistance;

  • deduct out-of-pocket medical care expenditures, including health insurance premiums;

  • deduct income taxes and Social Security payroll taxes;

  • for families in which there is no nonworking parent, deduct actual child care costs, per week worked, not to exceed the earnings of the parent with the lower earnings or a cap that is adjusted annually for inflation;

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