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Measuring Poverty: A New Approach
taxes from family resources even though the poverty thresholds were computed on an after-tax basis. Hence, some working families that pay taxes may be erroneously classified above the poverty line because their resources are defined as gross rather than net income. The proposed poverty measure embodies a definition of family resources as money and near-money disposable income that is consistent with the derivation of the poverty thresholds from expenditure data for such basic needs as food, clothing, and shelter. However, the proposed definition is considerably more demanding of data than the current definition: full implementation would require asking about in-kind benefits and several types of expenses as well as money income.
For such assistance programs as food stamps and AFDC, which make a very detailed determination of financial eligibility and benefit amounts, implementing the proposed definition of family resources would not complicate program administration. Indeed, that definition, in concept if not in detail, is quite similar to the definitions already in use in these programs. However, other assistance programs currently have fairly simple application procedures that obtain a crude measure of gross money income and compare it with the relevant poverty guideline to determine program eligibility. For these programs, to implement the proposed resource definition could pose a burden on both applicants and program administrators. We believe there are ways to simplify that definition for programs for which a simple application process is valued and there is a willingness to give up some precision in classifying applicants' eligibility status (see below).
With regard to the need standard component of the proposed poverty measure, program agencies should consider whether the cutoff for eligibility should be 100 percent of the guidelines or a multiple, as is now the case in many programs. Obviously, there are budget implications of this choice, particularly for those entitlement programs that use the guidelines and that must provide benefits for all applicants who meet the eligibility criteria.
In this regard, it is important for program agencies to be aware of the implication of the proposal to update the poverty thresholds each year for real changes in basic consumption rather than to update them only for price inflation. The thresholds developed under the procedure will probably increase more rapidly than thresholds that are updated for price inflation only, even though they are not likely to increase as fast as a purely relative set of poverty thresholds.
There are ways to address the budgetary consequences of using poverty thresholds that are updated in real terms for program purposes. For example, eligibility could be limited to families with resources below a fraction of the thresholds. This strategy is not a contradiction in terms. We have argued strongly that updating the poverty thresholds for real growth in spending on basic necessities makes a great deal of sense for a statistical measure. There is considerable evidence that poverty thresholds are relative to time and place,