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Measuring Poverty: A New Approach
The existence of multiple assistance programs can affect the level of the benefit standard that makes sense for any one of them. For example, AFDC interacts with food stamps and public housing, and it makes little sense to think of an AFDC benefit standard in isolation from these programs (or in isolation from such programs as the EITC and enforcement of child support). However, given the different ways in which eligibility and benefits are calculated, it is not easy to determine an appropriate adjustment to AFDC benefit levels to take account of program interactions.
In the case of AFDC and food stamps, for example, one could certainly argue for excluding food costs from the AFDC benefit standard because of the almost universal provision of food stamps (and school meals) to AFDC families. As noted above, it would also be to a state's financial benefit to reduce its AFDC benefit standard by as much as the value of the Thrifty Food Plan because the Food Stamp Program will provide higher benefits than otherwise would have been the case. However, only in the case of states with very low AFDC benefit standards will the Food Stamp Program in fact make up the entire difference for recipients. This occurs because the program assumes that, after deductions, 30 percent of countable income including AFDC benefits is available for food consumption and, hence, reduces food stamp benefits accordingly. As a hypothetical example, consider a state that wants to provide combined AFDC and food stamp benefits at the level of the official poverty threshold. The deductions in the Food Stamp Program make it difficult to calculate by how much the state should reduce its AFDC benefit standard, but it can be demonstrated that not to reduce the AFDC standard at all may overcompensate recipients by as much as 10 percent relative to the poverty threshold, while to reduce the AFDC standard by the full amount of the Thrifty Food Plan may undercompensate recipients by as much as 17 percent.6
Program interactions virtually dictate that designers of assistance programs use complicated models to evaluate likely program effects. Some models are designed to point out odd interactions of such program features as maximum benefit levels and tax rates on other income by estimating the benefit package
The first bound is obtained as follows: assume the AFDC benefit standard is $991 per month, or 100 percent of the poverty guideline for a family of three in 1993 (no state actually paid this amount). Then a family with the maximum $991 benefit from AFDC and the standard and excess shelter deductions for food stamps would have $653 of countable food stamp income and would receive $99 in food stamps (the Thrifty Food Plan value of $295 minus 30% of $653), for a total combined benefit of $991 plus $99, or $1,090 (110% of the poverty guideline). To obtain the other result, assume that the same state reduced its benefit standard to $696 by subtracting the entire value of the Thrifty Food Plan. Then a family with the maximum $696 AFDC benefit but only the standard food stamp deduction would have $565 in countable food stamp income and would receive $125 in food stamps ($295 minus 30% of $565), for a total combined benefit of $696 plus $125, or $821 (83% of the poverty guideline).