Updating the Thresholds

Although developed in a largely relative fashion with reference to actual spending patterns, the official U.S. poverty thresholds are absolute in that they are updated each year solely for price changes. If one believes it appropriate to continue to maintain the current official poverty standard in absolute terms, then there is little need to debate the underlying threshold concept. One would want to review other aspects of the measure, including adjustments to the threshold for different family circumstances and the family resource definition. One would also want to consider the appropriate price index for updating: some have argued, for example, that it is preferable to use an index based on a market basket that reflects the spending patterns of low-income people rather than the overall CPI. But it would not be necessary to reconsider the level or concept of the reference family threshold itself.

(We note that whatever the merits of continuing with an absolute poverty standard, the argument that is sometimes made for it—namely, that only with an absolute standard is it possible to reduce poverty—is incorrect. In fact, the only way in which the poverty rate cannot go down is if the poverty level is defined each year as that income value not exceeded by, say, the lowest 20% of families—by definition, 20% of families are always below that level. In contrast, with such relative concepts as one-half median family income, changes in the distribution of income below the median can lower the poverty rate even when median income—and hence the dollar value of the poverty threshold—rises in real terms.)

An alternative approach would be to conclude from the historical evidence—as we do—that poverty thresholds, when they are set, are inherently relative to time and place but argue that it is important to maintain a set of thresholds, once chosen, in absolute terms for reasonably long periods of time. This approach would reject the notion of maintaining a poverty level unchanged for longer than, say, a generation (or, perhaps, a decade), but, between realignments, would maintain a stable target in real terms for such purposes as evaluating the effects of economic growth and government assistance programs on the extent of poverty.

The question then becomes whether now is the time for a realignment of the official thresholds and, if so, what is a reasonable level to adopt. (Other aspects of the poverty measure, such as the adjustments to the reference family threshold and the family resource definition, would also need to be considered, as would the appropriate price index for updating.)

A pragmatic first step is to look at the reference family threshold level produced by several concepts (e.g., the original SSA concept, other budget approaches, one-half median income or expenditures, subjective survey responses) in comparison with the official threshold. To the extent that the various levels from other concepts both differ from the official threshold and

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