poverty thresholds, but this approach would unnecessarily complicate them: for example, at a minimum, there would have to be different thresholds for workers and nonworkers. The Census Bureau has considerable experience with developing after-tax estimates of income so that subtracting income taxes and payroll taxes from gross family income for calculating poverty rates will not be difficult. Sales and property taxes do not need to be subtracted since they are included in the CEX expenditure data and hence accounted for in the poverty thresholds.
To earn money from a job almost always requires a worker to use some of that money on work expenses. Just as income used for taxes is not available for consumption, neither is the amount of earnings devoted to work expenses; hence, such expenses should not be counted as family resources. Specifically, child care costs that are necessary for a parent to hold down a job should be deducted from earnings, as should an allowance for other work-related expenses (e.g., commuting costs).
We propose that actual child care expenses be deducted per week worked for families in which there is no nonworking parent, up to the earnings of the parent with the lower earnings or a cap that is adjusted annually for inflation (whichever value is lower). The cap could initially be based on the maximum employment-related child care expenses—$2,400 for one child and $4,800 for two or more children—that are allowed in computing the federal dependent care income tax credit.
Alternatively, the cap could be developed as a percentage of median child care expenditures by families with one or two or more children, similar to the proposal for developing the food, clothing, and shelter component of the poverty threshold. In the 1990 SIPP, the annualized value of median weekly expenditures (in 1992 dollars) for families who paid for child care was about $2,300 for families with one child and $2,700 for families with two or more children. The issue of an appropriate cap is complicated by the age of a family's children: a more generous cap seems appropriate for pre-school-aged children than for older children. Indeed, the relatively low median child care expenses by families with two or more children relative to families with one child, as measured in SIPP, is undoubtedly because more families in the former group have older children.
In the case of other work-related expenses, such as commuting, we propose that a flat allowance per week worked, updated annually for inflation, be deducted from the earnings of each adult worker in the family. The reason to deduct a flat amount, rather than actual expenses, is because of the tradeoff that people often make between housing and commuting costs, by choosing a more expensive home closer to work or a less expensive one farther away. As each family in an area will have the same adjustment to the poverty threshold