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Measuring Poverty: A New Approach
RECOMMENDATION3.3. Appropriate agencies should conduct research to determine methods that could be used to update the geographic housing cost component of the poverty thresholds between the decennial censuses.
RECOMMENDATION3.4. Appropriate agencies should conduct research to improve the estimation of geographic cost-of-living differences in housing as well as other components of the poverty budget. Agencies should consider improvements to data series, such as the BLS area price indexes, that have the potential to support improved estimates of cost-of-living differences.
DEFINING FAMILY RESOURCES
It is important that family resources are defined consistently with the threshold concept in any poverty measure. The current measure violates this principle, as has some recent work to investigate alternatives. Examples are measures that add the value of public and private health insurance benefits to families' resources without adjusting the thresholds to account for medical care needs. Such measures should be discontinued.
For consistency, we recommend that family resources be defined as money and near-money disposable income. More precisely, the definition should include money income from all sources, as well as the value of such in-kind benefits as food stamps and public housing. It should exclude out-of-pocket medical care expenditures, including health insurance premiums; income and payroll taxes; child care and other work-related expenses; and child support payments to another household. The child care deduction should be capped and apply only to families in which there is no adult at home to provide the care; the deduction for other work expenses should be a flat amount per week worked.
We believe there is widespread agreement among researchers about the appropriateness of such adjustments to income as deducting taxes and work expenses, which are a cost of earning income and cannot be used for consumption, and about adding the value of in-kind benefits that support consumption. The only important area of disagreement concerns medical care benefits.
Trying to account for private and public medical insurance benefits—important as they clearly are—in the same way as in-kind benefits for such items as food and housing would greatly complicate the poverty measure and cloud its interpretation. A chief reason is the wide variation in health care needs among the population: Some people have high medical costs; some have none. Hence, the proposed poverty measure does not include an allowance for medical expenses, either those that might be covered by insurance or