National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Assessment

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Suggested Citation:"Assessment." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 217

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DEFINING RESOURCES 217 interest rate and, to avoid double counting, they excluded interest amounts from income. When poverty status was determined on a monthly basis, the crisis poverty rate was 3 percentage points (21%) lower than the official rate; when the determination was made using a 4-month accounting period, the crisis rate was 2 percentage points (14%) lower than the official rate. However, when the determination was made on an annual basis, the crisis rate was only 1 percentage point (8%) lower than the official rate. David and Fitzgerald (1987: Table 7) found that the addition of the capitalized value of stocks and rental property made little difference, as very few families with money incomes below the poverty level reported such assets. Ruggles (1990:151) confirms that relatively few income-poor families have assets: in 1984-1985, 88 percent had less than $1,000 in financial assets, and only 7 percent had more than $3,000 in such assets. The Census Bureau has developed estimates of the effects on the poverty rate of adding to income an estimated value for (net) realized capital gains and an estimated annuity value for home equity (net of property taxes). These estimates rely on complicated imputation procedures using data from other sources and numerous assumptions (see Bureau of the Census, 1993a: Apps. B,C), so the results should be viewed solely as illustrative. Nonetheless, they provide a rough sense of the implications for the poverty rate. In general, including realized capital gains has almost no effect, even for the elderly;13 however, including an annuity value for home equity has a substantial impact, particularly for the elderly. Thus, in 1992 (Bureau of the Census, 1993a: Table 2), the inclusion of home equity value would have reduced the aggregate poverty rate by about 1 percentage point (from 14.5 to 13.0%) and the poverty rate for the elderly by almost 4 percentage points (from 12.9 to 9.0%). Assessment In general, we do not believe that it is appropriate to include asset values as part of family resources for purposes of the official poverty measure, for both conceptual and practical reasons. As noted above, to count assets as spendable is to take a short-term view of poverty. The year-long accounting period for the poverty measure, which we recommend retaining, argues for an income 13 The Census Bureau's estimates of realized capital gains, derived from its federal income tax simulation model, take account of losses as well. From an asset accounting viewpoint, this approach is correct. From the viewpoint of a crisis definition of resources, one could argue that the actual cash received from a sale of an asset is what should be added to regular money income, even if that amount represents a loss in terms of the original asset value. In any case, the Census Bureau's current ability to simulate capital gains with any degree of accuracy for individual families is very limited: the simulation uses Internal Revenue Service (IRS) data on probabilities of incurring capital gains and the mean amounts by categories of adjusted gross income, type of return, and age of tax filer.

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of:

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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