National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Taxes

« Previous: Separate Measures of Medical Care Risk and Economic Poverty
Suggested Citation:"Taxes." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 237

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DEFINING RESOURCES 237 insurance values as well, entail all of the problems with multiple thresholds. Two-index approaches have a similar problem of defining the insurance standard appropriately for different types of families; furthermore, such approaches do not avoid the problem that the medical component is measuring risk, not the ability to satisfy actual needs during a particular year. Moon (1993:18) suggests that a way out of this morass could be to have a clean nonmedical poverty measure and a separate health care risk measure. The two could always be cross-tabulated, but the poverty measure per se would be reserved for the nonmedical component. This suggestion is in fact our proposal. Not only do we recommend a consistent measure of economic poverty, in which disposable income net of out-of-pocket medical care costs is compared with a poverty budget for food, clothing, and shelter, and similar items, but we also support the development of one or more indexes of medical care risk. The necessity to monitor people's risks of incurring medical care costs that exceed their ability to pay is clear. Current indicators that simply record the presence of any type of health insurance coverage are too simplistic (see, e.g., Bureau of the Census, 1993b: Table 24). What is needed are measures of the adequacy of coverage and the ability to pay for required out-of-pocket costs. It will be difficult to develop good measures, but the effort appears well worth the costs. We repeat, however, that measures of medical care risk should be developed separately from the economic poverty measure. To do otherwise is to overwhelm the poverty measure with operational and conceptual difficulties. Taxes Both the concept that underlies the official poverty thresholds and the concept that we propose represent budgets for consumption aftertaxes; however, the current definition of family resources is beforetaxes. For consistent measurement, there is little disagreement that income and payroll taxes need to be taken into account: such tax payments represent a mandatory cost of obtaining income and hence are not available for consumption. It seems particularly important to take account of taxes because of frequent changes in tax laws that may leave gross incomes unchanged but affect net incomes to a significant degree. The Census Bureau has considerable experience with estimating Social Security payroll tax and federal and state income tax liabilities (see below). Improvements in the methodology are certainly possible and should be pursued; also, for completeness, estimates should be developed for local income taxes, where applicable. However, there is no need to wait for further research to implement the tax adjustments that the Census Bureau has already developed. We do not propose that adjustments be made to income for other kinds of

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Measuring Poverty: A New Approach Get This Book
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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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