National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Assessment

« Previous: Census Bureau Tax Estimation Procedures
Suggested Citation:"Assessment." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 239

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DEFINING RESOURCES 239 deductions and the amount of their deductions. A statistical match of data from the March CPS and the AHS is used to determine mortgage and property tax amounts for homeowners in the CPS; probabilities of itemizing are applied to assign itemizing status;30 and amounts of itemized deductions are computed using a matrix derived from SOI data. Third, the Census Bureau computes the standard deduction according to the number of exemptions and calculates tax liabilities using the appropriate tax schedule for the simulated return type. Finally, the Bureau estimates the dependent care tax credit (using data from the June 1982 CPS supplement to estimate probabilities of tax filers paying for child care) and computes the EITC (which can be larger than the tax liability). For estimating state income taxes for those states with such taxes (44 in 1992), the current Census Bureau procedures involve variants of the federal income tax simulation model. The definitions of tax filing units and adjusted gross income used in the federal model are used in the state models. Not all details of each state's income tax system are simulated, but the important aspects are accounted for. Census Bureau staff have found that their estimates of state income tax liability are biased upwards, probably because they use the federal definition of adjusted gross income and do not incorporate the various adjustments made by a number of states. Assessment The simulation of Social Security payroll taxes, as noted above, is quite straightforward. In contrast, there are a number of problems with the simulation of federal and state income taxes (see Nelson and Green, 1986), some of which are particularly important for poverty measurement. A key problem concerns the determination of dependent members of tax filing units. This classification is essential for computing initial tax liability and for computing the dependent care tax credit and the EITC, both of which are important for the working poor. The March CPS lacks information on whether children in one household are dependents of a taxpayer in another household and, conversely, whether a taxpayer is claiming members of another household as dependents. The March CPS also lacks other information (e.g., child care and homeowner costs) that could improve the accuracy of the tax simulations. By comparison, SIPP has the advantage of including extensive information relative to federal income taxes. (SIPP also asks about state and local income taxes.) Generally, SIPP panels each year include a tax module that 30 The probabilities of itemizing are derived for homeowners by monthly mortgage categories from the 1979 Income Survey Development Program Research Panel and for renters by adjusted gross income categories.

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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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