National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Taxes

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Suggested Citation:"Taxes." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 29

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INTRODUCTION AND OVERVIEW 29 Statistics, 1982: Table 4).6 Furthermore, over the period 1982-1992, prices have increased at a faster rate in the Northeast and West than in the Midwest and South (Bureau of the Census, 1993d: Table 761). Interarea price differences appear to be especially large for shelter; housing costs ranged from 52 to 183 percent of the national average in one study of metropolitan areas for 1989 (Kokoski, Cardiff, and Moulton, 1992). Yet the current poverty measure has the same poverty threshold for all regions and types of areas. Increases in Medical Care Costs and Benefits Per capita medical care spending has increased dramatically over the past few decades, rising from $1,166 to $2,566 over the period 1970-1990 (in 1990 dollars) (Moon, 1993). Health insurance coverage—including Medicare, Medicaid, and employer-provided insurance—has increased substantially as well. As a consequence, individuals' out-of-pocket costs for medical care (including insurance premiums) have declined as a share of total costs. However, their out-of-pocket costs in real dollar terms have actually increased somewhat—from $478 in 1963 to $597 in 1990 (Moon, 1993:23). One reason is that not everyone has insurance; another reason is that people with insurance coverage often contribute to the premiums and pay for a part of covered expenses. Also, there is wide variation in both total and out-of-pocket medical care costs by such characteristics as age, health status, and type of insurance coverage. Yet the current poverty measure does not distinguish among the health care needs of different kinds of families, nor does it reflect the role of insurance coverage in reducing families' medical care expenditures. Taxes When the U.S. poverty measure was first developed in the 1960s, the burden of income and payroll taxes on the low-income population was relatively light. Hence, the use of a before-tax definition of income to compare with thresholds that were developed on an after-tax basis was not problematic. However, there have been periods when the tax burden on low-income people has been relatively high. One estimate is that the effective federal individual income tax rate on the poorest 10 percent of the population increased from about 1 percent in 1966 to about 4 percent by 1985, and the effective Social Security payroll tax rate for this group increased from about 3-5 percent in 1966 to about 9-11 percent in 1985 (Pechman, 1985). Because 6 There are problems in using the BLS family budget data to infer differences in the cost of living across geographic areas (e.g., the composition of the budgets differed across areas). However, Sherwood (1975) continued to find such differences in an analysis that made the budgets more comparable (see Chapter 3).

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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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