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.
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Page 69

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INTRODUCTION AND OVERVIEW 69 expenses from income. The result is a consistent measure of economic poverty.19 Although the proposed measure excludes medical care from both the poverty thresholds and family resources, it does not ignore the effect of changes in health care policy on economic poverty. Thus, the proposed measure will capture the effects of policy changes (e.g., extension of health insurance coverage) that reduce the need for out-of-pocket expenditures for medical care and thereby increase disposable income to spend on food, housing, and other goods and services. It will also capture the effects of policy changes (e.g., tax increases to pay for health insurance) that reduce disposable income. The proposed measure will not, however, directly assess the extent to which people have access to an adequate package of health insurance benefits that protects them against risk. Hence, we believe it would be highly desirable to publish regularly a "medically needy" index (more properly, an index of the risk of not being able to afford needed care) and to cross-tabulate it with the poverty measure. However, we do not believe such a medically needy index should be a part of the poverty measure because it would inordinately complicate the measure. Finally, as changes are made to the U.S. system of health care, it will be important to reevaluate the treatment of medical care expenses in the definition of family resources. As an example, if relatively generous health insurance coverage is made available to everyone, the amount of out-of-pocket costs that is subtracted from income should likely be subject to an upper limit or cap. RECOMMENDATION 4.3. Appropriate agencies should work to develop one or more "medical care risk" indexes that measure the economic risk to families and individuals of having no or inadequate health insurance coverage. However, such indexes should be kept separate from the measure of economic poverty. Taxes The appropriate definition of family resources for comparison with a poverty threshold that does not include income or payroll taxes is an after-tax definition. Income and payroll tax dollars are assuredly not available for consumption. Also, it is misleading for the poverty measure not to reflect changes in tax laws when such changes affect the amount of disposable income that is available for consumption. The alternative would be to include taxes in the 19 Canada and Western European countries do not take account of medical care benefits in their poverty measures. Because they have some type of national health insurance, they treat medical care benefits as they do public education or the police force, namely, as government services that are universally available and whose effects would simply cancel out in a poverty measure (i.e., a benefit would be added to resources that matched whatever expenditure might be deemed "necessary" in the poverty budget).

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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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