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SUMMARY AND RECOMMENDATIONS 3 only for inflation. Historical evidence suggests that poverty thresholdsâ including those developed according to "expert" notions of minimum needs âfollow trends in overall consumption levels. Because of rising living standards in the United States, most approaches for developing poverty thresholds (including the original one) would produce higher thresholds today than the current ones. â¢ Finally, because the current measure defines family resources as gross money income, it does not reflect the effects of important government policy initiatives that have significantly altered families' disposable income and, hence, their poverty status. Examples are the increase in the Social Security payroll tax, which reduces disposable income for workers, and the growth in the Food Stamp Program, which raises disposable income for beneficiaries. Moreover, the current poverty measure cannot reflect the effects of future policy initiatives that may have consequences for disposable income, such as changes in the financing of health care, further changes in tax policy, and efforts to move welfare recipients into the work force. The Panel on Poverty and Family Assistance concludes that the poverty measure should be revised to reflect more accurately the trends in poverty over time and the differences in poverty across population groups. Without revision, and in the face of continuing socioeconomic change as well as changes in government policies, the measure will become increasingly unable to inform the public or support research and policy making. It is not easy to specify an alternative measure. There are several poverty concepts, each with merits and limitations, and there is no scientific basis by which one concept can be indisputably preferred to another. Ultimately, to recommend a particular concept requires judgement as well as science. Our recommended changes are based on the best scientific evidence available, our best judgement, and three additional criteria. First, a poverty measure should be acceptable and understandable to the public. Second, a poverty measure should be statistically defensible. In this regard, the concepts underlying the thresholds and the definition of resources should be consistent. Third, a poverty measure should be feasible to implement with data that are available or can fairly readily be obtained. RECOMMENDATION: A NEW POVERTY MEASURE The official U.S. poverty thresholds should comprise a budget for the three basic categories of food, clothing, shelter (including utilities), and a small additional amount to allow for other needs (e.g., household supplies, personal care, non-work-related transportation). Actual expenditure data should be used to develop a threshold for a reference family of fourâtwo adults and two children. Each year, that threshold should be updated to reflect changes in
SUMMARY AND RECOMMENDATIONS 4 spending on food, clothing, and shelter over the previous 3 years and then adjusted for different family types and geographic areas of the country. The resources of a family or individual that are compared with the appropriate threshold to determine poverty status should be consistently defined to include money and near-money disposable income: that is, resources should include most in-kind benefits and exclude taxes and certain other nondiscretionary expenses (e.g., work expenses). The procedure for updating the poverty thresholds over time is an integral part of the proposed measure. Poverty measures tend to reflect their time and place. At issue is whether the thresholds ought to be updated for real changes in living standards only occasionally, or on a regular basis, and by how much. We propose a regular updating procedure to maintain the time series of poverty statistics. We also propose a conservative updating procedure that adjusts the thresholds for changes in consumption that are relevant to a poverty budget, rather than for changes in total consumption. We recommend that the proposed measure be adopted for official government use. We also urge the Statistical Policy Office in the U.S. Office of Management and Budget (which we presume will oversee the consideration and implementation of our recommendations) to establish a mechanism for regular review of the poverty measure on a 10-year cycle. No measure is without flaws, and it is important to have periodic reviews to identify improvements in concepts, methods, and data that may be needed. Altering a key social indicator is always difficult, but if a measure becomes markedly out of step with societal conditions, its utility as a barometer and guide to policy is greatly reduced. RECOMMENDATION 1.1. The official U.S. measure of poverty should be revised to reflect more nearly the circumstances of the nation's families and changes in them over time. The revised measure should comprise a set of poverty thresholds and a definition of family resourcesâfor comparison with the thresholds to determine who is in or out of povertyâ that are consistent with each other and otherwise statistically defensible. The concepts underlying both the thresholds and the definition of family resources should be broadly acceptable and understandable and operationally feasible. RECOMMENDATION 1.2. On the basis of the criteria in Recommendation 1.1, the poverty measure should have the following characteristics: â¢ The poverty thresholds should represent a budget for food, clothing, shelter (including utilities), and a small additional amount to allow for other needs (e.g., household supplies, personal care, non-work-related transportation).