National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Behavior of Relative Thresholds Over Time

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Suggested Citation:"Behavior of Relative Thresholds Over Time." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 131
Suggested Citation:"Behavior of Relative Thresholds Over Time." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 132
Suggested Citation:"Behavior of Relative Thresholds Over Time." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 133

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POVERTY THRESHOLDS 131 We argue (see below and Chapter 4) that the latter course is more feasible and understandable. Behavior of Relative Thresholds Over Time Vaughan (1993) constructed time series from 1947 to 1989 of median four- person family income before and after-taxes. We extended the two series to 1992 from Census Bureau data, converted all figures into constant 1992 dollars by using the CPI-U, and divided them by two; see Table 2-3. The resulting estimates of one-half median before-tax and after-tax four-person family income are problematic in some respects. Thus, some years are missing from Vaughan's series; also, Vaughan's procedures for estimating federal income and Social Security payroll taxes are rough.29 Neither series takes account of in-kind income, although for defining poverty thresholds as a percentage of the median (as distinct from determining poverty status by comparing income to the thresholds), this is not such a problem—families at the median level do not generally receive such benefits as food stamps. In contrast, almost all two-adult/ two-child families have one or more earners and hence pay taxes. Finally, neither series takes account of child care or other work expenses, which would have an effect on disposable income over time with the entry of more mothers into the work force. Despite these problems, the two series provide some insights on the behavior of relative poverty thresholds over time. Table 2-3 shows that one-half median before-tax four-person family income increased over the period 1947-1992 in real terms from about $10,400 to about $22,300—an increase of 115 percent. The importance of taking taxes into account is evident in the fact that the estimated after-tax series increased only 86 percent over the same period. In relation to the official four-person family poverty threshold of $14,228 in 1992 dollars, both the before-tax and the after-tax series were considerably lower through about 1955, at about the same level through about 1965, and then well above that threshold thereafter. (The before-tax series 29 Vaughan assumed that all four-person families represented a husband and wife filing jointly, with two dependents, with adjusted gross income equivalent to the observed before- tax median, all income from wage and salary earnings of only one worker, taking the standard deduction, and filing according to the tax law in effect in the particular year. For the years 1980-1986, he was able to use Census Bureau published estimates of after-tax income by before-tax income and household size, which are based on a detailed simulation of taxes (see, e.g., Bureau of the Census, 1988b). For 1989 he used unpublished estimates from the Census Bureau. Unfortunately, the Census Bureau's experimental income estimates, which exclude federal and state income tax and payroll tax from some resource definitions (see, e.g., Bureau of the Census, 1993a), are not helpful in estimating median after-tax income for four-person families. The estimates are not published by family size; also, the definitions are not clean in that other changes are made to income besides excluding taxes.

POVERTY THRESHOLDS 132 TABLE 2-3 Relative Poverty Thresholds for a Four-Person Family Derived as One-Half of Median Before-Tax and After-Tax Four-Person Family Income, 1947–1992, in Constant 1992 Dollars One-Half Median Four-Person Family Income Dollar Amount Percent of Official Threshold Year Before-Taxes After-Taxes Before-Taxes After-Taxes 1947 10,356 9,695 72.8 68.1 1948 10,095 9,655 71.0 67.9 1949a 9,957 9,556 70.0 67.2 1950 10,697 10,106 75.2 71.0 1951 11,122 10,253 78.2 72.1 1952 11,576 10,530 81.4 74.0 1953b 11,631 10,567 81.7 74.3 1954a,b 12,431 11,258 87.4 79.1 1955 N.A. N.A. N.A. N.A. 1956 N.A. N.A. N.A. N.A. 1957 13,701 12,198 96.3 85.7 1958a 13,799 12,251 97.0 86.1 1959 14,633 12,866 102.8 90.4 1960 14,919 13,030 104.9 91.6 1961a 15,102 13,171 106.1 92.6 1962 15,693 13,635 110.3 95.8 1963 16,364 14,120 115.0 99.2 1964 16,945 14,858 119.1 104.4 1965 N.A. N.A. N.A. N.A. 1966 18,059 15,660 126.9 110.1 1967 18,890 16,303 132.8 114.6 1968 N.A. N.A. N.A. N.A. 1969 20,305 17,058 142.7 119.9 1970a 20,190 17,068 141.9 120.0 1971 20,137 17,238 141.5 121.2 1972 N.A. N.A. N.A. N.A. 1973 21,661 18,236 152.2 128.2 1974 21,299 17,621 149.7 123.8 1975 a 20,664 17,699 145.2 124.4 1976 21,347 17,807 150.0 125.2 1977 21,674 17,997 152.3 126.5 1978 21,978 18,098 154.5 127.2 1979 21,752 17,633 152.9 123.9 1980a 20,715 16,629 145.6 116.9 1981 20,277 15,991 142.5 112.4 1982a 20,078 15,975 141.1 112.3 1983 20,552 16,495 144.4 115.9 1984 20,995 16,768 147.6 117.9 1985 21,369 17,019 150.2 119.6 1986 22,220 17,626 156.2 123.9 1987 N.A. N.A. N.A. N.A. 1988 N.A. N.A. N.A. N.A.

POVERTY THRESHOLDS 133 One-Half Median Four-Person Family Income Dollar Amount Percent of Official Threshold Year Before-Taxes After-Taxes Before-Taxes After-Taxes 1989 23,062 18,990 162.1 133.5 1990 22,249 N.A. 156.4 N.A. 1991a 22,174 N.A. 155.8 N.A. 1992 22,308 18,018 156.8 126.6 NOTES: Data for one-half median four-person family before-tax and after-tax income values for 1947-1989 derived from Vaughan (1993: Table 1); one-half median four-person family income before-tax values for 1990-1992 from Bureau of the Census (1993b: Table 13); one-half median four-person family income after-tax value for 1992 from the March 1993 CPS. All dollar values were converted to constant 1992 dollars using the CPI-U from Bureau of the Census (1993c: Table A-2); all percentages were calculated relative to the constant 1992 dollar value of $14,228 for the official two-adult/two-child poverty threshold (Bureau of the Census, 1993c: Table A). a Year contained the low point of a recession as determined by the National Bureau of Economic Research (see Bureau of the Census, 1993b:B-1). b Values estimated by Vaughan on the basis of the relationship between median income for families with two children and four-person families, 1947-1952 and 1955-1960. went from 73% of the official threshold in 1947 to 157% of that threshold in 1992; the after-tax series went from 68% to 127% of the official threshold over the same period.)30 These data indicate why the original 1963 threshold for a two-adult/two-child family was widely regarded as the right level for that time; such a figure, however, might well have been viewed as too high earlier in the post-World War II period, just as it has come under criticism by some as too low today. Another clear finding is that relative thresholds are responsive to changes in the business cycle. In only one year over the entire period did the thresholds drop in current dollars (for the before-tax threshold in 1949). In real terms, however, they declined in most of the years that experienced recessionary conditions: for example, both the before-tax and the after-tax thresholds declined from 1979 to 1983, a period that included two recession years; they also declined during the most recent recession in 1990. In contrast, the before- tax and after-tax thresholds increased in real terms, sometimes to a considerable degree, in periods of economic growth. 30 If the CPI-U-X1 is used to update the 1963 official threshold, then in 1992 the relative thresholds would exceed the official threshold by larger margins (the before-tax threshold would be about 171% and the after-tax threshold about 138% of the official threshold in 1992).

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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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