Why You’re Poorer Than You Think

Money, Politics, Taxes

Every year the Census Bureau reports on the nation’s poverty rate, and in recent years the numbers have been going up. More Americans than ever are living in poverty, forced to rely on government aid for food, shelter, and more. But some experts argue that if the standards by which the poverty threshold is calculated reflected 21st century life more accurately, a lot more people would officially be living in poverty — and many more Americans would be eligible for federal and state aid.

How does the government decide who’s poor?

Did you know the formula that determines the poverty line was developed in 1963? Even though the number of people estimated to live in poverty determine social policy and programs, the measures by which the government decides who qualifies as poor have remained basically unchanged for nearly 50 years.

In 1963, Mollie Orshansky, an economist at the Social Security Administration, set the base poverty threshold by taking  the cost of the the U.S. Department of Agriculture’s “economy food plan” — the amount figured necessary at the time to maintain an adequately nutritious diet — and multiplying by three. For a family of four in 1965, this resulted in a poverty line of $3,130.

American Poverty in the 21st Century

The factor of three was used because the Agriculture Department’s 1955 Household Food Consumption Survey found that for families of three or more persons, the average dollar value of all for all food consumed equaled about one-third of income after taxes. The monetary value of a basic diet has been adjusted for inflation, but not the calculations; for a family of four in 2011, this resulted in a poverty guideline of $ 22,350.

What the figures don’t take into account is everything else the average family now spends money on. Families these days spend a far smaller proportion of their income on food than they did 50 years ago, and a much larger percentage on housing, transportation, and health care. While groceries made up about a third of the family budget in the mid-20th century, food costs now account for just over 12 percent of family expenditures, according to a Department of Labor 2010 survey. And expenses such as child care, a necessity for many families, didn’t figure into the original calculations at all.

Poverty is Political

Think of all the changes that have taken place in the past half-century that affect Americans’ economic status. In 1963, a high school diploma virtually guaranteed a decent income; in 2011, even a graduate degree might not get you a job.

The poverty line isn’t some dry government statistic. It affects millions of Americans on a daily basis, and ties directly to how much money is allocated into federal, state, and local aid programs. So why hasn’t it been updated?

Because the poverty indicators aren’t under the jurisdiction of the Department of Health and Human Services or any statistical agencies. Due to some quirky political machinations 50 years ago, the poverty indicator is directly under the jurisdiction of the president.  That makes the number of Americans living in poverty a very political figure indeed.

No president in the past half-century has wanted to do anything to draw any extra attention to the rising numbers of poor Americans. If the formula was recalculated, the number of people living in poverty would suddenly increase, and drastically. And that certainly wouldn’t make  for a historical footnote any president wants by his name in the history books.