How Poverty is Measured
The U.S. government determines who lives in poverty by calculating a threshold income level. Anyone not meeting that threshold is said to live below the poverty line. There are different poverty thresholds depending on the size of the family.
The way the government calculates this threshold was determined in 1963 — and it has not changed since. The calculation defines the poverty level for a family of four at three times a typical family’s food budget. It was based on the 1955 Household Food Consumption Survey, which found that the average low-income family of three or more persons spent one-third of its total after-tax income on food.
Today, based on this calculation and adjusted to inflation, a family of four (two adults and two children) is considered to be living in poverty if it has a pre-tax annual household income of $24,858 or lower. The annual income poverty threshold for an individual is $12,488.
According to this measurement, there were 39.7 million Americans living in poverty last year. The official poverty rate in 2017 stood at 12.3%, a slight improvement from the 2016 rate of 12.7%. Since 2014, the poverty rate has fallen 2.5 percentage points, from 14.8%. While this was the third consecutive year poverty has declined significantly, the poverty rate remains above the 2000 low of 11.3%.
Federal poverty thresholds do not take into account a range of important factors:
1) Because pre-tax income is used, amounts paid in taxes or received in tax credits, as well as state variations in tax burdens, are not accounted for;
2) Federal and local non-cash social assistance programs such as the Supplemental Nutrition Assistance Program (SNAP) formerly known as food stamps, housing programs providing rent subsidies, and care received through Medicaid are not factored into the measurement;
3) Child support payments, work expenses such as transportation costs, and out-of-pocket medical expenses are not considered in the measurement;
4) The only basic household expense considered in the official rate is food. This means the costs of education, health care, furniture, appliances, recreation, alcohol and tobacco, and other items — and the proportion of a typical budget each represents — do not currently have any effect on the official poverty level.
5) The differences in costs of living also are not considered in the official poverty rate. Though there are significant regional price differences, especially in housing costs, a family of four is considered poor whether it earns less than $24,000 in San Jose, California, or in Akron, Ohio.
Even if these factors were taken into account, large groups of U.S. residents living in economic hardship would be left uncounted. Homeless individuals, undocumented migrant workers, children under 15 living with unrelated family-members, and prisoners, to name just a few, are each groups of people at high risk of material deprivation completely absent from official poverty counts.