August 31, 2006
By Rea S. Hederman, Jr.
Every year at this time, the Census
Bureau announces the official poverty rate of the United States.
And every year, the same fruitless debate takes place.
Some will point to the successes and
urge that we stay the course. Some will point to the failures and
call for more spending on anti-poverty programs. Unfortunately, the
analyses on both sides are based on faulty data -- because our
measures are critically flawed and overstate the number of
Americans in poverty.
The official poverty measure
counts only monetary income. It considers anti-poverty programs
such as food stamps, housing assistance, the Earned Income Tax
Credit, Medicaid and school lunches, among others, "in-kind
benefits" -- and hence not income. So, despite everything these
programs do to relieve poverty, they aren't counted as income when
Washington measures the poverty rate.
We're talking about big bucks here. In 2002,
the federal government spent $522 billion on low-income assistance
programs. But $418 billion of that was not considered to be cash
income and not included in calculating any family's income. Did
that $418 billion do nothing to alleviate poverty?
It's time to scrap this outdated definition of
income. After all, government has changed how it combats poverty:
Direct-cash subsidies are out; benefits that can be used only for
essentials, such as food, shelter and health care, are in. But
because of how we measure poverty, progress goes unreported, even
if families are doing better.
Since 1995, the National Research Council has
recommended that the Census Bureau include programs that distribute
in-kind benefits, such as food stamps, that are the equivalent of
cash, and include the effect of taxes and tax refunds such as the
And why not? Non-cash assets such as houses
and cars are routinely used to assess economic worth. Taxpayers
consider an IRS tax refund as monetary income and income taxes as
lost income. Yet the Census Bureau ignores the effect of taxes and
doesn't count the EITC refund as income.
Studies that do take into account all
income and transfer payments to low-income individuals have found a
decline in the number of people in poverty. A 2006 study in the
Journal of Economic Perspectives reported that if in-kind
benefits are included in income, poverty rates in 2003 would have
declined from 12.7 percent to 9.9 percent. By counting all income
and taxes, the poverty rate falls by more than 20 percent.
The bad accounting in the current system can
lead to bad public policy. The misleading figures make it difficult
for policymakers to accurately judge anti-poverty programs.
For instance, the EITC, one of the costliest
anti-poverty programs, provides an income subsidy to low-income
workers to offset taxes and encourage work. Yet the latest poverty
figures discount its worth as an anti-poverty program. In reality,
the EITC has cut the child poverty rate by 16 percent since
It's important to have an accurate measure of
progress in our war on poverty. Americans want to help those in
need, but they want to do it intelligently. That's difficult to do
when the data are inaccurate. The current measure assumes
direct-cash transfers to be the only effective way to reduce the
poverty rate. Lawmakers rightly avoid direct-cash transfers because
of the lack of accountability. In-kind benefits, such as food
stamps, ensure the money is spent on needs, such as milk and food,
and not vices, such as alcohol and tobacco.
The Census Bureau needs to update its
measurement of income and poverty. At a minimum, it should
emphasize the poverty rate after all government transfer programs
and taxes are counted. This will allow Americans to see how
effective low-income assistance is in reducing the poverty rate and
what types of relief work best.
is a senior policy analyst in the Center for Data Analysis at
The Heritage Foundation (heritage.org).
Distributed nationally on the McClatchy Tribune wire
Every year at this time, the Census Bureau announces the official poverty rate of the United States. And every year, the same fruitless debate takes place.
Rea S. Hederman, Jr.
Director, Center for Data Analysis and Lazof Family Fellow
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