Chapter 1
Poverty in the United States

THE FEDERAL DEFINITION OF POVERTY

The federal government began measuring poverty in 1959. During the 1960s President Lyndon B. Johnson declared a national war on poverty. Researchers realized that few statistical tools were available to measure the number of Americans who continued to live in poverty in one of the most affluent nations in the world. To fight this "war," it had to be determined who was poor and why.

During the early 1960s Mollie Orshansky of the Social Security Administration suggested that the poverty income level be defined as the income sufficient to purchase a minimally adequate amount of goods and services. The necessary data for defining and pricing a full market basket of goods was not available then, nor is it available now. Orshansky noted, however, that in 1955 the U.S. Department of Agriculture (USDA) had published the Household Food Consumption Survey, which showed that the average family of three or more people spent approximately one-third of its after-tax income on food. She multiplied the USDA's 1961 economy food plan (a no-frills food basket meeting the then-recommended dietary allowances) by three.

Basically, this defined a poor family as any family or person whose after-tax income was not sufficient to purchase a minimally adequate diet if one-third of the income was spent on food. Differences were allowed for size of family, gender of the head of the household, and whether it was a farm or nonfarm family. The threshold (the level at which poverty begins) for a farm family was set at 70% of a nonfarm household. (The difference between farm and nonfarm households was eliminated in 1982.)

The poverty guidelines set by the U.S. Department of Health and Human Services (HHS) are based on the poverty thresholds as established by the U.S. Bureau of the Census. The poverty thresholds are updated each year to reflect inflation. People with incomes below the applicable threshold are classified as living below the poverty level.

The poverty guidelines vary by family size and composition. In 2007 a family of four earning $20,000 or less annually was considered impoverished. (See Table 1.1.) A person living alone who earned less than $9,800 was considered poor, as was a family of eight members making less than $33,600. The poverty level is considerably higher in Alaska and Hawaii, where the cost of living is higher than in the contiguous forty-eight states and the District of Columbia.

The poverty guidelines set by the HHS are important because various government agencies use them as the basis for eligibility to key assistance programs. The HHS uses the poverty guidelines to determine Community Services Block Grants, Low-Income Home Energy Assistance Block Grants, and Head Start allotments. The guidelines are also the basis for funding the USDA's Food Stamp Program, National School Lunch Program, and Special Supplemental Food Program for Women, Infants, and Children. The U.S. Department of Labor uses the guidelines to determine funding for the Job Corps and other employment and training programs under the Workforce Investment Act of 1998. Some state and local governments choose to use the federal poverty guidelines for some of their own programs, such as state health insurance programs and financial guidelines for child support enforcement.

THE HISTORICAL EFFORT TO REDUCE POVERTY

Since the late 1950s Americans have seen both successes and failures in the battle against poverty. For the total population in 1959, 22.4%, or 39.5 million people, lived below the poverty level. (See Table 1.2.) After an initial decline through the 1960s and 1970s, the poverty rate began to increase during the early 1980s, coinciding with a downturn in household and family incomes for all Americans. The poverty rate rose steadily until it reached an eighteen-year high of 15.2% in 1983, a year during which the country was climbing out of a serious economic recession. The percentage of Americans living in poverty then began dropping, falling to 12.8% in 1989. After that, however, the percentage increased again, reaching 15.1% in 1993. It then dropped to 11.3% in 2000; however, because the nation's economy slowed, the poverty rate rose again to 12.7% in 2004, and then dropped slightly in 2005. Figure 1.1 provides a graphic representation of the number of poor people and the poverty rates between 1959 and 2005.

Analysts believe the overall decline in poverty is because of both the growth in the economy and the success of some of the antipoverty programs instituted in the late 1960s; yet not all demographic subcategories have experienced the same level of change. For example, the poverty rate of those aged sixty-five and older has dramatically improved from 35.2% in 1959 to 10.1% in 2005. For related children under eighteen years of age in African-American families, however, the improvement from 65.6% in 1959 to 33.2% in 2005 shows that antipoverty programs still have not reached many people in need. Table 1.3 shows the differences in the nation's historical poverty for people by categories of age, race, and ethnic background.

RATIO OF INCOME TO POVERTY LEVELS

For purposes of analysis, the Census Bureau uses income-to-poverty ratios that are calculated by dividing income by the respective poverty threshold for each family size. The resulting number is then tabulated on a scale that includes three categories: poor, near-poor, and nonpoor. Poor people have a poverty ratio below 1. People above the poverty level are divided into two groups: the near-poor and the nonpoor. The near-poor have a poverty ratio between 1 and 1.24 (100% to 124% of the poverty level), and the nonpoor have an income-to-poverty ratio of 1.25 (125% of the poverty level) and above. In 2005, 12.6% of the total population had income-to-poverty ratios under 1; in other words, nearly thirty-seven million people in the United States had incomes below the poverty threshold, and 16.8% were classified as poor or near-poor.

HOW ACCURATE IS THE POVERTY LEVEL?

Almost every year since the Census Bureau first defined the poverty level observers have been concerned about its accuracy. Since the early 1960s, when Orshansky defined the estimated poverty level based on a family's food budget, living patterns have changed and food costs have become a smaller percentage of family spending. For example, the U.S. Bureau of Labor Statistics reports in the news release "Consumer Expenditures in 2005" (November 8, 2006, http://www.bls.gov/news.release/pdf/cesan.pdf) that the average family spent $5,931, or 12.8% of its total expenditures, on food per year. By contrast, housing accounted for $15,167, or 32.7% of family spending. The proportion of family income spent on food is not the only change in family budgets since the 1950s. In families headed by two parents, both parents are far more likely to be working than they were in the 1950s. There is also a much greater likelihood that a single parent, usually the mother, will be heading the family. Child care costs, which were of little concern during the 1950s, have become a major issue for working mothers and single parents in the twenty-first century.

Critics of the current poverty calculations tend to believe that the official poverty level has been set too low, because they are based on a fifty-year-old concept of American life that does not reflect today's economic and social realities. Even among those who feel the poverty level should be changed to more accurately reflect how many Americans have trouble paying for basic expenses there is disagreement about what would make a more accurate benchmark. Should the amount spent on food be multiplied by a factor of eight instead of three? Should the poverty level be based on housing or other factors? What about geographical differences in the cost of living?

Some are concerned because the poverty threshold is different for elderly and nonelderly Americans. When the poverty threshold was first established, it was thought that older people did not need as much food. Therefore, the value of their basic food needs was lower. Consequently, when this figure was multiplied by three to determine the poverty rate, it was naturally lower than the rate for non-elderly people. (The U.S. government, however, uses the poverty rate for nonelderly Americans when determining the eligibility for welfare services for all people, including the elderly.) Critics point out that while the elderly might eat less than younger people, they have greater needs in other areas, which are not considered when their food needs are simply multiplied by three. Probably the most notable difference between the needs of the elderly and nonelderly is in the area of health care. The Bureau of Labor Statistics, in Consumer Expenditures in 2004 (April 2006, http://www.bls.gov/cex/csxann04.pdf), finds that while the total population interviewed spent $2,574, or 4.7% of their income, on health care, those over sixty-five years of age spent $3,899, or 11.1% of their income, on health care. These critics feel that the poverty level should be the same for everyone, no matter what their age.

In Measuring Poverty: A New Approach (1995), the National Research Council's Panel on Poverty and Family Assistance raises several important issues regarding poverty thresholds or measurement of need. It recommends that new thresholds be developed using consumer expenditure data to represent a budget for basic needs: food, clothing, shelter (including utilities), and a small allowance for miscellaneous needs. This budget would be adjusted to reflect the needs of different family types and geographic differences in costs.

In June 2004 the Committee on National Statistics met to research alternative methods for measuring poverty, as recommended in 1995. The panel recommended adopting a new poverty measure, taking into account the current dollar value of food, clothing, shelter, and utilities, as well as taxes, the value of food stamps and other near-cash benefits, and child support payments. In addition, the panel workshop recommended adjusting the new poverty measure based not only on inflation but also on data on yearly consumer expenditures. John Iceland, the rapporteur for the committee, notes in "The CNSTAT Workshop on Experimental Poverty Measures, June 2004" (Focus, Spring 2005), "The reasoning here is that CE [consumer expenditure]-based calculations will allow the thresholds to retain their social significance for longer periods of time than absolute thresholds."

INCOME AND POVERTY

How Should Income Be Defined?

Critics point out that the definition of income used to set the poverty figure is not accurate because it does not include the value of all welfare services as

income. If the value of these services was counted as income, they believe the proportion of Americans considered to be living in poverty would be lower. In the 1990s the Census Bureau developed several experimental methods of estimating income for evaluating poverty levels, but the bureau has had considerable

difficulty determining the value of many of these subsidies. For example, it first tried to consider Medicare and Medicaid at full market value (this meant taking the total amount of money that the government spent on medical care for a particular group and then dividing it by the number of people in that group). The value was often

greater than the actual earnings of the low-income family, which meant that, although the family's total earnings may not have been enough to cover food and housing, adding the market value of Medicare or Medicaid to its earnings put the family above the poverty threshold.

This did not make much sense, so the Census Bureau began trying a fungible value (giving equivalent value to units) for Medicare and Medicaid. When the bureau measures a household's income, if the earners cannot cover the cost of housing and food, Medicare and Medicaid are given no value. However, if the family can cover the cost of food and shelter, the Census Bureau figures the difference between the household income and the amount needed to meet basic housing

and food costs. It then values the health services at this difference (up to the amount of the market value of the medical benefits). Even though this is complicated, the formula is believed to give a fair value to these services. Similar problems have developed in trying to determine the value of housing subsidies, school lunches, and other benefits.

Still other observers point out that most income definitions do not include assets and liabilities. Perhaps the poor household has some assets, such as a home or a car, that could be converted into income. One experimental definition of income includes capital gains on earnings, although it seems to make little difference—about 90% of all capital gains are earned by those in the upper fifth of the earnings scale. Michael Sherraden indicates in "Building Assets to Fight Poverty" (Shelterforce Online, March-April 2000) that including assets generally means little, because the overwhelming majority of poor families have few financial assets. For comparison purposes, the Census Bureau divides the population into five income groups (quintiles). According to Signe-Mary McKernan, in "Poor Finances: Assets and Low-Income Households" (June 7, 2006, http://www.acf.dhhs.gov/programs/opre/wrconference/presentations/Poor_ Finances.ppt), the bureau reports that the bottom quintile of the population in income has a median asset holding of $17,000, whereas the second quintile has a median of $78,300 and the top quintile has $808,100. Clearly, poor and low-income families have relatively insignificant assets from which they could earn income.

Another major issue is the question of income before and after income taxes. Even though the Tax Reform Act of 1986 removed most poor households from the federal income tax rolls, many poor households still pay state and local taxes. Naturally, some critics claim, the taxes paid to local and state governments are funds that are no longer available for feeding and housing the family and, therefore, should not be counted as income.

Table 1.4 lists the various experimental definitions for income that the Census Bureau has considered. Table 1.5 illustrates that the use of these selected definitions typically lowers the poverty rate.

Growing Income Inequality

The Census Bureau has released a number of studies showing a change in the distribution of wealth and earnings in the United States. This change has resulted in an increase in the gap between the rich and the poor. Unlike many short-term economic changes that are often the product of normal economic cycles of growth and recession, these changes seem to indicate fundamental changes in American society.

The growing inequality in income in the United States began in the 1980s. In 2005 the income differences between income quintiles were close to record highs, with only the top fifth having increased its percentage of the nation's income since the 1980s. (See Table 1.6.) Census data show that in 2005 the quintile of households with the highest incomes received 50.4% of the national income, up from 50.1% the year before, about the same as that received by the other 80% of the population combined. The lowest quintile received only 3.4% of the national income in 2005. (Table 1.7.)

Why Is the Income Gap Growing?

Many reasons exist to explain the growing inequality, although observers disagree about which are more important. One reason is that the proportion of the elderly population, who are likely to earn less, is growing. According to the Census Bureau, 23.5 million of 114.4 million households in 2005 were headed by a householder sixty-five years of age or older. (See Table 1.8.) (A household may consist of a single individual or a group of related or unrelated people living together, whereas a family consists of related individuals.) In addition, more people than in previous years were living in nonfamily situations (either alone or with nonrelatives). In 2005, 37 million of 114.4 million households were nonfamily households. These nonfamily households earned a median income of $27,326 in 2005, compared with the $57,278 median income of family households.

The increase in the number of households headed by females, as well as the increased labor force participation of women, has also contributed to growing income inequality in the United States. In 2005, 14.1 million of 77.4 million family households, or 18.2%, were headed by women; 20.2 million of 37 million nonfamily households, or 54.7%, were headed by women. (See Table 1.8.) Female-headed households typically earn significantly less than other types of households. According to Carmen DeNavas-Walt, Bernadette D. Proctor, and Cheryl Hill Lee, in Income, Poverty, and Health Insurance Coverage in the United States: 2005—Current Population Reports (August 2006, http://www.census.gov/prod/2006pubs/p60-231.pdf), on average, women earned 77% of what men earned in 2005.

In The Changing Shape of the Nation's Income Distribution (June 2000, http://www.census.gov/prod/2000pubs/p60-204.pdf), Arthur F. Jones Jr. and Daniel H. Weinberg note that other factors contribute to the growing income gap, including the decline in the influence of unions and the changing occupational structure, in general, from better-paying manufacturing positions to lower-paying service jobs. In addition, DeNavas-Walt, Proctor, and Hill Lee indicate that the proportion of low-wage workers who receive employer-based health insurance and pension benefits dropped significantly between 1987 and 2005.

HOMELESSNESS

Homelessness is a complex social problem. According to the National Coalition for the Homeless fact sheet "How Many People Experience Homelessness?" (June 2006, http://www.nationalhomeless.org/publications/facts/How_Many.pdf), approximately 3.5 million Americans, 1.3 million of them children, lack a place to sleep at some time during the year. Social researchers—educators, sociologists, economists, and political scientists—have studied homelessness in the past and present and have determined that homelessness is caused by a combination of poverty, misfortune, illness, and behavior.

What Does It Mean to Be Homeless?

During a period of growing concern about homelessness in the mid-1980s, the first major piece of federal legislation aimed specifically at helping the homeless was adopted: the Stewart B. McKinney Homeless Assistance Act of 1987, today known as the McKinney-Vento Homeless Assistance Act. Part of the act officially defined a homeless person as:

1. An individual who lacks a fixed, regular, and adequate nighttime residence; and
2. An individual who has a primary nighttime residence that is:
   1. A supervised publicly or privately operated shelter designed to provide temporary living accommodations (including welfare hotels, congregate shelters, and transitional housing for the mentally ill);
   2. An institution that provides a temporary residence for individuals intended to be institutionalized; or
   3. A public or private place not designed for, or ordinarily used as, a regular sleeping accommodation for human beings.

The government's definition of a homeless person focuses on whether a person is housed. Broader definitions of homelessness take into account whether a person has a home. For example, Martha R. Burt et al. report in Helping America's Homeless: Emergency Shelter or Affordable Housing? (2001) that as late as 1980 the Census Bureau identified people who lived alone and did not have a "usual home elsewhere"—in other words, a larger family—as homeless. In this sense the term home describes living within a family, rather than having a roof over one's head.

Burt et al. also state that homeless people themselves, when interviewed in the 1980s and 1990s, drew a distinction between having a house and having a home. Even when homeless people had spent significant periods of time in a traditional shelter, such as an apartment or

TABLE 1.6

Household income dispersion, 1967–2005 [continued]

^aData have been revised to reflect a correction to the weights in the 2005 Annual Social Economic Supplement (AESC).

^bImplementation of a 28,000 household sample expansion.

^cImplementation of Census 2000-based population controls.

^dFull implementation of 1990 census-based sample design and metropolitan definitions, 7,000 household sample reduction, and revised editing of responses on race.

^eIntroduction of 1990 census sample design.

^fData collection method changed from paper and pencil to computer-assisted interviewing. In addition, the 1994 ASEC was revised to allow for the coding of different income amounts on selected questionnaire items. Limits either increased or decreased in the following categories: earnings limits increased to $999,999; social security limits increased to $49,999; supplemental security income and public assistance limits increased to $24,999; veterans' benefits limits increased to $99,999; child support and alimony limits decreased to $49,999.

^gImplementation of 1990 census population controls.

^hImplementation of a new Current Population Survey (CPS) AESC processing system.

ⁱRecording of amounts for earnings from longest job increased to $299,999. Full implementation of 1980 census-based sample design.

^jImplementation of Hispanic population weighting controls and introduction of 1980 census-based sample design.

^kImplementation of 1980 census population controls. Questionnaire expanded to allow the recording of up to 27 possible values from a list of 51 possible sources of income.

^lImplementation of a new CPS ASEC processing system. Questionnaire expanded to ask 11 income questions.

^mFull implementation of 1970 census-based sample design.

ⁿIntroduction of 1970 census sample design and population controls.

^oImplementation of a new CPS ASEC processing system.

source: Carmen DeNavas-Walt, Bernadette D. Proctor, and Cheryl Hill Lee, "Table A3. Selected Measures of Household Income Dispersion: 1967 to 2005," in Income, Poverty, and Health Insurance Coverage in the United States: 2005—Current Population Reports, U.S. Census Bureau, August 2006, http://www.census.gov/prod/2006pubs/p60-231.pdf (accessed December 1, 2006)