July 02, 2021
These comments draw in part on recommendations made in Defining Deprivation Down: Why We Need to Reset the Poverty Line, a joint report published by CEPR and The Century Foundation in 2020.
Update the SPM Thresholds to Reflect the Current Costs of a Basket of Goods and Services Representing a Modest, Basic Standard of Living
The SPM does not provide a reasonable measure of the income needed not to live in poverty today. A related issue is that the SPM thresholds were set in a non-transparent way by unnamed executive branch officials with no reasons provided, even for deviations from the original NAS recommendations.
The 1995 NAS report recommended setting and updating the thresholds to keep them equal to somewhere in the range of 78-83 of median annual spending on food, clothing, shelter, and utilities multiplied by 1.2. At the time, the panel described this standard as “reasonable” and, compared to other approaches, “conservative.” The SPM-Interagency Technical Working Group (SPM-ITWG) convened in 2009 deviated from this conservative recommendation and opted to set the SPM threshold equal to the thirty-third percentile of food, clothing, shelter, and certain utilities multiplied by 1.2. This deviation has had the effect of pushing the SPM thresholds down (by about 10 percent) compared to thresholds that follow the NAS recommendations. (See Table 1 at p. 5 of Defining Deprivation Down, hereinafter DDD).
The SPM thresholds fall far below the public’s understanding of the income needed to not be poor. In the mid-2010s, two surveys, one sponsored by the Center for American Progress and the other sponsored by AEI, both found that Americans thought the poverty line was about 16-22 percent higher than the SPM. (See Table 3 & p. 6-8 of DDD). Moreover, as documented in DDD (p. 8-12), the implicit budget standards the SPM creates for food, clothing, shelter, utilities, transportation, and other goods and services are unreasonably low compared to standards from budget studies and expert plans.
The SPM thresholds should be updated to reflect the current costs of a basket of goods and services representing a modest, basic standard of living. They should be based on the assumption that the maintenance of health and social well-being, the nurture of children, and participation in community activities are desirable and necessary social goals. Establishing more reasonable SPM thresholds could be done in a number of ways, including by increasing the multiplier to better account for additional goods and services; directly adding in the cost of additional goods, such as transportation and goods related to child development and inclusion; or tying the threshold to a percentage of median consumption that i.
Treat Health Insurance as a Basic Need
As long as the United States does not have a free, universal health care system, the SPM should treat health insurance as a basic need. To accurately capture the impact of Medicaid, Medicare, employer-based coverage, and other public coverage, the panel should recommend adoption of a Health-Inclusive Poverty Measure (see pages 18-19 of DDD) .
Take Children’s Care, Developmental, and Social Participation Needs Seriously
Children’s care needs are just as fundamental as their needs for food, shelter, and medical care. Subtracting out-of-pocket spending on child care needed for a parent to be employed is better than nothing, but it is not enough. If a parent is able to obtain paid work or go to school because of a child care benefit or because of care provided by a family member, that benefit or care is treated as having no economic value when it comes to the parent’s poverty status. At the same time, a person who needs child care, but isn’t able to pay for it out-of-pocket and doesn’t receive free or subsidized public care, is treated as having no need for child care. Because child care is the most underdeveloped and least researched component of poverty measurement, the panel should commission discussion papers from leading experts on the economics of care that provide care-specific recommendations.
The NAS panel and SPM-ITWG did not explicitly address children’s developmental needs (beyond their need for food, clothing, and shelter) or their related social and cultural participation needs. A child is essentially treated as equivalent to an adult when it comes to goods and services necessary to not be poor. By contrast, the family budgets produced by BLS for 1967 all “assume that maintenance of health and social well-being, the nurture of children, and participation in community activities are both desirable and necessary social goals for all families of the type for which the budgets were constructed.” These assumptions were not explicitly part of the OPM in the early 1960s. Given changing understandings and norms related to children’s development and well-being over the past nearly six decades, they should be an explicit part of a contemporary poverty measure.
Count Refundable Tax Credits as Income in the Year They Are Actually Received
The bulk of specific refundable tax benefits are not actually received by families until after mid-February of the calendar year after the tax year in which they are earned. Yet, the SPM treats them as being received in the tax year, rather than in the payment year they are actually received. In 2019, the average EITC benefit payment was $2,829, an amount equal to just over ten months of the average monthly SNAP benefit that year ($262 per household). For low-income families with children, the average benefit payment is even higher, and the EITC and CTC can easily amount to a quarter or more of annual disposable income. This is a very large amount to assume is available to a family in the year before it is actually received, and almost certainly reduces the accuracy of the SPM (and other after-tax measures) as measures of income available to meet basic needs. There are two other related issues the panel should consider. First, taxes are not directly counted in the SPM. Instead they are simulated by the Census Bureau in a way that assumes 100 percent take-up of credits, which is unreasonable. According to the IRS and Census Bureau, about 21 to 22 percent of tax units eligible for the EITC do not claim it. Second, filing taxes imposes costs on filers. In addition to time costs, these often include the costs of private tax preparation services.
Subtract Student Loan Repayments from Income
The SPM counts student loans as income but does not exclude repayment of student debt from income. Like other mandatory expenses, repayments of student debt reduce the income available for housing, food, and other necessities. The SPM should be designed to capture both the extent to which student debt pushes people into poverty, and how public programs, like Income-Driven Repayment, reduce poverty.