FA C T S H E E T
Measuring Poverty in the United States
Nancy K. Cauthen | Sarah Fass June 2008
This fact sheet discusses how the U.S. government measures poverty,
why the current measure is inadequate, and what alternative ways exist
to measure economic hardship.
How does the U.S. measure poverty?
The U.S. government measures eligibility for public programs.
poverty by a narrow income A similar but more complex
standard that does not include measure is used for calculating
other aspects of economic status, poverty rates.
such as material hardship (for
example, living in substandard The current poverty measure was
housing) or debt, nor does it con- established in the 1960s and is
sider financial assets (including now widely acknowledged to be
savings or property). The official flawed.2 It was based on research
poverty measure is a specific dol- indicating that families spent
lar amount that varies by family about one-third of their incomes
size but is the same across the on food – the official poverty level
continental U.S. According to the was set by multiplying food costs
guidelines, the poverty level in by three. Since then, the figures
2008 is $21,200 a year for a family have been updated annually for
of four and $17,600 for a family inflation but have otherwise re-
of three (see table). The poverty mained unchanged.
guidelines are used to determine
Federal poverty guidelines, 20081
Persons in family or household 48 contiguous Alaska Hawaii
states and D.C.
1 $10,400 $13,000 $11,960
2 $14,000 $17,500 $16,100
3 $17,600 $22,000 $20,240
4 $21,200 $26,500 $24,380
5 $24,800 $31,000 $28,520
6 $28,400 $35,500 $32,660
215 W. 125th Street, 3rd Floor 7 $32,000 $40,000 $36,800
New York, NY 10027-4426 8 $35,600 $44,500 $40,940
For each additional person add: $3,600 $4,500 $4,140
Why is the current poverty measure inadequate?
The current poverty measure is More accurate estimates of typi- in-kind government benefits that
flawed in two ways. cal family expenses, and adjust- assist low-income families – food
ments for local costs, would pro- stamps, Medicaid, and housing
1) The current poverty level duce substantially higher dollar and child care assistance – are not
– that is, the specific dollar amounts. taken into account. This means
amount – is based on outdated that official poverty statistics can-
assumptions about family 2) The method used to deter- not be used to analyze the effec-
expenditures. mine whether a family is poor tiveness of these programs.
Food now comprises only one- does not accurately count
seventh of an average family’s family resources.
expenses, while the costs of When determining if a family is
housing, child care, health care, poor, income sources counted
and transportation have grown include earnings, interest, divi-
disproportionately. Thus, the dends, Social Security, and cash
poverty level does not reflect the assistance. But income is counted
true cost of supporting a family. before subtracting payroll,
In addition, the current poverty income, and other taxes, overstat-
measure is a national standard ing income for some families.
that does not adjust for the On the other hand, the federal
substantial variation in the cost Earned Income Tax Credit isn’t
of living from state to state and counted either, underestimating
between urban and rural areas. income for other families. Also,
Are there alternative ways to measure poverty?
Considerable research has been ▶ Adjust thresholds by region to If the NAS recommendations
conducted on better methods to account for variation in the cost were adopted, millions more
measure income poverty, but to of living. people would be considered
date, the political will necessary to ▶ When counting families’ officially poor. But even these rec-
implement change has been lack- resources to determine whether ommendations underestimate the
ing. In the early 1990s, Congress they fall below the poverty line: cost of family expenses and thus
asked the National Academy of produce poverty thresholds well
Sciences (NAS) to investigate – use families’ post-tax income; below what it takes to make ends
alternative measures. The NAS – include earned income tax meet, for example, increasing the
panel of experts issued a report in credits and the value of poverty level for a family of four
1995 that recommended revising near-cash benefits (such as by only about $3,000 annually.4
the poverty level and the method food stamps and housing
of determining which families are assistance); and
poor.3 The panel’s recommenda- – subtract the cost of work-
tions included the following: related expenses (such as
▶ Create new poverty thresholds child care and transportation)
that more accurately reflect and medical care.
the cost of food, clothing, and
National Center for Children in Poverty Measuring Poverty in the United States 3
How much does it really take to make ends meet?
Given that the federal poverty
level grossly understates how Basic needs budgets for a family of four, in selected urban,
much it takes to support a fam- suburban, and rural localities*
ily, researchers have developed
UrbAn UrbAn SUbUrbAn rUrAL
budgets that realistically quantify new York, Houston, Aurora, Decatur
basic living costs in specific locali- nY TX IL County, IA
ties.5 Building on earlier efforts, Rent and utilities $15,816 $10,224 $11,328 $6,324
NCCP has developed Basic Needs Food $7,878 $7,878 $7,878 $7,878
Budgets that include only the
Child care $20,684 $15,422 $18,793 $11,682
most basic daily living expenses
Health insurance premiums $2,609 $2,834 $2,265 $2,436
and are based on modest assump-
Out-of-pocket medical $732 $732 $732 $732
tions about costs. For example,
Transportation $1,824 $4,808 $4,808 $6,288
the budgets in the table at right
assume that family members Other necessities $6,397 $4,887 $5,185 $3,834
have employer-sponsored health Payroll taxes $5,113 $3,873 $4,437 $3,270
coverage, even though the major- Income taxes (includes credits) $5,787 -$34 $2,572 $304
ity of low-wage workers do not TOTAL $66,840 $50,624 $57,998 $42,748
have employer coverage.6 NCCP’s % of 2008 Federal Poverty Level 315% 239% 274% 202%
Basic Needs Budgets do not *Assumes two-parent family with one preschool-aged and one school-aged child.
include money to purchase life or Source: NCCP’s Basic Needs Budget Calculator (available online at www.nccp.org/tools/budget).
disability insurance or to create Results are based on the following assumptions: children are in center-based care settings while their
parents work (the older child is in after-school care); family members have access to employer-based
a rainy-day fund that would help health insurance; in New York family relies on public transportation, in all other locations, costs reflect
a family withstand a job loss or private transportation.
other financial crisis. Nor do they
allow for investments in a fam-
ily’s future financial success, such
In short, even if the official
as savings to buy a home or for a
poverty measure is revised along
child’s education. In short, these
the lines suggested by the NAS,
budgets indicate what it takes for
it would remain a measure of
a family to cover their most basic
deprivation and severe hardship.
living expenses – enough to get
In contrast, Basic Needs Budgets
by but not enough to get ahead.
provide a way to think about
what families need to maintain
Across the country, families typi-
a minimally decent standard of
cally need an income of at least
twice the official poverty level
($42,400 for a family of four) to
meet basic needs. In high-cost
cities such as New York, it may
take an income of over three
times the poverty level to make
ends meet, whereas in some rural
areas, the figure may be under
double the poverty level.
1. The federal poverty guidelines are 4. Bernstein, Jared. 2007. More Poverty
used for administrative purposes, such as than Meets the Eye (Economic Snapshots,
determining financial eligibility for ben- April 11, 2007). Washington, DC: Eco-
efit programs. For statistical purposes, nomic Policy Institute. Accessed April
researchers use a different – but quite 23, 2007 at <www.epi.org/content.cfm/
similar – version of the federal poverty webfeatures_snapshots_20070411>.
measure, the federal poverty thresholds, 5. These efforts include Self-Sufficiency
issued by the U.S. Census Bureau. Both Standards developed by Diana Pearce for
the guidelines and the thresholds are Wider Opportunities for Women and the
commonly referred to as the federal Economic Policy Institute’s Basic Family
poverty level (FPL). Budgets.
2. Cauthen, Nancy K. 2007. Testimony 6. Only 59 percent of all workers have ac-
on Measuring Poverty in America. Tes- cess to employer-sponsored health cover-
timony before the House Subcommittee age; the proportion is much lower among
on Income Security and Family Support, low-wage workers. Krugman, Paul. 2007.
Committee on Ways and Means. Aug. 1, The Conscience of a Liberal. New York,
2007. Available at www.nccp.org/publi- NY: W.W. Norton & Co.
3. Betson, David M.; Citro, Constance
F.; Michael, Robert T. 2000. Recent De-
velopments for Poverty Measurement in
U.S. Official Statistics. Journal of Official
Statistics 16(2): 87-111.