The Trump administration has suggested it wants to make a change that would redefine poverty in an effort to have fewer Americans defined as poor and “low income,” thereby reducing the number of people and families that qualify for public programs and reducing their benefits.
Explaining the change requires going into some wonkish detail, which we will do after we look at the broader context of how we define poverty in the United States. For those who like to hear the punch line first, the poverty line is already far too low and this change will make it worse.
The current official poverty measure is based on a poverty index first published in 1965 by an economist at the Social Security Administration, Mollie Orshansky, who calculated it based on the idea that food comprises approximately one-third of a household budget. The cost of a minimal food diet was multiplied by three to account for other family expenses. President Lyndon B. Johnson declared the War on Poverty soon afterward and his administration, despite Ms. Orshansky’s protests that a better measurement needed to be developed, adopted her index as the basis of the official poverty threshold—which it has been to this day.
Times have changed greatly since the 1960s. Food has become much cheaper and other expenses such as health care, child care and housing have become more expensive, so basing the federal poverty threshold on the cost of food greatly understates how much income a household needs in order to meet all of its needs. Yet for more than 50 years, Ms. Orshansky’s measurement has remained the starting point with an annual update to account for inflation using the Consumer Price Index.
According to the 2018 poverty threshold, a single parent with one child was considered officially poor by the federal government only if the family had a household income below $17,308 for the year. For a two-parent family with two children, the poverty threshold was $25,465. A household income above that level but below two times that level ($34,616 for the aforementioned single-parent family and $50,930 for the two-parent family) is defined as “low income.”
Compare this to the recent ALICE report published by the Michigan Association of United Ways, which shows that the single parent with one child in Michigan would have needed $33,168 if the child was school age and $37,200 if the child was an infant just to survive without outside help. The two-parent family would have needed $53,172 if the two children were school age, and $61,272 if the children were younger.
Many experts have long written that the federal poverty threshold is inadequate and must be updated to reflect actual human need, including at the National Academy of Sciences and Stanford University. However, according to at least one expert, the reason this has not been done has much more to do with politics than with economics: no President is going to make a change that will expand the population defined as poor and thus result in “poverty going up” on their watch.
Fast forward to 2019, and the Trump administration is seeking comment on changing the way the federal government determines the annual adjustment to the federal poverty threshold each year. It specifically seeks comment on using an alternative index such as the Chained Consumer Price Index or the Personal Consumption Expenditures Price Index (PCEPI), both of which rise more slowly than the currently used Consumer Price Index for All Urban Consumers (CPI-U). Adopting one of these more modest measurements of inflation would ultimately result in the federal poverty level being lower each year than it would be if the current calculation method continues to be used.
Because the federal poverty guidelines (based on the poverty threshold) are used as a benchmark for determining many public assistance programs, lowering the level would result in fewer people being eligible for various programs—and those who still qualify would receive less in benefits. The Center on Budget and Policy Priorities estimates that, nationally, in ten years such a change would result in:
- more than 250,000 seniors and people with disabilities losing eligibility for Medicare’s Part D Low-Income Subsidy Program or receiving lower benefits
- more than 300,000 children losing comprehensive coverage through Medicaid and the Children’s Health Insurance Program (MIChild in Michigan)
- more than 250,000 adults losing Medicaid coverage who had gained it from the Affordable Care Act’s Medicaid expansion (in Michigan this is the Healthy Michigan program)
- increasing premiums and deductibles for more than 150,000 consumers who buy coverage through the ACA marketplaces
The Trump administration claims that moving to an alternative inflation measurement such as the Chained CPI would improve accuracy, but the Center on Budget and Policy Priorities counters that claim by pointing out that the poverty threshold is already too low to reflect current household needs, so lowering it further will not make it more accurate. The Center also points out that the Chained CPI may not be a more accurate measure of inflation for low-income households, which tend to spend a higher portion of their household budgets on housing, for which costs tend to rise rapidly.
So there we have it. Modify the calculation method for determining the inflation adjustment to the federal poverty level each year so that fewer people than otherwise are defined as poor, which means they are either ineligible altogether for public assistance programs or receiving smaller benefits. Then claim poverty has gone down, fewer Americans are on public assistance, and money has been saved. Meanwhile, hardship increases under the radar as struggling families have a weaker safety net. A small econometric change can have big consequences for real people.
We will keep you informed on how this goes. Readers should be clear that this is not a formal proposal by the Trump administration at this time, just a seeking of comments, which will be accepted until June 21, 2019, at 11:59 PM ET. To submit a comment on how changing the poverty threshold calculation will affect people you know or populations you work with, please go to https://www.chn.org/ and click “Take Action.” (Be sure to take a look at the resource page after you click “Start Writing.”)