Opinionator: Who Is Poor?

Tom Edsall on politics inside and outside of Washington.

Tags:

Brookings Institution, Center for Economic and Policy Research, Edin, Kathryn, Elderly, Munnell, Alicia H, National Opinion Research Center, Poverty, United States Economy, Welfare (US)

There are three ways of defining poverty in America: the official Census Bureau method, which uses a set of income thresholds that vary by family size and composition; an experimental income-based method called the Supplemental Poverty Measure that factors in government programs designed to help people with low incomes; and a consumption-based method that measures what households actually spend.

By defining poverty according to different criteria, these three methods capture surprisingly different populations of men, women and children. In a perfect world, these three methods would all tell us to do the same thing to alleviate poverty, but it's not like that. Each method suggests a different approach toward how our government should direct its poverty-fighting resources.

According to the two income-based methods of calculation, poverty is increasing; according to the consumption-based method, it is decreasing. Confusingly, I am afraid, both the official method and the consumption method of defining poverty suggest that we should shift benefits away from the elderly and increase programs serving poor children and their families, but the Supplemental Poverty Measure, which is also income-based, does exactly the opposite.

Needless to say, these three methods and their distinct outcomes have led to substantial disagreement among policy experts and social scientists. The lack of definition in our definition of poverty is part of the problem; it helps to answer the question of how the richest country in the history of the world could have so many people living in a state of deprivation.

The lack of definition in our definition of poverty is part of the problem.

Let's go over this a bit. Start with the two alternative measures of poverty based on income. The official definition was established in 1963 by the Kennedy Administration and uses as a point of reference the average dollar value of all the food needed for a week, times three. Income is calculated on a pre-tax basis including earnings, unemployment benefits, Social Security, disability, welfare, pensions, alimony and child support. The poverty threshold is set at the point at which a family would have to spend more than a third of its income on food.

The second income-based method of calculating poverty, the Supplemental Poverty Measure, is also published by the Census. It was first released in 2011. The S.P.M. adds together cash income, tax credits (in particular, the Earned Income Tax Credit, the benefit most important to the working poor), plus the value of in-kind benefits used to pay for food (food stamps), clothing, shelter and utilities, and then subtracts taxes paid, work expenses (including child care), out-of-pocket medical costs and child support paid to another household.

The differences in the results of these two income-based measures are readily apparent in Fig. 1, a chart published by the Census. The bar on the right represents the S.P.M., and the bar on the left represents the official method.

The poverty rate for poor children, under the official measure, is 22.3 percent; under the S.P.M. it is only 18.1 percent. The rate of poverty for those 65 and older is 8.7 percent under the official measure, but it nearly doubles to 15.1 percent under the S.P.M.

If the S.P.M. were adopted as the official measure used by government agencies to define poverty, millions of poor children would either lose, or face reductions in, benefits from means-tested programs, while millions of those over the age of 65 would qualify for government assistance.

On Nov. 4, 2011, The Times reported the findings of its own study of poverty calculations. When deploying measures almost identical to those used in the S.P.M., the study produced very similar results, showing higher levels of poverty among the elderly than the official measure and lower levels of poverty for poor children and households led by single mothers. The following example from the Times involved a retired city employee in Charlotte, N.C.:

Such is the case for John William Springs, 69, a retired city worker in Charlotte who gets nearly $12,000 a year in Social Security and disability checks. That leaves him about $1,300 above the poverty threshold for a single adult his age —'officially not poor. Then again, Mr. Springs had a heart attack last summer and struggles with lung disease. Factor in the $2,500 a year that he estimates he spends on medicine, and Mr. Springs crosses the statistical line into poverty.

The Times also found that the S.P.M. approach reduced poverty rates among many of the non-elderly. Take the case of Angelique Melton, a divorced mother with two children, who lost her job in 2009:

Struggling to pay the rent and keep the family adequately fed, she took the only job she could find: a part-time position at Wal-Mart that paid less than half her former salary. With an annual income of about $7,500 — well below the poverty line of $17,400 for a family of three — Ms. Melton was officially poor. Unofficially she was not.

After trying to stretch her shrunken income, Ms. Melton signed up for $3,600 a year in food stamps and received $1,800 in nutritional supplements from the Women, Infants and Poor children program. And her small salary qualified her for large tax credits, which arrive in the form of an annual check — in her case for about $4,000. Along with housing aid, those subsidies gave her an annual income of nearly $18,800 — no one's idea of rich, but by the new count not poor.

The consumption method of measuring poverty — which was the subject, to some extent, of a column I wrote on Jan. 30 about the so called hidden prosperity of the poor — finds a substantial decline in the over-all rate of poverty, especially among the elderly.

The consumption-based method, which was disparaged in an email to the Times by Shawn Fremstad of the Center for Economic and Policy Research as "not ready for prime time," is vigorously defended by Bruce D. Meyer and James X. Sullivan, economists at the University of Chicago and Notre Dame respectively. They argue in a series of papers that both the official and supplemental methods overestimate the level of poverty among those 65-plus for two reasons: "because older Americans are more likely (than other age groups) to be spending out of savings and using assets (like homes and cars) that they own" and because the two income-based measures of calculating poverty overstate the rate of inflation.

By Meyer and Sullivan's computations, consumption poverty among those 65 and older has fallen by 83 percent since 1980 to just 3.2 percent in 2010.

Sullivan, in an email to The Times, suggested that

there is something in this paper for everyone (on both the left and right) to like, but others might say there's something for everyone to dislike. The right likes being able to say that poverty is declining.

He added that poverty scholars who have worked on development of the S.P.M. "have been very cold to our argument that a consumption-based measure of poverty is clearly better than one based on income."

This heap of contradictions demonstrates the wisdom of the warning from Aaron Levenstein, a business professor at Baruch College who died in 1986: "Statistics are like a bikini. What they reveal is suggestive, but what they conceal is vital."

The battle lines have formed. The claim that the poverty rate among the elderly is low is grist for the mill for those arguing along the lines of Harry Holzer and Isabel Sawhill in a March 8 Washington Post op-ed headlined "Payments to elders are harming our future."

Holzer, a professor of public policy at Georgetown, and Sawhill, a senior fellow at the Brookings Institution, write:

Social Security and Medicare alone cost the federal government about $1.3 trillion last year, accounting for more than 37 percent of federal spending; they are slated, along with interest on the debt, to absorb virtually all currently projected federal revenue within the next several decades.

They go on to ask:

For how long will we continue to sacrifice investments in our nation's children and youth, as well as its future productivity, to spend more and more on the aged? For how long will we continue to sacrifice investments in our nation's childrenand youth, as well as its future productivity, to spend more and more on the aged?

Arrayed against Sawhill and Holzer and others who share their views are numerous experts, including David Betson, a professor of public policy and economics at Notre Dame. Betson argued in a phone interview that "the game here is the elderly." Measures

ignoring the family's cost of medical care not only understate the incidence of poverty for all groups but greatly understate the poverty rates of the demographic group that has the largest average out of pocket medical expenses, the elderly.

James Firman, president and C.E.O. of the National Council on Aging, told me that the official poverty measure is "grossly inadequate" because "it does not account for the 20 to 40 percent of total income that the elderly must pay out of pocket for health care, thus underestimating the poverty level among those 65 and older."

Alicia H. Munnell, director of the Boston College Center for Retirement Research, warned that many are convinced the elderly have it relatively easy because the official and most publicized poverty measure "does not take into account their high medical costs."

According to Munnell, credit card debt is rising faster among the elderly than other groups because of demands to pay growing medical fees and premiums just when higher and higher percentages of those reaching retirement age do not have defined benefit pension plans to provide support. Social Security, according to Munnell, which provides the average retired worker $15,168.36 a year, "plays a bigger and bigger role" as pensions diminish.

All three methods of measurement may undercount the poor. Kathryn Edin, a professor of public policy and management at Harvard's Kennedy School, said in a phone interview and in a series of emails that a major problem with all three attempts to measure poverty

is that the poverty level has no real empirical basis — it is not a good measure of how much it takes to survive nor is it a relative measure meant to reflect what is required for social inclusion in the society. The poverty level is most certainly too low. Most people can't actually live on incomes that hover around the poverty threshold.

An even sharper criticism of poverty measures, generally, comes from Shawn Fremstad of the C.E.P.R.:

There is broad recognition that the current poverty line ($21,756 for a family of four in 2009) falls far below the amount of income needed to "make ends meet" at a basic level. When established in the early 1960s, the poverty line was equal to nearly 50 percent of median income. Because it has only been adjusted for inflation since then, and not for increases in mainstream living standards, the poverty line has fallen to just under 30 percent of median income. As a result, to be counted as officially "poor," you have to be much poorer today, compared to a typical family, than you would have in the 1960s.

One of the most deeply informed analyses of this issue comes from Pat Ruggles, a senior fellow at the independent research group NORC at the University of Chicago. She shared her personal thoughts in an email to the Times:

Arguing that there is a moral case for spending less on the elderly and more on poor children, to my mind, has very little to do with poverty. Indeed, society may want to invest more in poor children because they will be around longer and will ultimately determine our future prosperity. Alternatively, some people feel that we owe a higher standard of living to the elderly because they supported us and gave us the foundation for our current prosperity. But neither of these arguments has anything to do with whether specific elderly or families with poor children need more or less.

The cost of caring for the elderly has risen substantially, Ruggles believes,

because we can now treat many things that we couldn't treat 50 years ago when the poverty measure was first established. Elderly Americans live longer and have a better quality of life for more years than they would have two generations ago. In that sense they are clearly better off.

These new, and often expensive, medical treatments have become necessities of life for the elderly, according to Ruggles, and treating them otherwise will lead to a brutal, income-based rationing system:

Not taking these new necessities — for that is what they have become — into account in measuring and dealing with poverty among the elderly means making a decision that the improvements in technology and medicine that we have seen over the past decades should only be available to those who have sufficient incomes to cover their costs. This in effect says that low-income elderly who can't meet their co-pays should be allowed to suffer and to die early from things that are completely preventable.

Throughout the country, often with the active support of state governments, adults of all ages, but especially the elderly, are under mounting pressure to sign cost-saving advanced directives, allowing hospitals and doctors to end intensive procedures at various end-of-life stages. Three states now permit physician-assisted suicide. Another potentially controversial approach to cost control has been adopted by the 30 states that have "filial support" or "filial responsibility" laws on the books that make it the responsibility of adult children children to care for their indigent parents.

Such statutes were rarely invoked in the past, but they establish grounds for shifting medical care in certain circumstances from the state to families, authorizing nursing homes and other long-term care providers to sue the families of patients unable to pay their bills. Indeed, there has been a spate of attention-grabbing stories about recent cases in which these laws have been reactivated.

In a seemingly unrelated development, the Wall Street Journal recently reported on surging adult hospital admissions to repair heart surgeries performed years earlier on infants born with congenital heart defects. What was arresting was that the article dealt with the phenomenon in large part as a matter of costs and as opportunities for doctors to make money.

Jared O'Leary, a researcher at Brigham and Women's Hospital and Boston Children's Hospital, told the Journal that "In 2010, there were more than 100,000 hospital admissions of adults with congenital heart disease, incurring average charges per admission of $43,346, he said, or a total of more than $4 billion." The story also noted that "late last year, two professional groups approved a new medical subspecialty for adults with congenital heart disease, which is expected to increase the number of doctors who treat such patients."

In some ways, especially those who fall demographically on either side of the prime of life, every day seems to be more and more about the money, with competition accelerating among worthy claimants for access to limited resources. Virtual Mentor: The Journal of Ethics of the American Medical Association, reported a story on care in hospital neonatal units for premature babies:

it is not unusual for costs to top $1 million for a prolonged stay. Expenditures to preserve life are limited in every society, and, although third-party payers have questioned this level of expenditures, courts have consistently reaffirmed the rights of parents to determine the treatment of their newborns.

In other words, both the beginning and the end of life are becoming increasingly subject to market decisions, cost-benefit analyses, and bottom line considerations that had not been so glaringly explicit in the past.