Supplemental Poverty Rate: A Different Way of Measuring Poverty

The U.S. Census Bureau recently released supplemental poverty figures for 2012.  Supplemental poverty measures offer a different way of measuring poverty.  Unlike the official poverty rate, which is based on pretax money income, supplemental poverty rates take into account "the impact of different benefits and necessary expenses on the resources available to families, as well as geographic differences in housing costs," making it a useful tool to assess the effectiveness of tax credits and transfers in alleviating poverty, or the effect of necessary expenses that families face (paying taxes or work-related and medical-out-of-pocket expenses, for instance).

The supplemental poverty measure is calculated by (1) adding to cash income benefits such as social security benefits, refundable tax credits (such as the Earned Income Tax Credit), housing subsidies, unemployment compensation, and public assistance; and (2) deducting from cash income those expenses that reduce income available for necessary basic goods purchases such as food, clothing, shelter and utilities (FCSU): medical out-of-pocket expenses, income and payroll taxes, child care expenses and work-related expenses.

The supplemental poverty measure's poverty thresholds are further adjusted according to geography, family size and whether a family pays a mortgage, rents or owns their home free and clear. "For example, the 2012 thresholds for families with two adults and two children were around $18,000 for homeowners without a mortgage living outside metropolitan areas in North Dakota, Kentucky, West Virginia, Alabama, Arkansas, South Dakota, Tennessee and Missouri, but around $35,500 for homeowners with a mortgage in the San Jose-Sunnyvale-Santa Clara, Calif., and San Francisco-Oakland-Fremont, Calif., metro areas. The $23,283 official poverty threshold for a family of four was the same no matter where a family lives."



The latest figures show that millions of people were kept out of poverty by government programs in 2012, the two most important of which are Social Security and refundable tax credits.  For example, refundable tax credits reduce the supplemental poverty rate for all people by three percentage points (19.0 percent to 16.0 percent), and by almost seven percentage points for children.  "Without adding Social Security benefits to income, the supplemental poverty rate overall would have been 8.6 percentage points higher (or 24.5 percent rather than 16.0 percent). People 65 and older had a supplemental poverty rate of 14.8 percent, equating to 6.4 million. Excluding Social Security would leave the majority of this population (54.7 percent or 23.7 million) in poverty."  People fell into poverty in great part due to medical out-of-pocket expenses.  This was especially true of the elderly.

Other noteworthy findings:
  • The supplemental poverty rates were higher than official state poverty rates in 13 states (California, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York and Virginia) and the District of Columbia.  They were lower than official state poverty rates in 28 states (Alabama, Arkansas, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Vermont, West Virginia, Wisconsin and Wyoming).
  • Including tax credits and non-cash benefits results in lower poverty rates for some groups. For instance, the supplemental poverty rate was lower for children than the official rate: 18.0 percent compared with 22.3 percent.
  • Subtracting necessary expenses from income results in higher poverty rates for other groups. The supplemental poverty rate for those 65 and older was 14.8 percent compared with only 9.1 percent using the official measure. Medical out-of-pocket expenses were a significant element for this group.
  • Even though supplemental poverty rates were lower than the official rates for children and higher for those 65 and older, the rates for children were still higher than the rates for both 18- to 64-year-olds and people 65 and older.
  • Supplemental poverty rates were higher than the official measure for all race groups and for Hispanics, with one exception: blacks, whose 25.8 percent supplemental poverty rate was lower than the official rate of 27.3 percent.
  • Supplemental poverty rates differed by region primarily because the supplemental poverty rate has thresholds that vary geographically. The rates were higher than official rates for the Northeast and West, lower in the Midwest and not statistically different from the official measure in the South. These results reflect differences in housing costs, which are not captured by the official poverty measure.

Read more:
http://www.census.gov/newsroom/releases/archives/poverty/cb13-183.html
http://www.census.gov/#

TeachingwithData.org resources:
Recession Trends (http://www.teachingwithdata.org/resource/3067)
Topic At A Glance: Poverty (http://www.teachingwithdata.org/resource/2967)
Children in Poverty Course Module (http://www.teachingwithdata.org/resource/2871)
Differences in Social Class Status and Poverty Levels Among Older Adults in the United States (http://www.teachingwithdata.org/resource/3164)
Race and Poverty in the US (http://serc.carleton.edu/sp/ssdan/examples/31638.html)
Poverty and Young Adults (http://serc.carleton.edu/sp/ssdan/examples/31639.html)
Investigating Children in Poverty (http://serc.carleton.edu/sp/ssdan/examples/31647.html)
Exploring Appalachian Poverty in Ohio (http://serc.carleton.edu/sp/ssdan/examples/31653.html)
Poverty (http://serc.carleton.edu/sp/ssdan/examples/31579.html)
Frederique Laubepin

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