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There has been continued debate about the best way to measure income and poverty in the United States since the first official U.S. poverty statistics were published in the mid-1960s. At the U.S. Census Bureau, we measure poverty two ways every year. The first, called the official poverty measure, is based on cash resources. The second measure, the Supplemental Poverty Measure (SPM), includes both cash and noncash benefits and subtracts necessary expenses (such as taxes and medical expenses). The official poverty measure was developed in the mid-1960s, and it has remained mostly unchanged since then. In contrast, the SPM was designed to improve as new data, methods, and further research become available. This short blog will discuss the development of the SPM as well as contrast the two measures.
In 2010, an interagency technical working group asked the Census Bureau and the U.S. Bureau of Labor Statistics to develop a new measure designed to improve our understanding of the economic well-being of American families and enhance our ability to measure the effect of federal policies on those living in poverty. The result: the SPM, which draws on the recommendations of a 1995 National Academy of Sciences report and research conducted over the following decades. (Refer to the history of poverty measures in the United States infographic for more details.)
In 2016, a new interagency technical working group was formed to review and implement potential SPM methodological improvements. The working group prioritized consistency between threshold and resource definitions, data availability, simplicity in estimation, stability of the measure over time, and ease in explaining the methodology in considering potential changes to the SPM. In September 2020, this working group voted to implement various changes, the details of which can be found here <www.census.gov/topics/income-poverty/supplemental-poverty-measure/library/working-papers/topics/potential-changes.html> and Improvements to the Census Bureau’s Supplemental Poverty Measure for 2021. A panel of the National Academies of Science, Engineering and Medicine’s Committee on National Statistics, which provides independent reviews of federal statistical activities, has also been asked to review further changes to the SPM.
On September 14, 2021, the Census Bureau is set to release its 11th SPM report. The report will include 2020 estimates as well as revised 2019 estimates with the methodological improvements. These improvements include changes to both resource and threshold estimation. The report presents estimates of both the official and supplemental poverty measures and outlines differences between the two measures. For a detailed comparison of major concepts, please refer to the table below and this infographic.
Poverty Measure Concepts: Official and Supplemental
|Official Poverty Measure||Supplemental Poverty Measure|
|Measurement Units||Families (individuals related by birth, marriage or adoption) or unrelated individuals.||Resource units (official family definition plus any co-resident unrelated children, foster children, and unmarried partners and their relatives) or unrelated individuals (not otherwise included in the family definition).|
|Poverty Threshold||Three times the cost of a minimum food diet in 1963.||Based on expenditures of food, clothing, shelter and utilities (FCSU).|
|Threshold Adjustments||Vary by family size, composition and age of householder.||Vary by family size, composition and tenure, with geographic adjustments for differences in housing costs.|
|Updating Thresholds||Consumer Price Index for All Urban Consumers: all items.||Five-year moving average of expenditures on FCSU, lagged by one year.|
|Resource Measure||Gross before-tax cash income.||Sum of cash income, plus noncash benefits that resource units can use to meet their FCSU needs, minus taxes (or plus tax credits), minus work expenses, medical expenses, and child support paid to another household.|
The official poverty measure compares an individual’s or family’s pretax cash income to a set of thresholds that vary by the size of the family and the ages of family members. These official poverty calculations do not take into account the value of in-kind benefits such as nutrition assistance, housing and energy programs or tax credits like the earned income tax credit or stimulus payments. They also do not consider regional differences in living costs or expenses such as housing.
The SPM does take into account family resources and expenses not included in the official measure as well as geographic variation. First, it adds the value of in-kind benefits available to buy basic goods to cash income. (In-kind benefits include nutritional assistance, subsidized housing and home energy assistance.) Then, it subtracts necessary expenses for critical goods and services not included in the thresholds from resources. Necessary expenses subtracted include income taxes, Social Security payroll taxes, child care and other work-related expenses, child support payments to another household and contributions toward the cost of medical care and health insurance premiums.
Thresholds used in the SPM are produced by the Bureau of Labor Statistics’ Division of Price and Index Number Research using Consumer Expenditure Survey data that show how much people spend on basic necessities (food, clothing, shelter and utilities) and are adjusted for geographic differences in the cost of housing. The SPM thresholds are not intended to assess eligibility for government assistance.
Next week’s report will compare 2019 SPM estimates to 2020 SPM estimates for numerous demographic groups. It will also provide state-level supplemental poverty statistics using three years of Current Population Survey Annual Social and Economic Supplement data and compare official poverty and SPM estimates. In addition, the report will examine the effect on supplemental poverty rates of excluding specific resource or expenditure elements such as noncash benefits, tax credits, stimulus payments and medical expenses.