Federal Poverty Guidelines Need Updating

Poverty guidelines in the United States, though officially updated each year, are outdated and in need of major revisions. The formula for the existing standard was based on food and income data of the mid-1950s. No basic changes have been made in the fundamental assumption underlying the guidelines for 30 years! The poverty-line thresholds should be increased by about 25% to 30% to reflect 1987 standards.

The guidelines were first developed in the early 1960s by Molly Orshansky, a research staff member of the Research and Statistics office of the Social Security Administration. Examining the Department of Agriculture’s food budgets and using the department’s economy food plan, the least costly of four plans, she found that food expenditures in 1955 represented one-third of income. The poverty thresholds were arrived at by simply multiplying this minimum food budget by three. For more than 25 years the food and non-food changes in budget expenditures have not been revised in the figures.

Food consumption, nutrition standards, fuel and transportation costs, medical costs and taxes have changed markedly during the past 25 to 30 years. By 1977-78, food costs had declined from one-third to 27% of income, and currently to about 25%. Therefore, a current valid poverty line should utilize the cost of a nutritious and realistic current food budget multiplied by 3.7 or 4 instead of 3.

One important use of data is in determining the year-to-year changes in poverty status, for the nation, particularly by groups such as the aged, children and one-parent families, and by race, geographic areas and family size.

Year-to-year changes are also significant for use in public policy.

A number of government financial programs to states and individuals for food, education and legal services utilize the official poverty-data cutoffs. They are important in defining a program’s scope and for individual and family participation as a budget-control mechanism. Moreover, they are useful to the public in evaluating government programs and objectives.

The guidelines are also used in implementing the “uncompensated-care” requirement for hospitals receiving funds from the federal Hill-Burton Hospital Construction Act. Hospitals use the federal poverty guidelines to determine the division of uncompensated care between “charity” (indigence) and bad debts. The 1987 guidelines begin at $5,500 a year for a single person and increase by $1,900 for each additional person in the family. Thus the 1987 poverty threshold for a family of four is $11,200. While it might be argued that each additional member involves a decreasing incremental cost, a minimum annual increase of $2,400 at 1987 price levels would be more realistic.

The lower-income figures used for families age 65 and over compared to those under age 65 seems unwarranted, especially for those 75 or older who have high costs for medical care, housing, home help and transportation. If the same poverty standard now used to measure younger age groups were applied to the elderly, the number of elderly poor would increase by about 500,000 persons.

Congress should revise the guidelines. One way would be to authorize former Republican and Democratic cabinet members to study the matter and offer recommendations.

Annual estimates of poverty status in the nation are based on a census sample taken each year in February-March, but the data is generally two years out of date: The 1987 estimate was based on 1985 data.

The federal 10-year census reports poverty status in more detail, such as by states and counties, but this is not available in the annual estimates. The 1980 census reporting 1979 data is the current benchmark for states and counties. A five-year national census would be preferable to the 10-year interval. The 1990 census should utilize more up-to-date poverty thresholds. Congress should mandate this action this year. This would serve as an appropriate benchmark to evaluate the “safety net” in the closing decade of this century and to set new goals for the opening decade in the new millennium.