Addressing the Inaccuracies of the Official Poverty Measure

The Official Poverty Measure (OPM) is methodologically dated and no longer informs an accurate understanding of poverty. The OPM’s inaccuracies have direct impact on low-income families, because many government assistance programs use the OPM’s threshold to determine eligibility for critical benefits and services. This report measures how many households are struggling to make ends meet by using the New York City True Cost of Living as the alternative metric of household income adequacy—or the lack thereof.

For over three decades, many studies have critiqued the Official Poverty Measure.8 Even an article published by the Census Bureau characterizes the OPM as “unacceptably flawed for its important uses with respect to government policies and programs, academic research, and public understanding.”9 Others have offered alternatives, such as Renwick and Bergman’s article proposing a “basic needs budget” which defines poverty by taking into account families’ differing needs for child care, transportation, and regional differences in housing costs.10

In the early 1990s, the National Academy of Sciences (NAS), published the 1995 book, Measuring Poverty: A New Approach, which included a set of recommendations for a revised methodology.11 Despite substantial consensus on a wide range of methodological issues and the need for new measures, no changes have been made to the Official Poverty Measure (OPM) itself. In 2012, the Census Bureau developed an alternative measure based on the NAS model, put forth first as “experimental,” and then published annually as the Supplemental Poverty Measure.12 This measure has no impact on benefit eligibility determinations and is used for statistical purposes.

Taking into account the critiques of the OPM, and drawing on both the NAS analyses and alternative “basic needs” budget proposals, the TCL, formerly the New York City Self-Sufficiency Standard, was developed to provide a more accurate, nuanced measure of income adequacy.13 The TCL more substantially reflects the economic realities faced by today’s working parents, including child care and taxes, which are not addressed in the federal poverty measure.

The major differences between the NYC TCL and the Official Poverty Measure include:

• The TCL is based on all major budget items faced by working adults (age 18-64 years): housing, child care, food, health care, transportation, and taxes. In contrast, the OPM is based on a 1960s food budget, and the assumption that food is one-third of total expenditures. While the OPM is updated for inflation, there is no adjustment made for the fact that the cost of food as a percentage of the household budget has decreased substantially over the years. The TCL does not assume that any one cost will always be a fixed percentage of the budget.

• The TCL assumes that all adults work to support their families. Including work-related expenses, such as transportation, taxes, and child care, reflects the changes in workforce participation over the past several decades, particularly among women. By not including child care expenses, the OPM continues to reflect—implicitly—a demographic model of mostly two-parent families with a stay-at-home mother.

• The TCL varies geographically. The OPM is the same everywhere in the continental United States while the Standard (or TCL in New York City) is calculated on a locale-specific basis (usually by county).

• The TCL varies costs by the age as well as number of children. This factor is particularly important for child care costs, but also for food and health care costs, which vary by age as well.

• The TCL includes the net effect of taxes and tax credits. This illuminates the impact of tax policy on net family income and provides a more accurate measurement of income adequacy. The OPM does not include taxes or tax credits as taxes were very minimal for low-income families when it was developed and there were no refundable tax credits (such as the Earned Income Tax Credit).14