Poverty - Economic Well-being

Frequently Asked Question about Poverty

May 15, 2004

1. What is the poverty level?

2. How many Marylanders are poor?
3. Who are the poor?
4. How is the poverty level calculated?
5. What is wrong with the current poverty measure?
6. Where else is there information on poverty?

1. What is the Poverty Level?

There are two slightly different poverty measures that are used by the federal government:

• The poverty thresholds are calculated by the Census Bureau and are used for calculating the official estimates of the number of persons in poverty.
  
  
• The poverty guidelines are calculated by the U.S. Department of Health and Human Services and are used for determining eligibility levels for several programs.

The primary reason for publishing the poverty guidelines separate from the poverty thresholds is that a more timely measure was needed for program administrators. The poverty thresholds are generally published in September or October for the prior calendar year. For example, poverty thresholds for 1999 were published in October of 2000. If not for the poverty guidelines, which are published in each February or March for the current calendar year, administrators would have to use data that were up to two years old for determining program eligibility.

The Poverty Thresholds

The poverty thresholds are a matrix, with different poverty levels based on the size of the family, the number of children present, and the age of the head of household (for an explanation of why these characteristics matter, see How is the Poverty Level Calculated below). The weighted average of the poverty thresholds is shown below.

Poverty Thresholds in 2002, by Size of Family

Poverty thresholds are uniform throughout the United States.

Source: US Census Bureau, Poverty in the United States: 2002, p. 4. See also U.S. Bureau of the Census, Poverty Thresholds

The Poverty Guidelines

The poverty guidelines are a simplification of the poverty thresholds. In addition to being published in February or March for the current year, the guidelines differ in two other ways. First, there is one figure for each family size (unlike the poverty thresholds, which vary by number of children and age of the householder); and, there are separate guidelines published for both Hawaii and Alaska.

2004 HHS Poverty Guidelines

Source: US Department of Health and Human Services, February 13, 2004.

2. How Many Marylanders are Poor?

According to estimates from the Census Bureau, an average of 7.3 percent of Marylanders were poor between 2000 and 2002. This rate was lower than in every state but two (New Hampshire 5.6 percent and Minnesota at 6.5 percent) and was well-below the U.S. average of 11.7 percent over that same period. Approximately 400,00 Marylanders lived in families with income less than the poverty thresholds.

State level poverty estimates are subject to enormous year-to-year variation; this variation is largely due to sampling issues, rather than actual changes in the number of people in poverty. For this reason, outside of the Decennial Census, the Census Bureau recommends reporting state level poverty by averaging estimates over three years.

The accuracy of estimates becomes more problematic when focusing on specific population groups, such as children, or estimates at substate levels, such as for counties. Because of the shortcomings of using survey data to estimate child poverty, the Census Bureau has developed an alternative method for estimating state and local child poverty rates. According to this approach, 10.7 percent of children-144,004 kids--in Maryland were poor in 2000, the most recent year for which estimates are available. The poverty rate percent means that more than 1 in 10 children in Maryland were poor in 2000.

The Census Bureau also prepares estimates of child poverty by county. The most recent estimates are for 2000. These data show that there was substantial variation in child poverty rates by jurisdiction, ranging from a low of 4.4 percent in Howard County to a high of 26.2 percent in Baltimore City. In addition to Baltimore City, the highest child poverty rates existed in far Western Maryland (Garrett, Allegany, and Washington counties) and the Lower Eastern Shore (Caroline, Dorchester, Somerset, Wicomico, and Worcester counties).

The Census Bureau's 2000 estimates of the percentage of children in poverty by county are shown below. The table shows a middle estimate of the percentage of children in poverty. This figure represents the "best" estimate of the poverty rate. However, it is unlikely that this best estimate is exactly right. Therefore, the table also shows a range, which is known as a "confidence interval." This range provides both low and high estimates; based on statistical modeling, the Census Bureau estimates with 90 percent confidence that the actual percentage of children in poverty falls within this range.

Child Poverty Rates by Jurisdiction in 2000

Source: U.S. Bureau of the Census, People Under Age 18 in Poverty.

The Census Bureau also publishes estimates of poverty rates by county for people of all ages. The most recent estimates from the Small Area Income and Poverty Estimates model are for 2000. These estimates are shown below, also with the 90 percent confidence interval that is described for the child poverty rates.

Poverty Rates by Jurisdiction for People of All Ages, 2000

Source: U.S. Bureau of the Census, People of All Ages in Poverty.

3. Who Is Poor Nationally?

There is substantial variation in poverty rates by region and various population groups. For a detailed information on poverty by income groups, we recommend the Census Bureau's website and analysis by the Center on Budget and Policy Priorities. Highlights from these sources include:

• In 2002, the poverty rate in the United States was 12.1 percent-or approximately one out of every 8 people.
• The number of people in severe poverty increased from 13.4 million in 2001 to 14.1 million in 2002.
• Poverty rates for some minorities are higher than the national average: for African Americans it was 24.1 percent; for Hispanics it was 21.8 percent.
• The poverty rate for children under 18 years old was 16.7 percent.

4. How Is the Poverty Level Calculated?

Annual updating of the two poverty measures is straightforward. Both measures are adjusted annually for inflation using the Consumer Price Index (CPI-U).

There is no "market basket" that the poverty measures represent. The current poverty measures are based on research done in the 1950s and early 1960s. Survey research from the mid 1950s showed that low-income families typically spent one-third of their income on food. In the early 1960s, the Social Security Administration developed a poverty measure that simply multiplied the cost of the Department of Agriculture's lowest cost food plan by three. The rationale was that the "Economy Food Plan" represented a minimally adequate diet; if a low-income family spent one-third of its income on food, then multiplying the Economy Food Plan by three was a proxy for how much money a family would need to meet basic expenses.

The Census Bureau first published poverty statistics in 1967. The Bureau compared the Social Security measure to estimates of families' cash income before taxes.

In 1969, the U.S. Bureau of the Budget (now the Office of Management and Budget) made the Social Security Administration measure the official poverty threshold for the federal government. Since that time, the Census Bureau has annual estimated the number of people in families with income below poverty.

The thresholds have not been associated with family expenditures on food since the early 1960s. Instead, the thresholds are adjusted for inflation. Nonetheless, the original foundation of the poverty measure based on food consumption is the basis for today's different thresholds based on the number of children in the family, and for differences based on the age of the householder. Because children and people aged 65 and over were found to have lower cost dietary needs, they were calculated to have lower poverty thresholds.

5. What is Wrong with the Current Poverty Measure?

The current poverty has been subject to considerable criticism. Some of the shortcomings of the current measure are listed below:

• Today's poverty thresholds are based on food expenditures in 1955. However, since that time there have been many changes in consumption patterns. For example, housing costs have risen much faster than food costs. As a result, food costs would now make up a much smaller share of the family budget than in the 1950s. Further, child care costs would be expected to consume much more of a family budget now than in 1950s.

• In calculating the official poverty statistics, the Census Bureau compares cash income before taxes to the thresholds. This method excludes the impact of taxes, including the Earned Income Credit, and ignores the impact of near-cash transfers such as food stamps.

• The current poverty thresholds are uniform nationally; however, it is clear that costs of living-most notably, housing costs-vary substantially both within and among regions.
  

Several experts have offered suggestions on how the current poverty measure can be improved. Two notable publications include:

Measuring Poverty: A New Approach, Constance F. Citro and Robert T. Michael, eds., National Academy Press, 1995. This book resulted from a Congressionally-mandated review of the poverty measure that was undertaken by the National Academy of Sciences. The Academy convened a panel of national poverty experts to contribute to the publication.

Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy, Patricia Ruggles, The Urban Institute Press, 1990.

To account for some of the potential shortcoming of the current poverty measure, the Census Bureau also publishes national poverty statistics for several alternative measures. These alternative measures include different combinations of income and transfers that are excluded from the official measure, and also show the numbers and percentages of people who live in families with income below 150 percent, 200 percent, and other factors of the current poverty thresholds.

6. Where else is there information on poverty?

The information in this FAQ was drawn largely from materials published by the U.S. Census Bureau, the U.S. Department of Health and Human Services, and the Center on Budget and Policy Priorities.

Some useful links:

• Poverty thresholds and guidelines by year

• Poverty data
• History of the poverty thresholds