The Supplemental Poverty Measure: Its Core Concepts, Development, and Use
Released: 2017-11-28T00:00:00

Summary: The Supplemental Poverty Measure (SPM) is a measure of economic deprivation—having insufficient financial resources to achieve a specified standard of living. The SPM addresses some of the limitations of the official poverty measure, without supplanting it outright.

Both the SPM and the official measure determine the poverty status of people and families by comparing their financial resources against poverty thresholds that are valued in dollars. For both measures, poverty thresholds vary by family size and composition, and families whose resources are lower than the thresholds are considered to be poor.

The measures differ in their definitions of

need, as it is used in the thresholds (the dollar amounts used to determine poverty status), financial resources that are considered relevant for comparing against the measure of need as specified in the thresholds, and family, for the purpose of assigning thresholds and counting resources.

Need

The official poverty thresholds measure needs derived from the cost of an austere food budget. The food budget was multiplied by three, based on the finding that food accounted for about one-third of total family expenditures in 1955. Since their original computation, these thresholds have been adjusted annually for price inflation. In contrast, the SPM's thresholds are based on consumer expenditures for food, clothing, shelter, and utilities, and it uses five years of data from the Consumer Expenditure Survey in calculating needs and thresholds. Developing the SPM thresholds starts with spending data for families with exactly two children. These data are refined by using approximately the 33rd percentile of families' expenditures on food, clothing, shelter, and utilities. Next, an extra 20% is figured into the thresholds for miscellaneous expenses such as cleaning supplies and personal care items. The thresholds then undergo further adjustment to reflect that

housing costs differ between homeowners with mortgages, homeowners without mortgages, and renters; housing costs differ geographically; and costs differ by family size and composition.

Financial Resources

Financial resources to meet needs, whether in the SPM or the official measure, are based on the sum of income of all family members. While the official measure uses money income before taxes, the SPM makes additional adjustments and considers a wider range of resources. The SPM includes the value of certain in-kind benefits (such as food and housing subsidies), uses income after estimated federal and state taxes, and subtracts some expenses from income. These expenses include medical out-of-pocket costs, such as health insurance premiums, physician co-pays, and over-the-counter medications; child support paid outside of the household; and work expenses, such as child care and the cost of commuting, tools, uniforms, or licensing fees related to a person's employment. Work expenses, including child care, are capped at the amount of earnings from work of the lowest-earning family member. These expenses are subtracted from family income because they cannot be used to obtain the needs defined in the SPM thresholds. Unlike the official poverty measure, the range of financial resources included in the SPM is defined to be consistent with the types of needs used to compute the SPM poverty thresholds.

Family

Like the official measure, the SPM family unit definition includes people related by birth, marriage, or adoption living in the same housing unit. However, the SPM additionally includes cohabiting couples and their children, and foster children below age 22.

How Does Poverty Look through the Lens of the SPM?

The demographic profile of the poverty population is different under the SPM than under the official measure. Children have a comparatively lower poverty rate (percentage in poverty) under the SPM, and the aged (65 and older) and working-age persons (18 to 64) have comparatively higher poverty rates. These differences can be explained by the SPM's resource definition. The SPM includes tax credits and in-kind benefits that help families with children (in effect, boosting the measure of family income). It subtracts medical out-of-pocket expenses, which disproportionately affects the aged (lowering their measure of income), and subtracts work-related expenses, which disproportionately affects the working-age population (lowering their measure of income).

Uses and Limits

The SPM can give policymakers the tools to understand how taxes and government programs, including the noncash programs, affect the poor. It also illustrates how medical expenses and work-related expenses such as child care can affect a family's economic well-being. However, the SPM poverty estimates are derived from household survey data, and hence are affected by issues such as underreporting of income from government benefit programs, limitations on how tax liabilities and tax benefits can be estimated based on survey data, and differences in how noncash benefits and lump-sum tax refunds are "valued" by program recipients versus how they are valued for the purposes of poverty measurement. Additionally, the SPM does not directly value health insurance provided publicly or privately. Further, poverty has historically been measured in the United States as an "absolute" measure, based on how many people fall below a set standard of living. Questions have been raised about whether the SPM continues to measure poverty in that way, or represents a "relative" measure of poverty, based on how the population ranks in terms of well-being relative to each other.


subsections: section_title: Introduction
paragraphs: As its name might suggest, t he S upplemental Poverty Measure (SPM) was developed to supplement , but not replace , the official poverty measure by addre ssin g some of its met hodological limitations . T he official measure provides a consistent historical view of poverty in the United States , but t he SPM may be better suited to help ing c ongress ional policymakers and other experts understand how taxes and government programs affect the poor . Also, it may better illustrate how medical expenses and work-related expenses such as child care can affect a family's economic well-being . 

This report describes the SPM , how it was developed, how it differ s from the official poverty measure , and the insights it can offer . This report will not dis cuss potential consequences of changes to anti-poverty programs, nor will it provide an analys is of poverty trends .
subsections: section_title: The Official Measure of Poverty
paragraphs: The official measure of poverty was developed in the 1960s by Mollie Orshansky, an analyst at the Social Security Administration. It was based on food costs in that decade as well as the share of a family's total budget that was devoted to food according to family budgets in the mid-1950s. The food cost it used was the U.S. Department of Agriculture's (USDA's) Economy Food Plan. A 1955 survey of family consumption determined that about one-third of a family's spending was on food. Thus, the poverty thresholds were developed as three times the cost of the Economy Food Plan, with some adjustments for two-person families and single individuals to account for their higher fixed costs. In the current official measure of poverty, the thresholds developed in the 1960s have been adjusted only for price inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U). 

Under the official poverty measure, an individual is counted as poor if his or her family's pre-tax money income falls below the poverty threshold. Pre-tax money income excludes the value of government noncash benefits provided either privately or publicly, such as health insurance, Supplemental Nutrition Assistance Program (SNAP) benefits, or housing assistance. It also does not consider taxes paid to federal, state, or local governments, or tax benefits (such as the Earned Income Tax Credit, EITC) that might be received by families. The official poverty measure is computed for the non-institutionalized population. 

section_title: What is the SPM?
paragraphs: The SPM was designed to address limitations of the official poverty measure. Like the official poverty measure, it is a measure of economic deprivation. It defines poverty status for families and individuals by comparing resources against a measure of need . Measures of need are used to establish poverty thresholds that are valued in dollars. 

The SPM poverty thresholds measure a standard of living based on expenditures for food, clothing, shelter, and utilities (FCSU), and "a little more" for other expenses. The resources measured against those thresholds represent disposable income (after taxes and certain other expenses), including the value of noncash benefits, that are available to families to meet those needs. 

The SPM is considered a research measure, because it is designed to be updated as techniques to quantify poverty and data sources improve over time, and because it was not intended to replace either official poverty statistics or eligibility criteria for anti-poverty assistance programs. 

section_title: Broadly Comparing the Official Poverty Measure to the SPM
paragraphs: Both the SPM and the official measure determine the poverty status of people and families by comparing their financial resources against poverty thresholds. For both measures, poverty thresholds vary by family size and composition, and families whose resources are lower than the thresholds are considered to be poor. The differences between the SPM and the official measure reflect changes in household composition in the more than 50 years since the official measure was developed. The differences also partly spring from attempts to more accurately assess the needs and resources of families. Some of the innovations surrounding the calculation of needs and resources embodied in the SPM are based on data that were not yet available when the official measure was developed.

The measures differ in their definitions of the following: 

N eed , as it is used in the thresholds (the dollar amounts used to determine poverty status). Unlike the official measure, the SPM's measure of need is geographically adjusted based on housing costs by metropolitan area or by state for nonmetropolitan areas. Furthermore, three sets of SPM thresholds are computed by the housing status of a family—as homeowners with a mortgage, homeowners without a mortgage, or renters—to reflect differences in housing costs. Thus, while the official poverty measure uses 48 poverty thresholds to represent families' needs, the SPM uses thousands. F inancial resources that are considered relevant for comparing against the measure of need as specified in the thresholds. Financial resources to meet needs, whether in the SPM or the official measure, are based on the sum of income of all family members. While the official measure uses money income before taxes, the SPM makes additional adjustments and considers a wider range of resources. F amily , for the purpose of assigning thresholds and counting resources. The SPM uses an updated approach to more explicitly take account of how household members share resources based on their relationships, which the Census Bureau's definition of "family" (used in the official measure) does not capture completely. 

One of the most important differences between the two measures, however, is that the SPM is intended to be revised periodically, using improved data sources and measurement techniques as they become available, while the official poverty measure is intended to remain consistent over time. A summary of the differences is provided in Table 1 .

section_title: The Supplemental Poverty Measure: Research to Address Limitations of the Official Poverty Measure
paragraphs: The SPM was developed after decades of research focused on overcoming the limitations of the official poverty measure. These limitations are not easy to surmount, as evidenced by dozens of alternative poverty measures developed over the years by the Census Bureau and by academia, and the working papers and reports written about those measures. 
subsections: section_title: Criticisms of the Official Poverty Measure
paragraphs: Over time, the official poverty measure has faced criticism, including the following: 

The official poverty thresholds are not adjusted to reflect geographic variations in costs. Owing to the limitations of the source data available at the time the official measure was developed, it is based on money income before taxes; however, most individuals pay for their basic necessities using after-tax income. This represents a disconnection between the way needs were specified in the thresholds (which represent a level of need) and the definition of resources available for meeting those needs. The official measure captures the effects of some but not all government programs intended to provide relief for the poor because the income used in the official measure is money income before taxes. The programs that are captured are those that provide money income benefits before taxes: Social Security, Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), and any state or local relief programs based on money income. The programs that are not captured are the EITC and the Child Tax Credit, which, despite their large effects for low-income workers with children, are not considered because they are tax credits and only reflected in after-tax income; and a host of noncash benefits such as the Supplemental Nutrition Assistance Program (SNAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), housing subsidies, and subsidized medical care. Many of these programs did not exist when the official measure was developed in the 1960s. The official measure captures neither the needs incurred nor the resources brought in by household members who are not related by birth, marriage, or adoption. These include unmarried partners and their children (if any are present) and foster children not legally adopted. While the official measure is adjusted for overall inflation, it does not consider the extent to which the prices of basic necessities have shifted in relation to all goods and services. Therefore, it can be argued that the inflation adjustment used in the official measure does not accurately reflect the purchasing power needed, in a practical sense, to remain at the poverty line compared to previous decades.

section_title: Motivation for a New Poverty Measure
paragraphs: While there has been broad agreement among poverty scholars that these issues are drawbacks to the official poverty measure, overcoming them has proven to be difficult. Scholars in the federal government, universities, and private research institutions have spent decades developing approaches to address these shortcomings and evaluating the effectiveness of those approaches. 

For example, adjusting the poverty thresholds by g eographic variations in costs i s difficult , because price levels within a state can vary greatly among its different metropolitan areas , as we ll as between metropolitan and nonmetropolitan areas . Numerous approach es were developed over the years to adjust thresholds geographically, and because of a lack of comprehensive small-area geographic detail on prices, earlier approaches were more limited in their ability to accurately reflect cost variations within states . Research inquiries into the other issues listed above— particularly the valuation of noncash benefits s uch as subsidized health care— proved to be just as thorny.

section_title: Moving Toward the SPM: Decades of Research
subsections: section_title: Multiple Series of Alternative Poverty Measures
paragraphs: In attempting to address the shortcomings of the official poverty measure, dozens of alternative poverty measures were developed over multiple decades. For instance, in the 1980s the Census Bureau began providing alternative definitions of income that subtracted taxes from income and estimated the monetary value of noncash benefits, and showed the effects of these definitions on estimated poverty rates, in an "R&D" series of reports. The approaches used in these reports for estimating the value of noncash benefits were discussed in a conference attended by analysts from the federal government, universities, and other research institutions. Eventually, as variations of the Consumer Price Index (CPI) were developed by the Bureau of Labor Statistics, the Census Bureau began to include poverty estimates based on those indices in the R&D series as well. Between 1992 and 1995, a panel from the National Academy of Sciences (NAS) met to develop recommendations for an improved poverty measure, in response to a congressional request from the Joint Economic Committee and funded through the Bureau of Labor Statistics, the Department of Health and Human Services, and the Food and Nutrition Service of the U.S. Department of Agriculture. The NAS report was published in 1995. Since the report's publication, the Census Bureau has been publishing data on alternative poverty measures based on both the older R&D series and the newer NAS-based methodologies. Unlike the R&D series, which focused on alternative definitions of income and applying a different index to adjust thresholds for inflation, the NAS-based experimental measures made adjustments both to the thresholds and the income definition, and estimated work-related expenses and medical out-of-pocket expenses. Research continued, both at the Census Bureau and elsewhere, to refine the measurement methods and use the most current data sources available.

section_title: Developing the SPM: Consolidating the Research, and Public Comment
paragraphs: In 2009, the Office of Management and Budget (OMB) organized an Interagency Technical Working Group (ITWG) for establishing a Supplemental Poverty Measure. At that point, dozens of experimental poverty measures focusing on the various aspects of poverty measurement discussed above had been developed. The ITWG put forth a single measure (the SPM) to consolidate the research and emphasize not only sound concepts and methodology in the measure's development, but also practicality in the measure's maintenance, computation, and usage. The ITWG did not intend to replace the official measure, and it was expected that refinement of both the SPM's methodology and its data sources would continue.

section_title: How Is the SPM Currently Computed?
paragraphs: As mentioned above, the SPM differs from the official poverty measure in three broad ways. First, the measure of need is defined differently in the SPM's poverty thresholds. Second, the economic resources measured in the SPM differ from those counted in the official poverty measure. Third, the definition for "family" units used in the SPM is not the same. 

In determining an individual's poverty status, the poverty thresholds are compared with his or her family's economic resources. Information on relationships within the household determines which threshold is appropriate to use and whose resources are to be compared with that threshold. This information on family relationship and resources is measured using household surveys, and the way it is measured is affected and limited by what is asked in the surveys. 

Through 2016, the Census Bureau has produced estimates of individuals living in poverty as measured by the SPM using the Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS) as the source of the family relationship and income information used to compute poverty status. The CPS ASEC is also the survey used to produce the official poverty estimates at the national level. Thus, the SPM poverty estimates are based on the detail available in, and the limitations of, the CPS ASEC. If other surveys were to be used to estimate SPM poverty, their limitations and advantages would affect what information could be produced. 
subsections: section_title: Definition of Need in SPM Poverty Thresholds
subsections: section_title: Goods and Their Costs
paragraphs: In drawing the "poverty line," neither the SPM nor the official poverty measure attempted to parse out exactly how much of every type of good or service, with corresponding prices, is needed by a family to form an overall budget. Instead, both the SPM and the official measure used data on families' spending. In the case of the official measure, this was the spending related to food. The official measure's thresholds were based on food costs in the 1960s and food spending patterns of families in 1955. According to a 1955 USDA food consumption survey, families spent approximately one-third of their income on food, on average; therefore, the costs of the food plans were multiplied by three to produce family income amounts. 

The SPM uses the costs of food, clothing, shelter, and utilities (FCSU) as measured in the Consumer Expenditure Survey (CE). These items were selected because the panel considered them to be broadly accepted as universal needs and relatively noncontroversial. The panel did not specify exact amounts for items within these broad categories, but rather focused on overall spending patterns within the categories using CE data. Furthermore, the panel acknowledged that other items would be needed by families, such as non-work related transportation, personal care products, cleaning supplies, and the like; but rather than attempt to specify exact amounts for these items, the panel instead allowed for "a little more"—20% of the cost of FCSU—for miscellaneous items (that is, the threshold represents the cost of FCSU multiplied by 1.2). 

To obtain the dollar amount used as a starting point for computing the complete set of thresholds, an average is taken among consumer units whose out-of-pocket expenditures on FCSU rank in the 30 th to the 36 th percentiles, among units with exactly two children, according to the Consumer Expenditure Survey. Determining the average is the first step in computing the thresholds; the next step is adjusting that average by homeownership or rental status. 

section_title: Adjustment of the Thresholds by Homeownership or Rental Status
paragraphs: Three sets of poverty thresholds are used in the SPM: one for homeowners with a mortgage, another for homeowners without a mortgage, and a third for renters. These differing sets of thresholds based on tenure (ownership or rental status) reflect that housing costs can differ greatly among these three groups. Housing costs make up roughly 40% to 50% of the expenditures represented in the SPM thresholds; for homeowners without mortgages the housing-related expenditures are at the lower end of that range, while renters and homeowners with mortgages tend toward the upper end of the range. Moreover, these groups tend to differ demographically as well. Homeowners without mortgages tend to be older but also have lower incomes on average than homeowners with mortgages. Homeowners with mortgages are younger, have greater income, and are more likely to be raising children. Renters have lower income than the homeowner groups but also tend to be younger and are more likely to be raising children than homeowners without mortgages.

Like the other costs used in the SPM thresholds, the housing costs are obtained using data from the Consumer Expenditure Survey. It provides information on housing costs by tenure for the United States as a whole, but it does not provide the level of geographic detail needed to perform geographic adjustment. 

section_title: Adjustment of the Thresholds by Geographic Variations in Housing Costs
paragraphs: The SPM adjusts for geographic differences in housing costs. It uses the American Community Survey's information on median rental costs in a geographic area and compares it to the national median rent. 

To obtain comparable rent costs, a standard rental unit—two bedrooms with complete kitchen and plumbing facilities—is used. The median gross rent (including utility costs), based on ACS five-year data, is used in the comparison. Indices are computed by state: one index for each metropolitan area within the state, and an index representing all nonmetropolitan areas within the state. Once the indices are computed, a portion of the reference threshold (the part representing housing costs) is multiplied by them to produce SPM thresholds geographically adjusted for housing costs.

section_title: Adjustment of the Thresholds by Family Size
paragraphs: The thresholds are adjusted for family size and composition to allow that costs increase as family size increases, but also that there are economies of scale—efficiencies can be obtained by sharing resources. The mathematical relationship that describes how the thresholds are adjusted by family size and composition is called the equivalence scale . 

In the official measure, the equivalence scale is not computed explicitly, but rather driven by the food plan costs upon which the official thresholds were based. In contrast, the SPM uses mathematical formulas to adjust the thresholds by family size. The formulas are used to compute scale factors. A scale factor is a number that is multiplied by a standard dollar amount, representing the equivalent of one adult's needs, in order to increase the threshold proportionately to reflect the costs incurred by the increase in family size. The scale factors are computed using the number of adults and children in the family as inputs, along with important parameters. 

section_title: Adjustment of the Thresholds for Changes over Time
paragraphs: The SPM uses a different approach from the official measure in adjusting the threshold amounts over time. The official thresholds are adjusted annually for inflation using the CPI-U; no other adjustments are made. The SPM thresholds, in contrast, are recomputed based on the most recent five years of data on families' expenditures on FCSU, obtained from the Consumer Expenditure Survey. This approach differs conceptually from the official measure's inflation adjustment in three ways: 

1. Instead of directly factoring in a measure of overall inflation, the SPM includes the effects of inflation through the amounts that families spent on FCSU (as reported in the Consumer Expenditure Survey). 2. Price changes on goods and services other than FCSU are not considered directly—only families' spending on FCSU. Families' FCSU spending, moreover, is not held to be any fixed percentage of families' overall income (unlike the official measure, where the thresholds were fixed at three times the cost of food in the 1960s and updated for overall inflation since then). That means if FCSU spending grows as a portion of family income, the SPM thresholds will rise to reflect that spending, even if family income does not rise. Conversely, if family income rises, and a greater portion of family income was spent on goods other than FCSU, the SPM thresholds would reflect only the changes in FCSU spending. 3. The SPM thresholds are set at approximately the 33 rd percentile of FCSU spending, by ranking the FCSU spending across all two-child families in the Consumer Expenditure Survey sample. This is different from setting a fixed dollar amount in a single time period and adjusting for inflation thereafter. The SPM thresholds are computed so that even if the distribution of family expenditures changes over time, two-thirds of families will have reported spending more on FCSU than is allotted in the SPM thresholds. 

Additionally, the ITWG intended for the SPM methodology to be updated periodically, as poverty measurement research identifies ways to improve the measure and as new data sources become available. The official thresholds, on the other hand, are updated for inflation but no methodological changes to them have been planned: in keeping the methodology consistent, the Census Bureau continues to follow OMB's Statistical Policy Directive 14. 

section_title: Definition of Resources in SPM Poverty Thresholds
paragraphs: The SPM takes account of a wider array of resources than the official measure, and it also takes account of taxes and expenses in a way the official measure does not. The official poverty measure uses money income before taxes as its definition of resources. While this definition was based on the best data available when the official measure was developed in the 1960s, it is inconsistent with the poverty thresholds as they were conceptually defined. The thresholds were constructed to represent the total amount of money families had available to spend; the food costs as identified by the USDA food plans and as consolidated by Orshansky into families of different sizes and compositions were meant to reflect the fraction of a family's money that was available to be spent on food. The degree of privation represented by the official thresholds was characterized by the food plans' effectiveness at providing a "fair or better" diet, but not necessarily a good diet, while keeping the food costs low.

The SPM was designed to define the resources available to a family consistently with the needs specified in the thresholds (FCSU plus a bit extra for miscellaneous expenses, such as non-work related transportation and personal care). The items used to construct the income measure are presented below, and are discussed more fully in the Census Bureau's report on the SPM. 
subsections: section_title: Money Income and Other Resources
subsections: section_title: Money Income
paragraphs: The CPS ASEC, which is the data source used by the SPM to identify most resources, asks about 18 types of income. These include government cash benefits—such as Social Security, Unemployment Insurance, Workers' Compensation, Supplemental Security Income, public assistance received in the form of cash (such as Temporary Assistance for Needy Families)—or child support received. Not all income sources included in the CPS ASEC are taxable income. 

section_title: Estimated Value of In-Kind Benefits
paragraphs: Unlike the official measure, the SPM includes estimates of the monetary value of in-kind benefits, such as for food and subsidized housing, in the measure of income. These benefits are relevant because they are used to provide the items specified in the poverty thresholds. The SPM incorporates estimated values for several in-kind benefits:

Supplemental Nutrition Assistance Program ( SNAP ) . The SPM includes SNAP in its resource definition because families use it to help meet their food needs—and food costs are included in the SPM thresholds. CPS ASEC asks respondents whether anyone in the household received SNAP, and if so, what the face value of the benefits was. Amounts for the entire household are prorated to the family units as defined for the SPM when the two types of units are not identical. Special Supplemental Nutrition Program for Women, Infants, and Children ( WIC ) . The SPM includes WIC in its resource definition. However, the CPS ASEC does not ask respondents how much in WIC benefits they received, only whether they received benefits at all. For the purposes of estimating benefits, the Census Bureau assumes 12 months of participation when the respondent reports having received them. This assumption may overestimate the value of benefits received. To compute the benefit amounts received, the Census Bureau refers to WIC program information from the USDA, and uses age information reported in the CPS ASEC to determine which household members receive benefits. School Lunch . Subsidized school lunches are included in the SPM resource definition. The CPS ASEC asks whether children "usually" ate lunch at school, and whether it was free or reduced price. No further information on benefit amounts is available from the CPS ASEC. For the purpose of computing the SPM, the children are assumed to have received lunches every day. The costs of school lunches are obtained from USDA's Food and Nutrition Service (information on the school breakfast costs are not available). This approach likely overestimates the value of school lunch benefits received. Subsidized housing . Because the SPM includes shelter costs in the thresholds, the SPM includes subsidized housing in its resource definition. The Census Bureau estimates the "market rent" value for the housing unit and subtracts from that an estimated amount paid by the tenant. The difference is the estimated housing subsidy. Market rent is estimated using administrative data from the Department of Housing and Urban Development (HUD), and the amounts paid are estimated using HUD program rules and income information on the CPS ASEC. For computing poverty status under the SPM, the estimated subsidies are capped at the housing portion of the threshold minus the estimated amount paid by the tenant—housing subsidies can free up resources for a family to purchase other goods, but housing benefits cannot be used to purchase other goods and services once the family's housing needs have been met. Home energy assistance . Utility costs are included in the SPM thresholds; therefore, home energy assistance is included in the SPM resource definition. The CPS ASEC asks about energy assistance received for the entire year, and the SPM uses this data. However, respondents may have difficulty reporting exact amounts of energy assistance when Low Income Home Energy Assistance Program (LIHEAP) payments are made directly to landlords or energy providers. The manner by which the assistance is provided can vary by state. 

section_title: Expenses Subtracted from Income
paragraphs: Families typically pay for their needs using after-tax income; for that reason, the SPM uses after-tax income in its definition of resources. However, the CPS ASEC does not ask respondents about taxes paid. In order to compute after-tax income, the Census Bureau estimates taxes using a model. The CPS ASEC income and demographic data are used to estimate the probability of families' filing statuses (such as married filing jointly or married filing separately), having itemized deductions, and having capital gains, using the distribution of those variables as found in IRS data (Statistics of Income, or SOI). 
subsections: section_title: Work-Related Expenses Other than Child Care
paragraphs: Money that families spend as part of going to work is not available for meeting the needs specified in the SPM thresholds. Therefore, those expenses must be subtracted from income in order for the SPM's resource definition to be consistent with the thresholds. A flat amount, representing weekly work-related expenses other than child care, is multiplied by the number of weeks worked for every working family member. The flat amount is based on 85% of median weekly work expenses as reported in the Survey of Income and Program Participation. Apart from child care, most work expenses are linked to transportation to and from one's job. Work expenses—particularly commuting costs—can vary a great deal between geographic areas and across families in the same area. The NAS panel that developed recommendations for an improved poverty measure (mentioned above) observed that when making choices about residence and employment, families weigh the advantages of more expensive housing close to work (with lower commuting costs) versus less expensive housing further from work (with higher commuting costs). The panel was therefore unable to recommend a method that accurately reflected the variations in work expenses across families and geographic areas that was substantially more precise than assigning a flat amount across families based on number of weeks worked. However, research into improving the measure of these work-related expenses is ongoing. 

section_title: Child Care Expenses
paragraphs: If child care is needed in order for a family member to work, then the additional resources brought in by that worker do not represent the full amount earned—child care costs must be subtracted to reflect the available money for purchasing the needs identified in the SPM thresholds. Respondents to the CPS ASEC are asked whether child care expenses are incurred while the parents are working, and if so, how much they are. When computing resources for the SPM, the sum of child care expenses and other work-related expenses are capped at the income of the lower-earning parent (so that for determining poverty status, expenses cannot exceed the amount brought in by working). 

section_title: Medical Out-of-Pocket Expenses (MOOP)
paragraphs: As part of the section of the CPS ASEC questionnaire that asks about health insurance coverage, respondents are asked to report the amount of their health insurance premiums and other medical care costs that they paid out-of-pocket. These costs, called MOOP, are subtracted from income when computing available resources relevant for meeting needs defined in the SPM. 

Poverty measurement scholars debated for decades about the approach to use when taking account of medical costs in relation to poverty. On one hand, poor health can affect people's quality of life, affect their ability to earn more income, and change their spending habits. Thus, it affects people's economic behavior, which, it can be argued, is relevant for measuring poverty. On the other hand, the causes of poor health are not always linked to monetary factors. Health issues are often caused by physical phenomena unrelated to economics, which can lead to the argument that health care should not be included in a poverty measure but rather considered as a separate indicator of well-being. Moreover, the choices about whether to be insured and what kind of insurance to purchase heavily influence levels of spending on health care, both for the healthy and the sick. At the same time, it seems incongruous to consider a person who is healthy (and who therefore does not need expensive health care) as poorer than a sick person who receives expensive health care but otherwise has the same resources as the healthy person. 

To resolve this conundrum, the SPM does not include health expenses as part of the threshold—as medical needs vary greatly and not always predictably. Instead, it subtracts MOOP from the resource definition, as those resources are considered to be necessary expenditures (if and when they are incurred) and are not available to be spent on the needs defined in the thresholds. This approach, moreover, does not include the value of health care dispensed by insurance providers or by public coverage. It only considers the portion spent out-of-pocket by patients and their families. 

section_title: Child Support Paid
paragraphs: Because child support received is a form of money income and is counted as a resource in the SPM, any child support paid to another household would be double-counted if it were not subtracted from income. The person paying child support, moreover, cannot use the amounts paid to meet the needs specified in the SPM thresholds. The CPS ASEC includes child support received in its measure of money income, and because of a series of questions added in 2010 it now asks respondents whether child support is paid to other households and the amounts thereof. The SPM resource measure therefore includes child support received (if any) and subtracts child support paid (if any). 

section_title: Family Units in the SPM
paragraphs: The SPM captures how some nonrelatives share needs and resources in a way the official poverty measure does not. The official measure defines a family as all persons related by birth, marriage, or adoption who reside in the same housing unit. That definition treats each partner in unmarried cohabiting couples as separate units. It also excludes unrelated individuals under age 15, such as foster children. Because the surveys on which poverty estimates are based do not ask income questions of persons under age 15, any children under that age who cannot be matched with an older person's income have an indeterminate poverty status and are excluded from tabulation totals. 

The SPM defines family units—termed "SPM resource units"—differently from the official measure, using the detailed information on relationships among household members gathered by the CPS ASEC. This relationship detail includes the ability to identify foster children and, because of survey improvements in the 1990s and 2000s, cohabiting couples. The SPM treats cohabiting unmarried couples and any children they may have as part of the same unit and assigns thresholds and computes family income accordingly. This is done to more accurately reflect the way that people within households incur expenses and share resources to meet them. Similarly, all foster children under age 22 are included in the SPM resource units. Not only do these changes reflect recent demographic trends, but they also coordinate broadly with the "consumer unit" concept in the Consumer Expenditure Survey (CE). 

Still excluded from SPM tabulations, however, are members of the Armed Forces living in barracks, the incarcerated population, residents of nursing homes, other institutionalized persons, and the homeless population. These individuals are not eligible for interview in the CPS, as its primary purpose is to measure employment among the civilian noninstitutional population.

section_title: Use of the SPM
paragraphs: As mentioned earlier, the ITWG never intended for the SPM to replace the official poverty measure or to fulfill administrative purposes. It supplements the official measure by allowing for analyses of the low-income population that would not otherwise be possible. Particularly visible and of possible relevance to Congress are the effects that taxes and tax credits, noncash transfer programs, and work-related and medical expenses have on poverty. The SPM also highlights differences in the demographic profile of those identified as poor. Even with improved visibility into those areas, however, the SPM has important limitations to be considered. 
subsections: section_title: Insights Obtainable from the SPM
subsections: section_title: Effects of Transfer Programs, Taxes, Tax Credits, and Expenses
paragraphs: The official poverty measure captures only those government benefits that are paid in cash. This includes the largest government transfer program, Social Security, though it excludes Medicare. However, in terms of programs targeted to lower income people and families, the official measure excludes noncash medical, food, and housing benefits as well as benefits paid through the tax code. Over time, means-tested benefits paid in noncash forms or through the tax code have grown to account for most of what the federal government spends on low-income assistance. For example, in FY2015 the federal government spent $5.5 billion on veterans' pensions, $6.4 billion on TANF cash assistance, and $62.1 billion on Supplemental Security Income (SSI). These cash benefits are included in both the official poverty measure and the SPM. However, the federal government also spent a total of $80.6 billion on refundable tax credits, $103.1 billion on food assistance, and $44.6 billion on housing, much of which are benefits that are captured only in the SPM. 

 Figure 1 illustrates the impact of various resource components on the number of people identified as poor using the SPM. Bars pointing left (negative) indicate the number of people kept out of the population identified as poor by the SPM's treatment of that resource component. The bars pointing right (positive) indicate the number of people added to the estimated poor population by the SPM's treatment of the component. These data show how the population estimated to be poor would change if the SPM omitted a particular component (either by subtracting resources, or failing to subtract taxes and expenses) but do not take into account any behavioral changes people would make in the absence of any one program, tax, credit, or expense. Furthermore, the data illustrate changes to the poverty population estimate with each component considered in isolation. People are often affected by multiple resource components; therefore, the numbers represented by separate bars should not be added together. 
subsections: section_title: Comparison of Impacts among Resource Components
paragraphs: Social Security, along with SSI, TANF, and other cash welfare assistance; Unemployment Insurance; child support received; and Workers' Compensation, are money income sources that are included in both the official poverty measure and the SPM. Of these income sources, Social Security has the biggest impact on the number of persons kept out of poverty according to the SPM (26.1 million persons in 2016). While it was designed to be a universal program and not targeted specifically to the poor, it has a large antipoverty effect nevertheless. While most of those kept above poverty by Social Security were ages 65 and older (17.1 million), a substantial minority were younger: 7.5 million were age 18 to 64, and 1.5 million were children under age 18. Some of those in the younger age groups are Social Security recipients themselves because of a disability, but others were kept out of poverty because an older family member received it. 

The remaining resource components shown in Figure 1 are not included in the official poverty measure but are included in the SPM. Of these, none individually have as large an impact on the estimated poor population as Social Security. After it, the components with the most impact are MOOP (with 10.5 million persons added to the poverty population once those expenses are taken into account); refundable tax credits (with 8.1 million kept out of the estimated poor population because they or a family member received the credits), work expenses, including child care (6.0 million added to the poverty population, on the margin); FICA (4.7 million added to the poverty population, on the margin); and SNAP (3.6 million kept out of the poor population, on the margin). 

section_title: Differences in the Demographic Profile of the Poor
paragraphs: As seen above, people can be affected by multiple resource components considered in the SPM. As a result, the profile of the poor population as identified by the SPM is different from that identified by the official poverty measure. Fewer children are identified as poor in the SPM because many government assistance programs, such as WIC, TANF, and the Additional Child Tax Credit (ACTC), are targeted toward families with children. Conversely, more working-age adults are in poverty in the SPM because they are more likely to have work expenses (including child care expenses). These expenses are partially offset by EITC, but only working families receive it. Working families with children could get ACTC, but they have to have qualifying children. Slightly more of the aged are below poverty under the SPM than under the official measure because they are more likely to incur MOOP, which are subtracted from income. While MOOP can be high for the aged, their effect on poverty rates is mitigated by the fact that homeowners without a mortgage (such as aged persons who have paid off their mortgages and still live in that house) have lower housing expenses—and in turn lower poverty thresholds—than do mortgage-paying homeowners and renters. 

Further details are given in the Census Bureau's report, T he Supplemental Poverty Measure: 201 6 . 

section_title: Geographic Differences
paragraphs: As shown in Table A-1 in the Appendix , poverty thresholds in the SPM vary geographically and are typically different from their corresponding official poverty threshold. The SPM thresholds for New York illustrate within-state variation. SPM thresholds for the Binghamton metro area are lower than their corresponding official poverty threshold, while for New York City they are considerably higher (between $2,000 and $8,000 higher in 2016 than their corresponding official threshold).

Nevertheless, regional patterns emerge. Poverty rates in the Northeast and West tend to be higher under the SPM than under the official measure, in part because of the relatively higher thresholds in those regions, compared with the Midwest and the South. The SPM thresholds in 2016 for California (a western state) and Alabama (a southern state) illustrate the most extreme examples: the highest poverty threshold (for homeowners with mortgages in the San Jose-Sunnyvale-Santa Clara metro area, California) and the lowest poverty threshold (for homeowners without mortgages in nonmetropolitan Alabama) were found to apply in these states.

As a caveat, while the SPM thresholds tend to increase poverty rates in the Northeast and Midwest and decrease poverty rates in the South and West compared with the official measure, the thresholds are not the only driver of SPM poverty rates. Regional differences in income, noncash benefits, and items subtracted from SPM resources (such as MOOP or work expenses) also drive differences in regional poverty rates.

section_title: Limitations of the SPM and Outstanding Issues
subsections: section_title: Data Considerations
paragraphs: Because it is based mainly on survey data, the SPM warrants the same caveats as do any estimates based on surveys (including the official poverty measure): the data are estimates based on a sample of the population and, as a result, have margins of error. Additionally, means-tested transfers and certain types of non-transfer income are underreported in the CPS ASEC.

Portions of SPM resources—notably the values of taxes and some noncash benefits—are not asked of respondents in the CPS ASEC and need to be estimated using models. The models take care to use administrative data where appropriate to ensure that the estimated amounts reflect external totals and distributions; nevertheless, the estimated amounts are not perfect. For example, the estimated total benefits from both the EITC and the child tax credit are substantially lower than those found when examining federal income tax returns. Thus, the estimates understate the impact these two tax provisions have on poverty as measured by the SPM. 

section_title: Cash Valuation of Noncash Benefits: Not Fully Interchangeable
paragraphs: The SPM includes the values of in-kind food and housing benefits in measuring resources. While resources such as these are used to meet the needs (FCSU) specified in the thresholds, and thus it is consistent to include them as resources in the SPM, in-kind benefits, unlike money income, are not fungible . That is, barring illegal trading, they cannot be used to meet any expense that arises, but only the needs for which they are specified. While the FCSU amounts in the thresholds are based empirically on spending patterns, it should not be assumed that every family's needs are the same. Because a family could use money income to meet its specific levels of need, but does not have the same flexibility with in-kind benefits, the in-kind benefits are worth somewhat less than their face value to families whose needs are met in one area but not another. 

In measuring resources, the SPM method caps housing benefits because a large housing subsidy can only fill housing needs. Housing benefits are capped at the housing portion of the SPM poverty threshold minus the amount of rent paid by a tenant. On the other hand, SNAP benefits are counted at their full face value, even though their "value" to the recipient might be less than that amount. 

section_title: Out-of-Pocket Medical Costs Are Measured, But Not the Full Benefit of Subsidies
paragraphs: The SPM accounts for expenses for health care and insurance by subtracting MOOP from family resources. That is, it does not count the "value" of health insurance as a resource, and subtracts from resources health insurance premium payments, deductibles, copayments, and other out-of-pocket health expenses made by the family. Medical needs are not included in the SPM poverty thresholds. 

This treatment of medical expenses does not take account of all the economic effects of subsidized medical care generally. Two families with different health insurance arrangements, and different health care needs, but the same amounts of MOOP would be treated identically by the SPM: their (identical) MOOP would be subtracted from their income. However, those same families may not be equally as well off if one of the families kept its out-of-pocket costs down by purchasing a less comprehensive insurance plan than the other family and decided to forego certain types of health care. The SPM thresholds were defined to include the recurring needs of food, clothing, shelter, utilities, and a little more for miscellaneous expenses; MOOP are subtracted from family income because they cannot be used to meet the needs identified in the threshold. 

This treatment of medical expenses also means that some of the largest noncash benefits programs—Medicare, Medicaid, and premium assistance under the Patient Protection and Affordable Care Act—are not explicitly taken into account in determining SPM poverty status. There has been some research into methods and measures that would incorporate medical risk, and how it is affected by health insurance, into measures of economic well-being to complement the current SPM. 

section_title: Lump Sum Nature of Tax Credits
paragraphs: Tax credits, when they are provided to filers, are given as a lump sum based on income in the previous year. The SPM imputes taxes in the year they are earned, but in reality the credit will not appear in the family's income until the following year. Furthermore, tax credits are given as a lump sum, but poverty is a spell phenomenon. Both the SPM and the official poverty measure examine resources in a full calendar year compared with a threshold based on the calendar year. The economic status of families, however, can change throughout the year. A family may experience poverty because one or more workers in the family lost a job and months passed before the worker was able to find another one, putting the family in a poverty spell for that duration. The tax credit, therefore, may or may not provide relief during the poverty spell, depending on the spell's timing in the year and the severity of expenses faced by the family throughout the year. Longitudinal datasets like the Survey of Income and Program Participation can unmask the length of time people and families spend in poverty. However, they typically have smaller sample sizes than the CPS ASEC, which limits their ability to provide detailed geographic analyses. 

section_title: Nature of the SPM: a Relative or an Absolute Measure?
paragraphs: There has been some debate about whether the SPM is closer to a relative or an absolute poverty measure. A relative poverty measure is one in which poverty is defined with respect to some percentile of the income distribution (e.g., half of median income), while an absolute measure uses a fixed dollar cutoff updated for inflation over time. 

Relative poverty measures keep pace with changes in the income distribution over time and identify the economically worst-off portion of the population, but they may not necessarily be tied to a particular level of well-being. Because relative poverty measures are based on the income distribution, it is possible for poverty to increase even when incomes throughout the distribution rise if the distribution of income becomes wider. This potential disconnection between the poverty rate and levels of well-being is considered to be a weakness of relative measures. 

Absolute poverty measures are set to a fixed income amount representing a level of economic well-being at a point in time, adjusted periodically for inflation. They are consistent over time in representing the number of people below a resource level, and are more sensitive over time than relative measures to detecting the shares of the population unable to obtain this level, and presumably, economic well-being. 

The SPM includes aspects of both relative and absolute measures in its computation, and gauging whether the SPM is closer to one or the other is an unresolved question. The SPM thresholds are based on roughly the 33 rd percentile of expenditures on FCSU, using the five most recent years of CE data. In this sense, the SPM can be thought of as relative because the thresholds are computed based on a percentile within the distribution of expenditures. On the other hand, the thresholds are not computed using overall income, but rather expenditures, and only for a limited set of basic goods (FCSU, plus 20% extra for miscellaneous expenses). It is theoretically possible for incomes to rise at a different rate than expenditures on basic goods, which if true would imply that the SPM is not a relative measure. Moreover, expenditures on FCSU are driven not only by income but also by prices, which can be affected by factors other than the income distribution. 

The question of whether the SPM is relative or absolute has meaning for those trying to evaluate whether the SPM accurately describes the poor population both in a single year and over time. It also highlights the value judgments involved in determining what is meant by "poverty" and in expressing that determination using a concrete metric. In the case of the official poverty measure, the level of well-being is characterized by the likely nutritional impact of the Economy Food Plan, with fewer than 1 in 10 families on that plan meeting their recommended nutritional requirements, and about half of families on that plan failing to get two-thirds of them (see footnote 27 ). The description of the SPM in this report, and the tables provided in the Appendix , are intended to help readers better gauge for themselves the levels of well-being on which the SPM is based.
subsections: section_title: Appendix. Poverty Thresholds under the SPM and the Official Poverty Measure
paragraphs: Unlike the official poverty measure, which uses 48 poverty thresholds that are updated annually for inflation and applied nationwide, the SPM thresholds are computed using additional variables, resulting in thousands of thresholds once they are geographically adjusted. The SPM thresholds are based on Consumer Expenditure Survey (CE) data for food, clothing, shelter, and utilities (FCSU), and adjustments are made thereafter by housing tenure (that is, for homeowners with mortgages, homeowners without mortgages, and renters), by geographic variations in housing costs for each housing tenure group, and by family composition. 

Three tables are shown below, to illustrate the dollar amounts used to determine poverty status in both the SPM and the official measure. Table A-1 focuses only on SPM poverty thresholds for a two-adult two-child family, by housing tenure, and illustrates the range of geographic cost variation. In contrast, Table A-2 illustrates how the SPM thresholds vary by family composition, but without geographic adjustment. Table A-3 presents the official poverty thresholds, for comparison. 


Question-summary annotations: questions: question: How were the official poverty thresholds derived?
answer: The official poverty thresholds measure needs derived from the cost of an austere food budget.

question: How did the food budget change to become the official poverty thresholds?
answer: The food budget was multiplied by three, based on the finding that food accounted for about one-third of total family expenditures in 1955.
child_questions: question: How have the poverty thresholds changed since their introduction?
answer: Since their original computation, these thresholds have been adjusted annually for price inflation.

question: On what are SPM’s thresholds based?
answer: In contrast, the SPM's thresholds are based on consumer expenditures for food, clothing, shelter, and utilities, and it uses five years of data from the Consumer Expenditure Survey in calculating needs and thresholds.
child_questions: question: What is the process to determine poverty thresholds?
answer: Developing the SPM thresholds starts with spending data for families with exactly two children. These data are refined by using approximately the 33rd percentile of families' expenditures on food, clothing, shelter, and utilities. Next, an extra 20% is figured into the thresholds for miscellaneous expenses such as cleaning supplies and personal care items.

questions: question: How are financial resources calculated in both measures?
answer: Financial resources to meet needs, whether in the SPM or the official measure, are based on the sum of income of all family members.
child_questions: question: How are the financial resources differently calculated by the SPM?
answer: While the official measure uses money income before taxes, the SPM makes additional adjustments and considers a wider range of resources. The SPM includes the value of certain in-kind benefits (such as food and housing subsidies), uses income after estimated federal and state taxes, and subtracts some expenses from income.

question: What are some examples of these expenses?
answer: These expenses include medical out-of-pocket costs, such as health insurance premiums, physician co-pays, and over-the-counter medications; child support paid outside of the household; and work expenses, such as child care and the cost of commuting, tools, uniforms, or licensing fees related to a person's employment. Work expenses, including child care, are capped at the amount of earnings from work of the lowest-earning family member.

question: Why are expenses subtracted from family income?
answer: These expenses are subtracted from family income because they cannot be used to obtain the needs defined in the SPM thresholds.

question: How does this difference in financial resource calculation make the SPM more consistent?
answer: Unlike the official poverty measure, the range of financial resources included in the SPM is defined to be consistent with the types of needs used to compute the SPM poverty thresholds.

questions: question: How does the SPM differ from the official measure?
answer: The demographic profile of the poverty population is different under the SPM than under the official measure. Children have a comparatively lower poverty rate (percentage in poverty) under the SPM, and the aged (65 and older) and working-age persons (18 to 64) have comparatively higher poverty rates.
child_questions: question: How can these differences be explained?
answer: These differences can be explained by the SPM's resource definition.

question: What is different about the SPM's resource definition?
answer: The SPM includes tax credits and in-kind benefits that help families with children (in effect, boosting the measure of family income). It subtracts medical out-of-pocket expenses, which disproportionately affects the aged (lowering their measure of income), and subtracts work-related expenses, which disproportionately affects the working-age population (lowering their measure of income).

questions: question: What benefits does the SPM offer?
answer: The SPM can give policymakers the tools to understand how taxes and government programs, including the noncash programs, affect the poor. It also illustrates how medical expenses and work-related expenses such as child care can affect a family's economic well-being.

question: What is one flaw of the SPM?
answer: However, the SPM poverty estimates are derived from household survey data, and hence are affected by issues such as underreporting of income from government benefit programs, limitations on how tax liabilities and tax benefits can be estimated based on survey data, and differences in how noncash benefits and lump-sum tax refunds are "valued" by program recipients versus how they are valued for the purposes of poverty measurement.
child_questions: question: What is another flaw of the SPM?
answer: Additionally, the SPM does not directly value health insurance provided publicly or privately. Further, poverty has historically been measured in the United States as an "absolute" measure, based on how many people fall below a set standard of living.

question: Does the SPM measure poverty as an "absolute" measure?
answer: Questions have been raised about whether the SPM continues to measure poverty in that way, or represents a "relative" measure of poverty, based on how the population ranks in terms of well-being relative to each other.