Key Points

• The Supplemental Poverty Measure (SPM) partly improves on the Official Poverty Measure but still suffers from several shortcomings that limit its usefulness as an effective poverty measure.
• The SPM resource measure fails to use administrative data to account for underreported earnings and government benefits in surveys, excludes the value of employer- and government-provided health insurance, and incompletely captures the value of homeownership and housing assistance.
• The complexity of the SPM thresholds masks the scientific arbitrariness of baseline poverty thresholds and makes the interpretation of poverty rate changes over time nearly impossible, and SPM threshold adjustments for geography and housing tenure are counterproductive.
• The SPM’s shortcomings cause it to identify a less economically disadvantaged poverty population than alternative poverty measures identify.     

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Executive Summary

The US Census Bureau publishes the Supplemen­tal Poverty Measure (SPM) each year to provide important information on low-income Americans’ well-being. In early 2021, a National Academies of Sciences, Engineering, and Medicine (NASEM) panel formed to evaluate and recommend improve­ments to the SPM. To inform the NASEM panel and the debate on poverty measurement more broadly, we review the SPM’s shortcomings and recommend ways to address them. We focus on whether the SPM achieves the key goals of an effective poverty mea­sure: (1) identifying those experiencing the greatest economic deprivation, (2) determining changes in economic deprivation over time, and (3) assessing the effect of public policies on economic deprivation. We consider separately issues related to the SPM’s measurement of resources and SPM thresholds.

The SPM improves on the Official Poverty Mea­sure’s (OPM) resource measure by including several important government benefits such as refundable tax credits, nutrition assistance, and other in-kind benefits while subtracting taxes and work expenses. However, the SPM resource measure suffers from sev­eral problems that prevent it from achieving the fun­damental goals of an effective poverty measure. First, the SPM uses flawed survey data that understate earn­ings and government benefit receipt, biasing income downward. Second, the SPM fails to include the value of health insurance, except to the extent that health insurance reduces medical out-of-pocket spending. Third, the SPM caps the value of government rental housing assistance below its full value. Fourth, the SPM excludes the service flow value of homeown­ership and vehicles. These problems likely contrib­ute to the research finding that the SPM identifies a less-deprived poverty population than other poverty measures identify, including the OPM.

SPM thresholds suffer from several problems as well. First, the baseline SPM thresholds are overly complex, masking their fundamental arbitrariness. Second, the baseline SPM thresholds are updated each year in a convoluted way—deviating from an absolute or purely relative standard—making interpreting pov­erty rate changes over time nearly impossible. Third, geographic adjustment of SPM thresholds leads the SPM to identify a less economically deprived pop­ulation than if thresholds were not geographically adjusted. Fourth, SPM thresholds for families with different housing tenure (i.e., renters, homeowners with a mortgage, and homeowners without a mort­gage) are set relative to expenditures by families with the same housing tenure, not recognizing the funda­mental differences between groups.

These shortcomings in the SPM resource measure and thresholds prevent the SPM from adequately satisfying the fundamental goals of an effective pov­erty measure. The SPM identifies a less economically deprived population than other poverty measures, does not enable comparisons of poverty rates over time, and fails to offer researchers an effective tool to assess the effects of antipoverty policies.

To address the SPM’s shortcomings, we recom­mend the following changes.

• Use administrative data on earnings, govern­ment program benefits, and other income sources to more accurately measure resources.
• Develop two SPM resource measures: one that includes the full market value of health insur­ance—perhaps capped as a fraction of total resources—and one that includes a zero value of health insurance. The latter measure should not deduct medical out-of-pocket expenditures.
• Remove the cap on the amount of housing assis­tance in the SPM resource measure.
• Conduct additional research and potentially add questions to the Current Population Sur­vey Annual Social and Economic Supplement (CPS-ASEC) to estimate the net value of ser­vice flows from owner-occupied housing and vehicles for inclusion in the SPM resource measure.
• Inform decisions about specific aspects of the SPM with evidence regarding whether those decisions lead to identification of a more deprived group of a given size.
• Adopt a simple baseline threshold concept, such as pegging the SPM threshold to the percentile given by the official poverty rate in the initial year, and clarify that this initial level is scientifi­cally arbitrary when the Census Bureau commu­nicates SPM poverty rates to the public.
• Adopt an absolute standard—and potentially a purely relative standard—for adjusting pov­erty thresholds over time. An absolute standard should update thresholds based on the Chained Consumer Price Index for All Urban Consumers each year, and a relative measure should update thresholds by the same percentage at which median income changes each year.
• Remove geographic adjustments from the SPM thresholds.
• Eliminate the use of separate SPM thresholds for families with different housing tenure types.
• Finally, we recommend that government or out­side researchers evaluate these recommenda­tions and report how each change would affect the economic deprivation of the population identified as poor and poverty trends over time.

Introduction

Since its first publication by the US Census Bureau in 2011, the Supplemental Poverty Measure (SPM) has offered researchers and policymakers an alterna­tive way of measuring poverty in the United States and assessing the effectiveness of antipoverty policy. The SPM addresses some of the Official Poverty Measure’s (OPM) widely recognized flaws, but after a decade of use, new evidence has emerged that several short­comings prevent the SPM from providing an effective means of measuring hardship and evaluating antipov­erty policies. (See Appendix A for a brief history of poverty measurement in the US.)

In this report, we first outline three basic goals of an effective poverty measure and describe the exist­ing SPM. Next, we describe the shortcomings in how the SPM measures resources and how the SPM estab­lishes thresholds, which cause it to fall short of meet­ing the goals of an effective poverty measure. In doing so, we also make recommendations to address each shortcoming. We conclude by discussing the impor­tance of improving our measures of poverty to better inform policy and outlining our specific recommen­dations to achieve this goal.

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