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Changing the Official Poverty Measure Would Help Rich States and Hurt Poor States

COSM Commentary

October 5, 2023

In this post I discuss the policy implications of declaring the Supplemental Poverty Measure the new official measure, an action that could be taken unilaterally by the Director of the Office of Management and Budget without any input from Congress. First, I report how eligibility for major means-tested programs would substantially rise in higher income states while remaining largely unchanged in lower income states. Second, I report how federal aid that depends on area poverty rates would be reallocated from higher income states to lower income states. I conclude by arguing that Congress should preempt the Administration from changing the official poverty measure.

[Note: The analysis in this post is based on the earlier posted working paper, “The Effects of Elevating the Supplemental Poverty Measure on Government Program Eligibility and Spending.”]

An administration could redefine poverty without Congressional input

On September 12th, the Census Bureau released its latest poverty estimates. In 2022, the official poverty rate decreased slightly by 0.1 percentage point to 11.5 percent, while the supplemental poverty rate increased by 4.6 percentage points to 12.4 percent. Unfortunately, neither statistic provides reliable information about deprivation in America: The official measure omits most anti-poverty benefits such as non-cash assistance and refundable tax credits. The supplemental measure counts these benefits but sets a poverty threshold that increases in real terms every year. As a result the new Census poverty report cannot tell us whether absolute deprivation actually increased or decreased in 2022.

The Census Bureau should fix these measurement problems for the purposes of accurately tracking poverty over time. But there is a much more policy relevant issue that has gone unnoticed. Earlier this year, a National Academies of Sciences, Engineering, and Medicine report recommended elevating the Supplemental Poverty Measure (SPM) to the “nation’s headline poverty statistic,” and noted that the Office of Management and Budget (OMB) could proceed to christen the SPM as the new official poverty measure. This action would require no Congressional input and would automatically affect eligibility for major means tested programs including the Supplemental Nutrition Assistance Program (SNAP), Medicaid, Affordable Care Act premium tax credits, and dozens of other programs. In a recent working paper, I estimated that making the SPM the new official measure would increase government spending on Medicaid and SNAP alone by $124 billion over the next decade.

The good news is that the Census Bureau in its latest poverty report did not follow the National Academies recommendation to elevate the SPM to the “headline poverty statistic.” And OMB has not yet initiated a process to declare the SPM the new official measure. But we should not rest easy. OMB could at any point begin the process of revising its statistical policy directives to make the SPM the official measure, with the OMB director having sole authority over this change.

Congress should preempt the Administration from unilaterally changing the official poverty measure, retaining for itself the authority to determine who qualifies for government programs and protecting the Census Bureau from getting caught up in political decisions that could jeopardize its well-deserved reputation for producing independent and apolitical statistics.

Aside from these process related issues, policymakers should be concerned about this matter for two additional reasons. First, as already noted making the SPM the official poverty measure would increase government spending by more than $124 billion over the next decade, at a time when a growing debt and yearly deficits are already threatening the fiscal capacity and future economic growth of the country. Second, if the SPM became the official poverty measure the allocation of federal funding across states could be affected. High-income states like California and New Jersey would benefit at the expense of low-income states like Kentucky and Mississippi.

Changing the poverty line would affect eligibility for government programs

In order to inform policymakers of the consequences of this issue for the geographic allocation of federal funds, I use the latest Census data to estimate the state by state effects. I first show how the poverty line would change in each state, due to the fact that the SPM has a higher poverty threshold in areas with higher housing costs, unlike the official poverty measure which uses the same poverty threshold for the whole country. The official poverty line is important because it determines who qualifies for means tested programs like SNAP, Medicaid and Affordable Care Act (ACA) premium tax credits. For example, Congress has set the SNAP eligibility threshold at 130 percent of the official poverty line. Since the official poverty line in 2024 will be approximately $31,450 for a family of four everywhere in the country (according to my projections), under the existing official poverty measure a family of four would need an income of no more than $40,885 to qualify for SNAP no matter where they live. But if the SPM were made the official measure and the poverty line varied across states, then a family in a state like Mississippi could be made ineligible even though a California family with the same income retained eligibility.

In the interactive map below (Figure 1), I estimate how the poverty line would change in 2024 for each state if the SPM became the official measure and state-specific poverty lines were adopted. To do so, I follow the same methodology in my recent working paper, except that I use the newly released Census data to improve the accuracy of the 2024 projections.

Figure 1. Effect of Designating the Supplemental Poverty Measure the Official Measure on the Poverty Line and Program Eligibility for a Family of Four, by State, 2024

The map is shaded based on how much each state’s poverty line would change. The darkest state, California, would see its poverty line for a family of four increase by $15,600. The lightest state, South Dakota, would see its poverty line decrease by $300.

The map also contains information for each state on how eligibility for major means tested transfer programs would change if the SPM became the official poverty measure (viewable by hovering over a given state). Programs shown include SNAP, School Lunch, Medicaid (for children aged 6-17), ACA subsidies, and Medicare Part D subsidies. For example, the maximum income a family of four could have and still receive SNAP is currently just under $41,000 in every state except Alaska and Hawaii. The SNAP eligibility threshold would increase to over $61,000 in California while falling to about $40,500 in South Dakota. The program with the largest effects on the eligibility threshold are ACA subsidies. The maximum income to qualify would rise by over $62,000 in California (up to about $188,000), while falling by just over $1,000 (down to about $125,000) in South Dakota.

In general, high income states like California, Massachusetts, Maryland, and New Jersey would see the largest expansions in families assisted by major means tested programs because their poverty lines would increase the most. Low income states like South Dakota, West Virginia, North Dakota, and Mississippi would see essentially no change in families assisted because their poverty lines would remain roughly unchanged.

Changing the poverty rate would affect the geographic allocation of federal aid

In addition to affecting the eligibility thresholds for means tested programs, making the SPM the official poverty measure could also change the poverty rates uses to allocate federal grants to states and localities. Examples of federal aid tied to poverty rates in an area include Title I education grants; Special Education Grants; the Individuals with Disabilities Act; the Special Supplemental Nutrition Program for Women, Infants and Children; the Community Development Block Grant; and the New Markets Tax Credit. If the SPM were adopted as the poverty definition used for these programs, the allocation of funding would change as well, since SPM poverty rates substantially differ from the existing official poverty rates.

The interactive map below (Figure 2) shows the difference between the (existing) official poverty rate and the supplemental poverty rate in each state (which can be seen by hovering over a given state). In this case I use data covering the three year period from 2017-2019, because the Census Bureau recommends pooling three years of data for state-level estimates and because 2020 and 2021 were atypical in terms of economic conditions and income transfer policies. The states that would see the largest increases in their poverty rates—and thus likely receive a greater share of federal aid—by switching from the official to the supplemental poverty measure are California (5.8 percentage points), Maryland (4.4 percentage points) and New Jersey (4.4 percentage points). The states that would see the largest decrease in their poverty rates—and thus likely receive a smaller share of federal aid—are Mississippi (-3.9 percentage points), New Mexico (-3.5 percentage points) and Kentucky (-3.1 percentage points).

Figure 2: Difference between Supplemental Poverty Rate and Official Poverty Rate, by State, 2017-2019

It is important to point out that programs are often tied to poverty rates calculated using data from smaller areas than states, such as counties, census tracts and school districts. Also, programs often use other surveys to calculate poverty rates, especially the American Community Survey, to track smaller areas, and often consider persistent poverty rather than poverty at a point in time. But the map nonetheless shows how a state is likely to be affected on average if programs began using the SPM to measure poverty instead of the existing official measure.

Reallocating federal aid to areas with higher housing costs in this fashion would lead government programs to do a worse job at targeting aid to the most deprived families. Recent research shows that geographic adjustment of the poverty line would add to the poverty rolls families who have fewer material hardships, better quality homes, higher food security, better health and more assets, while removing from the poverty rolls families who have worse outcomes in these areas.

Congress should prevent the Administration from changing the official poverty measure

The official poverty measure has important consequences for who qualifies for government programs, how much the government spends on those programs, and how federal aid is allocated across the country. These are political decisions that should transparently be made by elected policymakers in Congress. There is no scientific basis for where to draw the poverty line—it is a value judgement about the amount of resources a family should have to no longer be considered poor. And if the goal of a poverty measure is to identify the most deprived group of individuals, the scientific evidence does not support setting higher poverty thresholds in places with higher housing costs, as the SPM does.

Over the years, Congress has tied program eligibility to the official poverty thresholds. But it has done so in a way that recognizes that programs should often remain available for families with incomes above the poverty line, reflecting value judgements about how to target different types of assistance. For example, Congress set the eligibility threshold for SNAP at 130 percent of the poverty line and for ACA premium tax credits at 400 percent of the poverty line. It would be inappropriate for unelected members of an Administration to undo these Congressional decisions by unilaterally changing the poverty line.

Congress should preempt the Administration from manipulating the official poverty measure. Doing so would ensure that the Census Bureau and other statistical agencies are not asked to jeopardize their political independence by making political decisions about where to draw the poverty line. It would also prevent an unlegislated expansion of government funding and a reallocation of federal aid from poor states to rich states.