What the Federal Poverty Line Leaves Out
By Amanda Teuscher | Aug 27, 2015
The federal poverty line was first developed in 1963, and since then has been updated for inflation. Beyond the fact that it does not vary by geography (it’s a lot more expensive to live in New York City than in Tennessee), there are a number of flaws in the measurement. For instance, it was calculated by multiplying the cost of groceries by three (which consumed a larger portion of a family’s budget in the 1960s), while neglecting to factor in exact costs like housing, health care, child care, and transportation. But the costs of necessities like these have changed significantly in the past five decades.
In 2011, the Census Bureau released the Supplemental Poverty Measure (SPM), which was meant to improve our understanding of the state of U.S. poverty by accounting for regional variances as well as other costs such as child care. It also factors in assistance programs such as the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program, which is important for demonstrating how federal policy can play a role in alleviating poverty.
But an even more nuanced measurement of economic well-being is the Economic Policy Institute’s Family Budget Calculator, which was updated yesterday to include 2014 numbers. The EPI calculator estimates how much it costs to “attain a secure yet modest living standard,” and provides data on ten different family sizes (one or two parents, with zero to five children) across 618 distinct geographic areas and cities. The new tool factors in community-specific expenses for housing, food, child care, transportation, health care, other necessities, and taxes, and the numbers it yields are startling.
For instance, in Morristown, Tennessee, which has the lowest cost of living, a two-parent, two-child family has a budget of $49,114—more than twice the 2014 poverty threshold of $24,008 for that size family. And forget economic security if you’re making the federal minimum wage of $7.25 an hour in Morristown, even if you’re single with no children: Your monthly budget of $23,458, according to the calculator, is still well above the $15,080 in wages you’d take home in one year.
One of the key findings of the updated calculator is the wide range of child-care costs across different regions, highlighting a limitation of the SPM, which applies geographic variability only to housing. According to the EPI calculator, a family of four in 500 of the 618 areas can expect to pay more for child care than for housing.
Perhaps surprising to only a few, Washington, D.C., had the highest cost of living, according to the EPI calculator. That same family of four would need an annual budget of $106,493, which even the city’s higher minimum wage (set to increase to $11.50 an hour in 2016) would fall far short of. Another prominent calculator of living wages, that of MIT, finds similar discrepancies between actual costs of living and federal poverty thresholds, which can determine eligibility for certain assistance programs and provide a picture of how many Americans live with severe economic instability.
Even still, these calculations do not include such middle-class luxuries as saving for retirement or job loss, or paying for summer camp or sports programs for children—or even saving for college. It’s a more secure standard of living than our current poverty levels, but the emphasis is still on “modest.”