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Defining Income in an Absolute Poverty Measure

ByCharles Nelson

U.S. Census BureauFor Presentation at Rio Group Meeting

August 24-25, 2006

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Common Goals for Absolute Poverty Measures

• Needs and Resources Should be Conceptually Consistent

• To the Extent Possible, Different Types of Families/Individuals Should be on an Equal Footing with Regard to Defining Who is Poor—A Challenging Proposition in Any Diverse Country

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How Are Different Families/Individuals Placed on an

Equal Footing?

• Through Equivalence Scales

• Through Defining Poverty Thresholds

• Through Defining Resources: Focus of Today’s Presentation

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Census Bureau Attempts to Broaden the Definition of Income

1. Research and Development Series: began in the1980’s

2. NAS Series: followed the publication of the National Academy of Sciences report on measuring poverty in 1995

3. 2006 Report of effects of taxes and transfers on income/poverty

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Research and Development Series

Most comprehensive definition of income:

• Included money income, value of govt. noncash food, housing, and medical benefits, capital gains/losses, employer contributions to health insurance, net return on home equity

• Excluded Federal and State income taxes, payroll taxes, property taxes

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NAS Series

• Included money income, value of govt. food and housing noncash benefits, capital gains/losses

• Excluded Federal/State income taxes, payroll taxes, out-of-pocket medical expenses, work-related expenses (including child care expenses), and child support paid

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2006 Report on Effects of Benefits and Taxes

• Included money income, value of food and housing noncash benefits, net return on home equity

• Excluded Federal/State income taxes, payroll taxes, property taxes, and work-related expenses

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Effect of Using a Broader Income Definition

• Reduction in income inequality

• Government transfers play a larger role in reducing income inequality than taxes

• Year-to-year trends are often quite similar, and overall poverty rates may or may not be different

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Effects of Using a Broader Income Definition (Cont.)

Then Why Do it?

• Can have an impact on trends

• Most importantly, has a definite impact on our understanding of who is most in need

• A better understanding of the composition of the poverty population helps inform policymakers and improve the potential to target programs to those in need

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Future Research

• Improve methods of assessing the economic benefits of homeownership

• Improve methods of assigning dollar values to those on government housing assistance programs

• Assessing the impact of health needs and/or benefits

• Simulate other taxes, including sales taxes

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For More Information:

See:http://www.census.gov/hhes/www/povmeas/povmeas.html

http://www.census.gov/hhes/www/povmeas/nas.html

http://www.census.gov/hhes/www/povmeas/papers/define.pdf

Questions/Comments: charles.t.nelson@census.gov