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Poverty rate increases in 2010

Marielle Hampe | Wednesday, September 14, 2011

Poverty in the United States rose to 15.1 percent in 2010, with 46.2 million Americans reportedly below the poverty line, according to a report released by the Census Bureau Tuesday.

While politicians debate a number of quick fixes to the apparent crisis, Notre Dame economics professor Jim Sullivan said some of the hype may be in the way the statistics are calculated.

“Poverty estimates are based on cash income like earnings and welfare payments. The poverty estimates exclude government programs such as food stamps, housing subsidies and the Earned Income Tax Credit, a 50 billion dollar program that is much larger than welfare,” he said.

The Census Bureau determines poverty by comparing a household’s total income to a threshold level that varies by family size and age composition. If a household’s total income falls below the threshold, every member in the family is considered to be in poverty.

“Official poverty estimates are the single most important indicator for the well being of the people at the bottom of the economic distribution,” he said. “It allows us to answer the question, ‘Have we made progress over time?'”

The Census Bureau report, “Income, Poverty, and Health Insurance Coverage: 2010,” stated that the number of Americans below the poverty line increased from 43.6 million during 2009.

Sullivan said the selected indicators can obscure the positive impact of some government programs.

“By ignoring the effects of government funded programs, the official poverty estimates suggest that the government is losing the war on poverty, but this is not the case,” Sullivan said.

While Sullivan acknowledges the worsening of many Americans’ financials, his research shows that long-term progress has been made against poverty. He suggests analyzing a household’s consumption relative to income for a more accurate view of the situation.

“Consider if a person has a job, but the person is worried about losing the job in this time of economic struggle. The person might decide to save more money, and so consumption goes down,” he said. “The income remains the same, but without considering consumption, we cannot accurately depict the person’s true economic circumstances.”

The Bureau of Labor Statistics conducts consumption surveys quarterly. Households are asked questions about expenses such as groceries, clothes, mortgages and car payments.

“Poverty rates based on consumption would provide better estimates of the effectiveness of government programs, such as food stamps and Medicaid, and would show that these programs are working,” Sullivan said.

While the poverty levels on record have increased, Sullivan said a more holistic approach to analyzing the statistics would indicate a decline in the official poverty rate.

“Yes, the official poverty rate in 2009 is higher than it was in 1980,” he said. “But if you compare the poverty rates from 1980 to 2009 using consumption and after-tax income, which adjusts for inflation and the Earned Income Tax Credit, the poverty rates have gone down.”

Whether the rate has marginally increased or decreased, Sullivan also acknowledges the continuing impact of poverty. He said large-scale economic improvement is the most certain way to improve the living standards of the poor.

“The best way to fight poverty is to promote economic growth,” Sullivan said.

One proposal for improving the situation is an increase in the minimum wage.

However, Sullivan said he doubts the effectiveness of such a solution.

“Increasing the minimum wage would be a very blunt instrument for fighting poverty. For example, some teenagers who work at minimum wage have parents not at the poverty level,” he said. “It would be more effective to increase programs such as the Earned Income Tax Credit because you would put money in the hands that need it most.”

Given the economic climate, Sullivan said there may not be an easy fix for the issue.

“Unemployment has actually come down a little, which suggests that poverty may fall in the future, but not by much,” he said. “Unfortunately, in the short-term, high poverty rates may be here to stay.”