Poverty, Child and Otherwise

Eakinomics: Poverty, Child and Otherwise Monday the Biden Administration announced that it would begin distributing the newly expanded child tax credit on July 15. The refundable and advanceable tax credit – which you get it in full no matter what and is distributed ahead of the tax filing deadline – is worth $3,600 for children under age six and $3,000 for the remainder up to age 17. The credit will go to 88 percent of American children and, according to the president, “.. will help more than 65 million children and help cut child-care poverty in half….” That sounds terrific, but how does one know which children are in poverty and which are not? Just in the nick of time, AAF’s Tara O’Neill Hayes has a handy primer on poverty measurement in the United States.  The basic goal is to identify whether an individual faces material hardship. The Official Poverty Measure (OPM) essentially identifies the inability to meet a self-sufficiency threshold, although it does include some public transfer payments in a household’s resources. “The OPM threshold, since its inception, has been based on the cost of a minimum food diet in 1963, adjusted annually for inflation using the Consumer Price Index for All Urban Consumers (CPI-U) and assuming food accounts for one-third of a household’s basic costs, as explained here. There is no geographic adjustment, simply a national threshold.” The OPM is the government’s answer to the question: Can this individual adequately take care of herself? A related, but different, question is: How well is this person living? The Supplemental Poverty Measure (SPM), which accounts for all federal government transfers and benefits as well as typical expenses, provides a proxy for the potential to spend on discretionary material well-being. If all the personal and transfer resources are used for necessary expenses, the individual is presumably living on the edge. These two measures underly all official poverty estimates by the federal government. There is, however, a third measure that is often preferred by private-sector analysts: a consumption-based poverty standard. It is calculated by directly measuring the individual's purchases of material well-being, not just the potential for purchases, as in the SPM.  This is just dandy, except the typical three-year-old doesn’t have an income or make her own purchases. How is poverty calculated for kids? The answer is that the government calculates poverty thresholds by household (with adjustments for the size of households) and assigns everyone in the household the resulting poverty status. So, for example, in 2021 the poverty threshold for a household with two people is $17,420, while that for a three-person household is $21,960. (The astute reader will notice that the increase in the threshold, $4,540, is larger than the additional credit of $3,600 so kids are not a profit center. Actually, nobody should ever be confused: kids are not a profit center.) Those are the basics of poverty measurement, read the entire primer to get a sense of the many nuances.