[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                      MEASURING POVERTY IN AMERICA

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                   INCOME SECURITY AND FAMILY SUPPORT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 1, 2007

                               __________

                           Serial No. 110-56

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY C. HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

           SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT

                  JIM MCDERMOTT, Washington, Chairman

FORTNEY PETE STARK, California       JERRY WELLER, Illinois
ARTUR DAVIS, Alabama                 WALLY HERGER, California
JOHN LEWIS, Georgia                  DAVE CAMP, Michigan
MICHAEL R. MCNULTY, New York         JON PORTER, Nevada
SHELLEY BERKLEY, Nevada              PHIL ENGLISH, Pennsylvania
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida

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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of July 25, 2007, announcing the hearing................     2

                               WITNESSES

Patricia Ruggles, Ph.D., National Academy of Sciences............     6
John Iceland, Ph.D., Associate Professor, Sociology Department, 
  University of Maryland, College Park...........................    17
Nancy Cauthen, Ph.D., Deputy Director, National Center for 
  Children in Poverty, Mailman School of Public Health, Columbia 
  University.....................................................    28
Douglas J. Besharov, Joseph J. and Violet Jacobs Scholar in 
  Social Welfare Studies, American Enterprise Institute for 
  Public Policy Research.........................................    36
Mark Greenberg, Executive Director, Task Force on Poverty, Center 
  for American Progress..........................................    54

                       SUBMISSIONS FOR THE RECORD

Richard Alarcon, statement.......................................    72
Wider Opportunities for Women, statement.........................    79


                      MEASURING POVERTY IN AMERICA

                              ----------                              


                       WEDNESDAY, AUGUST 1, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
        Subcommittee on Income Security and Family Support,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:00 a.m., in 
room B-318, Rayburn House Office Building, Hon. Jim McDermott 
(Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                            SUBCOMMITTEE ON

                   INCOME SECURITY AND FAMILY SUPPORT

                                                CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
July 25, 2007
ISFS-11

                     McDermott Announces Hearing on

                      Measuring Poverty in America

    Congressman Jim McDermott (D-WA), Chairman of the Subcommittee on 
Income Security and Family Support of the Committee on Ways and Means, 
today announced that the Subcommittee will hold a hearing on the 
definitions and standards used to measure the number of Americans 
living in poverty. The hearing will take place on Wednesday, August 1, 
2007, at 10:00 a.m. in B-318, Rayburn House Office Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Subcommittee and 
for inclusion in the record of the hearing.
      

BACKGROUND:

      
    On August 28th, the Census Bureau will release statistics on the 
depth and breadth of poverty in 2006. In 2005, nearly 37 million 
Americans were officially poor--an increase of 5.4 million since 2000. 
In 2005, the poverty threshold for a family of four with two children 
was $20,444.
      
    The official poverty rate is a critical indicator of how widely 
shared prosperity is in the economy, a key benchmark for targeting 
resources towards the most disadvantaged, and a useful measure of the 
impact of programs and policies on vulnerable populations.
      
    However, there is a broad consensus that the poverty measurement 
has become less accurate in highlighting economic hardship than when it 
was created more than 40 years ago. For example, the poverty thresholds 
were created in relation to consumption when the average family of 
three or more persons spent about one-third of its after-tax income on 
food. Today, food demands only one-seventh of that family's budget, 
while the share of income devoted to other expenses, such as housing 
and health care, has grown. Furthermore, the Federal poverty threshold 
for a family of four represented about 50 percent of median income when 
first devised, while it now represents only about 30 percent of median 
income. Finally, the current poverty measurement fails to count certain 
benefits, including the Earned Income Tax Credit and food stamps, as 
well as certain work-related expenses, including child care and 
transportation.
      
    There have been numerous suggestions for revising the poverty 
measure, including recommendations published in 1995 by a National 
Academy of Sciences Panel on Poverty and Family Assistance. The panel 
recommended both changes in how family resources are calculated and 
corresponding adjustments to the poverty threshold. A number of options 
were provided, nearly all of which would have increased the number of 
Americans considered poor.
      
    In announcing the hearing, Chairman McDermott stated: ``We need a 
poverty measurement for 2007, not 1963. Unfortunately, our poverty 
measure has not kept pace with societal changes over the past half 
century. Improvements are needed so we can fully understand how many 
Americans are denied access to a reasonable standard of living, and so 
we can target resources to those most in need.''

FOCUS OF THE HEARING:

      
    The hearing will consider the current poverty measure, its 
limitations, and possible alternatives.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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FORMATTING REQUIREMENTS:

      
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noted above.

                                 

    Chairman MCDERMOTT. Welcome to the Committee. Last night I 
went home at 3:30 in the morning from the Rules Committee 
having been talking about SCHIP, and as I got out of my car, I 
noticed that the guy next door to me is selling his house. So, 
at that hour, you might as well go ahead and find out how much 
he's selling it for. I live around the Marine Corps barracks 
down in Southeast, and one of those row houses is now selling 
for $745,000. I said to myself, I guess this is a timely 
hearing, because when you talk about poverty that was once 
based on the food basket, housing is now such a question that 
it really brings it to my mind. It's part of the reason why I 
scheduled this hearing.
    At the end of this month the Census Bureau will release 
statistics on the number of Americans living in poverty last 
year, and I know everyone in the room is hoping that we'll 
finally see a decline in poverty, especially after the record 
in recent years.
    Since 2000, the number of poor has climbed by 5.4 million. 
That's an average of almost 3,000 Americans every single day 
for 5 years. But even as we wait to see the new Census poverty 
figures, we know that will tell really only part of the story 
about the depth and the breadth of poverty in the United 
States. There's a broad recognition that our poverty measure 
has failed to keep pace with changing patterns of consumption, 
employment, standards of living and government assistance over 
the last 40 years.
    Our current poverty definition was developed in 1963, so I 
think it's reasonable to think about an update. That's before 
the Beatles' first trip to the United States before the 
establishment of Medicare, before Martin Luther King, Jr., made 
his famous march from Selma to Montgomery to press for civil 
liberties. A lot has happened in the last four decades in 
America, except in defining poverty.
    To set our poverty thresholds, we still rely on the early 
1960 cost of providing a minimally adequate food plan to a 
family, based on information that families spend about one-
third of their aftertax income on food in the mid 1950s. We 
multiplied that amount by three and there's our number. Other 
than updating for inflation, we're applying a 1963 standard 
based on 1950 data in 2007. It really doesn't make sense to me, 
and that is why we are here today.
    During this period, the proportion of family income 
dedicated to food has significantly declined while the 
proportion needed for other necessities, such as housing and 
medical care, has grown considerably. Mothers have become an 
integral part of the workforce and therefore childcare has 
become a major family expense. Food stamps and the Earned 
Income Tax Credit were established to provide direct assistance 
to low-income households. Of course, standards of living in 
America have generally increased over the last four decades. 
Our poverty measurement has largely ignored all of these 
developments. An accurate reflection of poverty is important 
for several reasons.
    A valid measure illustrates how many Americans are failing 
to meet the basic standard of economic need. It also indicates 
the impact that policies and programs have on reducing that 
level of need. Finally, it is critically important in the 
targeting of resources to individuals, to communities and to 
States. In fact, over 80 Federal programs reference some 
percentage of the Federal poverty program in determining 
individual eligibility or funding allocations for States.
    To comprehensively update our poverty measure, we need to 
consider what constitutes a minimal level of economic well-
being and what income, benefits and costs should count toward 
and against that threshold.
    There have been many past recommendations for such a 
revision, including the National Academy of Sciences'. The vast 
majority of these proposals show more Americans living in 
poverty than under the official measure. In contrast, however, 
a few have suggested that we look at only half of the equation 
adding additional sources of income, such as earned income tax 
credit. Taken by itself, such a step would continue to ignore 
changes in consumption patterns and in general standards of 
living.
    It means the basic needs of the poor are permanently fixed 
in time. At various times in our history, indoor plumbing, 
central heating and refrigerators were not considered a basic 
need. Does anyone here want to suggest that they are not a 
basic need today?
    Now, I look forward to hearing from our witnesses today 
about alternative ways to measure poverty to ensure that we are 
accurately counting every American who has trouble meeting 
those crucial needs.
    I now want to yield to my ranking member, Mr. Weller.
    Mr. WELLER. Good morning. Thank you, Mr. Chairman. I 
welcome the witnesses before our Committee and thank you for 
your time in joining us today.
    Today's hearing involves how our country measures poverty. 
This follows prior hearings in this Subcommittee and the full 
Committee in which we explored the cost of poverty; how U.S. 
poverty measurement differs from other countries and possible 
solutions to poverty. As several members on this side of the 
aisle said in prior hearings, one of the first failings of our 
current poverty measure is the fact it does not count tens of 
billions of dollars in taxpayer funded assistance provided to 
reduce poverty for literally millions of families.
    This omission limits the usefulness of today's poverty 
measure. It also devalues the sacrifices of taxpayers who pay 
for those benefits with their hard-earned tax dollars and 
increases the apparent number of families in poverty. Several 
witnesses today suggest counting the value of more antipoverty 
benefits to determine whether families are poor or not.
    Major assistance not counted today includes food stamps, 
public housing, the earned income tax credit and healthcare 
coverage. These also constitute the fastest growing portions of 
our nations' effort to help low income families escape poverty. 
So, unless we act, more and more of our effort to alleviate 
poverty will be ignored each passing year. Consider what this 
means for families.
    Let's say the Jones family of four has an annual income of 
$30,000, all from wages. Current rules count wages as income 
for purposes of judging whether a family is poor. Since the 
poverty threshold for a family of four is about $20,000, and 
the income of the Jones family is above that level, the Jones 
family is officially not poor. Now, let's say they have 
neighbors. The Smith family is also a family of four. The Smith 
family also has a total of $30,000 in annual income, but the 
Smith's income comes from multiple sources: $18,000 from wages; 
plus a total of $12,000 in housing, healthcare, food stamps, 
and earned income tax credit benefits provided by taxpayers.
    Under current rules, none of the $12,000 in taxpayer 
benefits provided the Smith family is counted as income. So, 
since their $18,000 in wages fall short of the $20,000 poverty 
threshold for a family of four, the Smith family is officially 
poor. This makes little sense.
    That's why I introduced a bill yesterday that would provide 
more clarity about both the extent of poverty in the United 
States and the effectiveness of current antipoverty programs. 
My legislation, H.R. 3243, would direct the Census Bureau to 
report on poverty as measured three ways. First, Census would 
retitle the current official poverty rate as the partial 
benefits poverty rate, which is what it is. The second measure, 
called a full benefits poverty rate, would count means tested 
food, housing and healthcare benefits as income.
    The final measure, called the full benefits and taxes 
poverty rate would also add in the value of tax credits, like 
the earned income tax credit and subtract taxes paid. This 
legislation will help us better understand both who is poor and 
the effectiveness of current antipoverty benefits. While this 
hearing today will help us understand how poverty is measured, 
that's not enough. We also need to press on with what works to 
reduce poverty.
    As we saw in the progress against poverty following the 
1996 Welfare Reform law, that starts with promoting more full-
time work instead of welfare dependence and it also means 
promoting more healthy marriages, which also reduce poverty and 
welfare dependence for the long run.
    Mr. Chairman, I look forward to hearing from the witnesses; 
and, I again thank them for their participation today.
    Chairman MCDERMOTT. Thank you, we welcome all of you, and 
as my colleague has said we thank you for coming here and 
spending your time trying to educate us about how to make 
better public policy.
    We will start today with Dr. Ruggles, who is at the 
National Academy of Sciences.
    Dr. Ruggles.
    Dr. RUGGLES. Thank you.
    Chairman MCDERMOTT. If you will press that button so you 
are on and your full statements will all be in the record. So, 
we would like you to try and summarize and stay within 5 
minutes, if you can. Somewhere we have a light I guess. It's 
over there.
    Dr. RUGGLES. All right, thank you.
    Chairman MCDERMOTT. Please

 STATEMENT OF PATRICIA RUGGLES, NATIONAL RESEARCH, COUNCIL OF 
                THE NATIONAL ACADEMY OF SCIENCES

    Dr. RUGGLES. Well, I am happy to be here today, Mr. 
Chairman and Mr. Weller, and I have to say, Mr. Chairman, 
you've already managed to say in your opening statement many of 
the things that I have planned to say here today.
    Chairman MCDERMOTT. That's why I talk first.
    Dr. RUGGLES. In my testimony today I plan to first review 
the existing measure and its limitations, and then discuss some 
alternatives for revising the measure, including the NAS 
recommendations. Then finally, I want to consider the 
implications of that kind of a revision for public policy 
programs.
    As you noted, it's been more than 40 years since our 
official poverty measure was first designed and most experts 
believe that it is now seriously out-of-date. The measure grew 
out of a series of studies undertaken by Mollie Orshansky for 
the Social Security Administration in the early 1960s. 
Orshansky started with a series of food budgets put together by 
the Department of Agriculture. These food budgets gave her the 
amount of money families of different sizes and types would 
need to spend annually to assure a minimally adequate diet. 
Then using data from a 1955 survey, she calculated that average 
families spend about one-third of their total incomes on food. 
Lacking any other data, she just multiplied her food budgets by 
three to get approximate levels of basic needs.
    Although Orshansky's estimates of basic needs, which she 
termed ``poverty thresholds,'' were necessarily very 
approximate, they were a considerable advance over earlier work 
because at least they recognized that needs varied by family 
size and type. In 1969 a slightly modified version of the 
Orshansky scale became the official poverty level for the 
United States statistical establishment as a whole. Since 1969 
the measure has been subjected to considerable criticism, but 
it still forms the basis for our official poverty measure.
    Much of the discussion about the Orshansky measure focuses 
on the specific poverty thresholds that it calculated, but 
Orshansky made another choice that's also been very important 
for poverty measurement over time. That is she chose to look at 
only pre-tax cash income. The official poverty measure actually 
consists of two parts. The set of thresholds that she 
calculated and the measure of family resources that is compared 
to the threshold. In order to decide if a particular family is 
poor, its income or consumption level is compared to the 
threshold and a level of poverty is determined based on whether 
the family's resources fall above or below that threshold, just 
as in the example that Mr. Weller gave.
    When Orshansky put together her measure, pre-tax, cash 
income was all she could measure. That was all we had survey 
data on. But we now collect data on a whole lot of other 
things, like, for example, the non-cash benefits that families 
get, but also things like the work expenses that they need to 
pay in order to go to work, for example, as Mr. McDermott 
mentioned, many families today include working mothers. Many of 
those mothers must pay for childcare in order to earn the money 
that they bring home. It doesn't make sense in thinking about 
how much money they have available to pay for rent and to buy 
food, not to include those childcare expenses as something that 
they must pay.
    So, it's not just on the addition side that we need to 
worry about correctly measuring income. We also need to worry 
about things that get subtracted from income. Either way, in 
thinking about income, it's important to keep in mind that in 
comparing income to thresholds, you can't just change one side 
of the equation. If you're going to update the income measure 
to take into the account the different kinds of income that 
people get today and the joint expenses they have, you also 
need to think about adjusting the thresholds.
    Most economists believe, as Adam Smith put it as long ago 
as 1776, that people can be considered poor if they are unable 
to afford the things that, as he put it, ``the custom of the 
country renders it indecent for creditable people, even of the 
lowest order, to be without.'' In other words, poverty is not 
just the inability to afford a subsistence diet. It varies from 
time to time and place to place. The implications of this 
belief for poverty measurement can be envisioned by imagining a 
poverty line set in 1900.
    At that time, basic needs would not have included indoor 
plumbing, central heating, electricity, or many other needs 
that we now take for granted, because the custom of the country 
did not include those things, even for most of those who were 
well off, let alone of the lowest order. Today, however, 
Americans who cannot afford those things would generally be 
considered poor. Indeed, a poverty threshold that did not 
include those things would be fairly meaningless, since it 
would be very difficult for the urban poor in particular to 
find housing without them. Failing to include them in budgets, 
therefore, would restrict the poor to a standard of housing 
that no longer exists in this country and would not be 
acceptable to most.
    An approach to measuring poverty that takes into account 
changes in standard of living over time is often referred to as 
a relative poverty measure, as opposed to the absolute poverty 
measure embodied in our official thresholds. Some analysts 
argue that an absolute measure, one that sets a poverty line at 
a fixed level at a particular point in time and then 
subsequently adjusts only for changes in prices, is needed to 
assess programs because a measure adjusted for changes in 
standards of living presents too much of a moving target.
    Such analysts assert that if the poor become better off in 
material terms because society as a whole is becoming better 
of, that's important evidence of public policy success and 
should be taken into account in measuring the need for 
continued assistance. Most countries do use some kind of 
relative poverty measure, but I think there is a general 
consensus that that is probably not what we most would like to 
do in the United States.
[GRAPHIC] [TIFF OMITTED] T3757A.001

    There have been a number of reassessments of the 
measurement of poverty in the United States over time and this 
chart compares some of them. The black line that goes right 
across the middle is our current, official poverty threshold, 
which since it is adjusted only for prices when you look at it 
in fixed dollars, it is just a straight line.
    The other measures that you see here are a relative 
threshold; one set at 50 percent of the median income, a 
measure based on Gallup Poll results that reports what people 
think is the amount that is minimally necessary for people not 
to be poor; and then finally that little green line at the end 
are the thresholds developed by the National Academy of 
Sciences. As you can see, the median family income line and the 
subjective line started out below the official threshold, cross 
over it just about at the time Mollie Orshansky set her 
thresholds and have continued to rise over time.
    We do not have the data to calculate the NAS measure back 
nearly as far as those other two measures, but you can see on 
this chart that it falls somewhere between the official measure 
and a purely relative measure.
    As I have mentioned, the most serious and comprehensive 
reassessment of the U.S. poverty measure to date was undertaken 
by the National Research Council of the National Academies of 
Sciences in the early 1990s in response to a congressional 
mandate. This scientific study by an independent panel of 
experts led to the report, ``Measuring Poverty: a New 
Approach.'' In setting poverty thresholds, the Academy 
recommended an intermediate approach that was neither strictly 
absolute nor entirely relevant. Under the NAS approach, a 
market basket of basic goods, including food, clothing, shelter 
and a small allowance for other needs would serve as the basis 
for a new set of poverty thresholds.
    Unlike our official thresholds, these thresholds would be 
adjusted for differences in cost of living in different parts 
of the country. The method for adjusting for differences in 
family sizes would be updated to reflect differences in family 
needs. Finally, the thresholds would be updated periodically 
based on consumption patterns as consumption patterns changed 
and ideas about what constituted basic needs changed, the 
thresholds would change with them. This type of approach is 
more difficult to implement than the present system, because it 
requires some judgment calls about what people need, but it has 
the advantage of tracking what most people mean by poverty much 
more closely than either the official measure or a purely 
relative measure. This type of updating is not unprecedented.
    Similarly, periodic revisions are used to update the market 
basket underlying the consumer price index, for example. A 
measure of this type will generally increase more over time 
than a strictly absolute measure. Because the standards of 
living rise, people generally raise their expectations for even 
minimal consumption levels. But the increases will be linked to 
changes in consumption levels and costs rather than to changes 
in income.
    Wrap it up. Okay, well just quickly before we do, the chart 
that should be up here and isn't--if you could make that go up.
    Chairman MCDERMOTT. Do we put in the cost of technology?
    Dr. RUGGLES. There we go. Yes, really.
    [GRAPHIC] [TIFF OMITTED] T3757A.002
    
    Dr. RUGGLES. This chart summarizes the differences between 
the NAS recommendations and both the official measure and a 
purely relative measure. The main differences are the 
thresholds, which are based on current consumption rather than 
either income or an old consumption survey. It includes some 
non-cash income. It deducts out-of-pocket medical. It deducts 
work expenses. It deducts taxes. The family size adjustment is 
based on something other than the mix of family sizes and types 
that was around in 1969.
    [The prepared statement of Dr. Ruggles follows:]

  Prepared Statement of Patricia Ruggles, Ph.D., National Academy of 
                                Sciences

    * Views expressed in this testimony are solely those of the author 
and should not be taken to reflect those of her current employer, the 
National Research Council of the National Academies.
    Mr. Chairman and members of the Committee, I am happy to be here 
today to discuss the measurement of poverty. Poverty measurement is 
important for public policy, because many of our programs are designed 
to help the neediest among us. A good measure of the extent of that 
need is essential in designing programs that will alleviate poverty and 
that will help to ensure equality of opportunity for all Americans.
    Unlike most other countries, the United States has an official 
poverty measure, which has been widely used in designing and assessing 
programs to combat poverty. That measure is a legacy of the War on 
Poverty, and over time it has been very helpful in identifying those 
who need help, and in understanding what does and doesn't work in 
providing that help. It has been almost 50 years since that measure was 
first designed, however, and most experts believe that it is now 
seriously out of date.
    In my testimony today I will discuss three topics relating to the 
poverty measure. First, I will review the existing measure and will 
outline its limitations. Second, I will discuss some alternatives for 
revising that measure. And finally, I will consider the potential 
implications of such a revision for public assistance programs.
The Official Poverty Measure
    The current official poverty measure grew out of a series of 
studies undertaken by Mollie Orshansky for the Social Security 
Administration in the early and mid-1960s. Orshansky did not have the 
wealth of studies on needs and consumption that we have today available 
to her at that time, so she used the best proxies that she could find.
    She started with a series of food budgets put together by the 
Department of Agriculture. These were much like today's Thrifty Food 
Plan (TFP), the food needs index used to set food stamp levels. These 
food budgets gave her the amount of money families of different sizes 
and types would need to spend to assure a minimally adequate diet. 
Then, using data from a 1955 survey, Orshansky calculated that on 
average families spent about one-third of their total incomes on food. 
Lacking any other data, she simply multiplied her food budgets by three 
to get approximate levels of basic needs for all goods and services.
    Although Orshansky's estimates of basic needs--termed poverty 
thresholds--were necessarily very approximate, they were a considerable 
advance over earlier work in that they at least recognized that needs 
varied by family size and other factors. Once Orshansky's scale had 
been published, it was widely adopted by other researchers. Finally, in 
1969 a slightly modified version of the Orshansky scale was mandated by 
the Bureau of the Budget (predecessor of today's OMB) as the official 
poverty measure for the government statistical establishment as a 
whole. These thresholds were to be updated each year to reflect changes 
in prices, but nothing else. Since 1969 the Orshansky measure has been 
subjected to considerable criticism, but, with minor changes, it still 
forms the basis for the official poverty measure.
    Much of discussion about the Orshansky measure focused on the 
specific poverty thresholds it calculated, but Orshansky also made 
another choice that had important implications for the official poverty 
measure. The official poverty measure actually consists of two parts--
the set of thresholds discussed above and a measure of family resources 
that is compared to those thresholds. In order to decide if a 
particular family is poor, its income or consumption level is compared 
to the threshold, and a level of poverty is determined based on whether 
the family's resources fall above or below the threshold. In making 
this comparison, Orshansky used the only measure of family economic 
resources available to her--pre-tax cash income. Although we now 
collect data on many other aspects of family needs and resources, the 
official poverty definition still bases its estimates on pre-tax cash 
income. This measure has become more and more outdated as taxes, non-
cash benefits, and work expenses such as child care have come to play a 
larger role in family budgets.
Alternative Measures of Poverty
    In considering alternatives to our official poverty measure, we 
must examine both the thresholds used to define poverty and the methods 
used to compute the incomes that are compared to those thresholds. 
Adjusting one side of the measure without changing the other produces 
misleading and often contradictory results. For example, adding non-
cash benefits such as child care subsidies to income, without adjusting 
the thresholds to reflect the increased need for child care as more and 
more mothers of young children work outside the home, will obscure the 
very real hardships faced by many working mothers and their children. 
Ultimately, any proposed alternative must be assessed in terms of its 
treatment of both sides of the measure.
    Setting Poverty Thresholds. Two major types of criticism have been 
leveled at the thresholds embodied in the official poverty measure. 
First, there have been many technical complaints. The adjustments for 
family size and type, for example, are based on the distribution of 
family sizes in the population in 1969, and bear little resemblance to 
today's needs. In fact, the entire needs measure is rather ad hoc, and 
many revisions have been suggested. Family needs have also changed as 
more family members have gone into the labor force, and as the numbers 
of single-parent families has risen.
    The second type of criticism of the official poverty line is much 
more fundamental. Most economists believe, as Adam Smith put it in 
1776, that people can be considered poor if they are unable to afford 
the things that ``the custom of the country renders it indecent for 
creditable people, even of the lowest order, to be without.'' In other 
words, poverty is not just the inability to afford a subsistence diet; 
instead, the meaning of poverty varies from time to time and place to 
place.
    The implications of this belief for poverty measurement can be 
envisioned by imagining a poverty line set in 1900, for example. At 
that time, basic needs would not have included indoor plumbing, central 
heating, electricity, or many other things that we now take for 
granted--because the ``custom of the country'' did not include those 
things even for most of those who were well-off, let alone those ``of 
the lowest order.'' Today, however, Americans who cannot afford those 
things would generally be considered poor. Indeed, a poverty threshold 
that didn't include them would be fairly meaningless, since it would be 
very difficult for the urban poor, in particular, to find housing 
without them. Failing to include them in budgets, therefore, would 
restrict the poor to a standard of housing that no longer even exists 
in this country, and would not be acceptable to most as a basis for 
public policy.
    An approach to measuring poverty that takes into account changes in 
standards of living over time is often referred to as ``relative'' 
poverty measure, as opposed to the ``absolute'' poverty measure 
embodied in our official thresholds. Some analysts argue that an 
absolute measure--one that sets a poverty line at a fixed level at a 
particular point in time and that subsequently adjusts only for changes 
in prices--is needed to assess programs, because a measure adjusted for 
changes in standards of living presents too much of a moving target. 
Such analysts assert that if the poor become better off in material 
terms because society as a whole is becoming better off, that is 
important evidence of public policy success and should be taken into 
account in considering the need for continued assistance programs. A 
relative approach to poverty measurement, in contrast, is seen by such 
analysts as biased toward continuing high poverty rates, because 
progress against poverty can only be made if the underlying 
distribution of resources changes. People who are in favor of helping 
those in need do not necessarily favor large changes in the 
distribution of income, which supporters of an absolute measure argue 
would be necessary to show progress under a relative poverty measure.
    Most developed countries use some type of relative measure in 
assessing progress against poverty, however. The OECD has published a 
measure based on 50 percent of median family income, for example, while 
Eurostat uses a measure based on 60 percent of the median. Such 
measures increase over time as family incomes increase, but continue to 
identify those whose resources fall substantially below the norm. 
Interestingly, Orshansky's threshold for a two parent, two child family 
fell at about 50 percent of median income when it was first introduced. 
Because it has been updated only for price changes over time, however, 
the official poverty threshold for such a family has now fallen to 
about 35 percent of median family income.
    While this type of income-related measure does give policy makers 
useful information about relative resources, it has a few drawbacks as 
a poverty measure. One of the most important is that when incomes fall 
during a recession, the poverty thresholds will fall too, even though 
basic needs may not have declined. More broadly, this measure does 
indeed track resources rather than needs over time, and as such does 
not directly measure how many people have a level of resources that 
society might consider ``indecent.''
    Various proposals have been made over time to update the official 
poverty measure. A thorough assessment by an interagency task force in 
1976 concluded that even then the measure was seriously out of date and 
needed revision, but the proposed revisions were never implemented.
    The most serious and comprehensive reassessment of the U.S. poverty 
measure was undertaken by the National Research Council (NRC) of the 
National Academy of Sciences (NAS) in the early 1990s, in response to a 
Congressional mandate. This scientific study by an independent panel of 
experts led to the report Measuring Poverty: A New Approach. This study 
made a number of important recommendations relating both to the setting 
of poverty thresholds and to the measurement of economic resources.
    In setting poverty thresholds, the Academy report recommended an 
intermediate approach that was neither strictly absolute nor entirely 
relative. Under the NAS approach, a market basket of basic goods 
including food, clothing, shelter, and a small allowance for other 
needs would serve as the basis for a new set of poverty thresholds. 
Unlike our official thresholds, these thresholds would be adjusted for 
differences in costs of living in different parts of the country. The 
method for adjusting for differences in family sizes would also be 
updated to reflect today's family needs. Finally, these thresholds 
would be updated periodically as people's consumption patterns--and 
thus, their ideas about what constitute ``basic needs''--changed over 
time.
    This type of approach is somewhat more difficult to implement than 
the present system, because it requires some judgment calls about what 
people need, but it has the advantage of tracking what most people mean 
by poverty much more closely than either the official measure or a 
purely relative measure. And this type of updating is not 
unprecedented--similar periodic revisions are used to update the market 
basket underlying the Consumer Price Index, for example. A measure of 
this type will generally increase more over time than a strictly 
``absolute'' measure, because as standards of living rise people 
generally raise their expectations for even minimal consumption levels, 
but the increases will be linked to changes in consumption levels and 
costs rather than to changes in income. Research on what the public 
thinks is a minimum for ``basic'' needs, based on Gallup poll data, 
shows that the level has indeed risen over time, but not as much as 
income has risen.
    The figure below, put together by John Iceland, shows how poverty 
thresholds (adjusted for changes in prices) would have varied over time 
under four different measures--the official measure, a relative measure 
at 50 percent of median income, a subjective measure based on polling 
data, and the NAS-recommended measure. As can be seen, all three of the 
alternative measures would have produced higher thresholds than the 
official measure, but the NAS measure falls between the official 
measure and an entirely relative measure.

[GRAPHIC] [TIFF OMITTED] T3757A.003

    Measuring Economic Resources. Poverty thresholds, however, are only 
half the story. The official poverty measure also uses a method of 
computing family income that is widely considered to be seriously 
outdated. When Orshansky undertook her original studies, the only 
information on family incomes that was available was about cash income 
before taxes. This was not as big a limitation in 1963 as it is today, 
because there were few regular sources of non-cash benefits and the 
poor paid very little in taxes--and received no refundable credits. 
Orshansky also failed to account for work expenses such as day care in 
measuring poverty, but again that was not as large a limitation when 
most families had only one earner and single mothers were comparatively 
rare.
    Today, of course, the story is different. Low-income families often 
pay substantial payroll taxes, and many qualify for the refundable 
Earned Income Tax Credit. Many receive non-cash benefits such as food 
stamps and housing subsidies that effectively work like cash in 
increasing their ability to meet basic needs. And many working mothers 
must pay for child care--leaving their net earnings substantially lower 
than their apparent cash incomes. The NAS report recommended taking all 
of these changes into account in computing family incomes. The official 
measure, however, is still based strictly on pre-tax cash income.
    Another change in the computation of income recommended by the NAS 
report was that out-of-pocket medical expenses should be deducted from 
income in considering whether or not someone is poor. The logic of this 
recommendation is that low-income families are likely to have little 
choice about paying for medical care and prescriptions, and anything 
they must spend on health care comes out of the funds available for 
other basic consumption needs.
    Over time, the cost of medical care has risen dramatically, and 
more recently the number of uninsured has also increased. These factors 
have considerably increased the amount that low-income people, 
especially the elderly, must spend on their medical needs. It is also 
true that the quality of care has improved substantially--many people 
are alive today who would have died at a younger age given the medical 
standards of the 1960s. But if we do not allow for the costs of today's 
medical care in setting poverty standards, many lower-income people 
with expensive medical needs will not be treated as poor, even if they 
have very low disposable incomes. In effect, most observers argue, not 
counting those needs in measuring poverty implies that advances in 
medical care since the 1960s should only be available to those with 
higher incomes.
    Theoretically, the costs of medical care could be incorporated into 
the measure of basic needs--the poverty thresholds--rather than being 
deducted from income. In practice, however, out-of-pocket medical 
expenses vary so much from person to person that a one-size-fits-all 
threshold cannot adequately take them into account. It is for this 
reason that the NAS recommended that they be deducted from the income 
measure instead.
    The table below summarizes the differences between the official 
poverty measure, a revised measure like the one recommended by the NAS 
panel, and a purely relative measure such as 50 percent of the median 
income. It suggests that a measure based on the NAS recommendations is 
more closely attuned to the specific needs and resources of the low-
income population than either the official poverty measure or a purely 
relative measure.


                            Table 1: Characteristics of Alternative Poverty Measures
----------------------------------------------------------------------------------------------------------------
                                               Official Measure         NAS Panel Measure        50% of Median
----------------------------------------------------------------------------------------------------------------
Thresholds                                      Based on 1955 food         Based on current     Based on median
                                                consumption survey        consumption needs       family income
----------------------------------------------------------------------------------------------------------------
Non-Cash Income                                           Excluded    ``Cash-like'' sources            Excluded
                                                                                   included
----------------------------------------------------------------------------------------------------------------
Out-of-Pocket Medical                               Not considered     Deducted from income      Not considered
  Expenses
----------------------------------------------------------------------------------------------------------------
Work Expenses                                       Not considered     Deducted from income      Not considered
----------------------------------------------------------------------------------------------------------------
Taxes                                               Not considered     Deducted from income         Usually not
                                                                                                     considered
----------------------------------------------------------------------------------------------------------------
Family size                                Based on food needs for    Based on the relative        Usually none
  adjustment                                  a 1969 mix of family      needs of additional
                                                   sizes and types      adults and children
----------------------------------------------------------------------------------------------------------------


Implications for Public Programs of Revising the Poverty Measure
    In assessing the direct impact on federal programs of changes in 
the poverty measure it is important to understand that there are 
actually two versions of the measure. In addition to the poverty 
thresholds published by the Census Bureau for research and statistical 
purposes, there are ``poverty guidelines'' published by the Department 
of Health and Human Services (HHS). These are the poverty measures used 
for administrative purposes such as determining program eligibility.
    The HHS guidelines are closely related to the Census measures, but 
have a few differences. First, Census's thresholds are determined for 
past years only--when new poverty estimates come out in August or 
September of each year, they are based on the previous year's income 
data. For example, poverty rates for 2006 will be announced later this 
month. Because inflation rates for 2007 are not yet known, Census 
cannot yet calculate the poverty thresholds for 2007.
    The poverty guidelines, which come out in February, are based on 
the thresholds produced by Census the previous fall, but are updated 
using preliminary inflation estimates--so that estimated 2007 
thresholds are applied to program determinations made in 2008. The 
guidelines also use a simplified and more rational set of family size 
adjustments than those used in the official measure. Finally, the 
guidelines refer only to the poverty thresholds--methods of determining 
the income to be compared to the guidelines are left up to individual 
program rules. Few programs use income-computing methods anything like 
those used by Census for the official poverty measure. For example, 
most programs allow for the deduction of work expenses, and many take 
into account benefits received from other programs.
    The two biggest programs that use the federal poverty guidelines in 
their eligibility criteria are the Food Stamp Program (FSP) and 
Medicaid. Both programs implicitly recognize that the thresholds 
produced under the guidelines are unrealistically low; the FSP sets 
gross income eligibility at 130 percent of the poverty guidelines, 
while Medicaid uses 133 percent. The school lunch and breakfast 
programs use 130 percent of the guidelines to determine eligibility for 
free meals, and 185 percent for reduced-price meals. Special subsidies 
for prescription drugs are also available under Medicare for 
individuals below 130 percent and 150 percent of poverty.
    Census poverty estimates (although not generally the thresholds 
themselves) are used for some program-related purposes. A typical use 
involves poverty estimates for states and localities, which are 
considered as one factor in a multi-factor funding--allocation formula. 
These estimates are not based on the same data as the national poverty 
rates published each year by the Census Bureau; instead, they are 
produced using Decennial Census and American Community Survey data, 
which are inputs into models of changing local-area incomes over time. 
The largest program using such estimates is the Title I grant program 
for education.
    In other words, although many programs address the problem of 
poverty, and others take poverty-related issues into account in 
allocating funds, the Census poverty thresholds themselves are not 
generally a direct factor in program design. The major programs that 
use the HHS guidelines in determining eligibility all use levels that 
are well above the Census thresholds, implying that program designers 
are aware that current threshold levels are unrealistic. And the 
programs that use Census poverty numbers in allocating grants use 
estimates produced by a complex model based on data that is several 
years old.
    Introduction of an alternative Census poverty measure, therefore, 
might not have any direct impact on program eligibility, depending on 
the relationship between that alternative and the HHS guidelines. If 
both the current official measure and the alternative were maintained 
for some time, the HHS guidelines could continue to be computed exactly 
as they are now. Over time, alternative calculations of the guidelines 
could be modeled and program rules could be modified appropriately on 
an as-needed basis. And over the longer run, a measure that tracked 
changing needs more closely than the official measure does would 
presumably improve program eligibility assessments.
    Similarly, producing an alternative measure would not necessarily 
affect programs with funding allocated by formulas involving poverty, 
at least in the short run. Most of these formulas depend on the 
comparative poverty status of a specific locality relative to the state 
or the nation as a whole. These estimates of comparative poverty status 
are typically not very sensitive to small differences in the specific 
poverty thresholds used. In fact, any changes allocations resulting 
from changes in the thresholds might be hard to identify, because 
typically local poverty rates are only one factor in the allocation 
formula and the other factors are also changing over time. In any case, 
the official thresholds would almost certainly have to be used for 
small area poverty estimation in the near future, until new data were 
available and the models could be updated. In the longer run, switching 
to a poverty measure that tracks real needs more closely might be 
expected to improve our ability to allocate funds appropriately.

Conclusion
    There is a widespread consensus among experts that a revision of 
the official U.S. poverty measure is both feasible and needed. The 
current measure is based on underlying data, assumptions, and 
measurement methods that were assembled more than 40 years ago. Without 
an update, the measure is becoming progressively more removed from a 
real measure of needs. No other major statistic produced by the federal 
government has been issued over so long a period of time without being 
re-benchmarked and having its methodology updated. It is time for a 
revision of the poverty measure similar to those that are performed 
routinely for other measures such as the Consumer Price Index (CPI) and 
Gross Domestic Product (GDP).
    The alternative measure produced using the recommendations of the 
NAS panel on poverty measurement does a good job of addressing the 
shortcomings of the current official poverty measure. The Census Bureau 
has already produced a series of estimates of poverty under this 
measure, showing that it can be implemented. Some details of the 
measure remain to be determined--there are possible variations in data 
and methods for measuring some income sources and expenses, for 
example. But these issues could be quicklGy addressed either through an 
interagency task force or with the help of outside experts, as was done 
in the case of the CPI. And as Census's work so far has demonstrated, 
all of the variations on this methodology produce a consistent picture 
of need in the U.S. that differs in important ways from the picture 
obtained using the official measure.
    Revising the poverty measure doesn't have to mean radical short-run 
changes in federal programs, however. The Census poverty thresholds are 
not a direct input into program rules, and they have only an indirect 
effect on funding-allocation formulas. Further, as with any change in 
methodology, the effects of the revision should be tracked over time. 
For the next several years the current measure and the alternative 
could both be produced so that the potential impacts of the change can 
be assessed. Over the longer run, anti-poverty programs can only be 
improved by using a poverty measure that does a better job of tracking 
changes in the needs of the poor.
    Thank you for this opportunity to testify, and I look forward to 
answering any questions you may have.

                                 

    Chairman MCDERMOTT. Thank you.
    Dr. Iceland is Associate Professor of Sociology at the 
University of Maryland and I think once worked with the Census.
    Dr. Iceland.
    Dr. ICELAND. Thank you. Thank you for having me here today.
    Chairman MCDERMOTT. Do you want to turn on your microphone 
so that the reporter can get it down?
    Dr. ICELAND. Sure.

   STATEMENT OF JOHN ICELAND, PH.D., ASSOCIATE PROFESSOR OF 
               SOCIOLOGY, UNIVERSITY OF MARYLAND

    Dr. ICELAND. Thank you, Chairman, and members of the 
Subcommittee.
    I appreciate having this opportunity today to talk about 
these issues. In this short presentation, I will talk about 
different kinds of poverty measures, focusing on absolute, 
relative, and the NAS recommended measure. I will elaborate on 
some of the themes mentioned by yourself and Dr. Ruggles. I 
will discuss their strengths and weaknesses and show results of 
what poverty rates look like when using the different measures.
    Overall, here is the story I wanted to leave you with. 
While various poverty measures are useful, I believe the NAS 
panel-recommended measure is the single-most informative one, 
because, first, it measures the ability of families to meet 
their basic needs, while second, it also takes into account the 
fact that such needs can change over time. Let me take a step 
back and talk briefly about what absolute and relative poverty 
measures are.
    They both involve comparing a family's income to a poverty 
threshold to determine whether that family is poor. Absolute 
measures, such as the current U.S. official measure, use 
thresholds that typically attempt to define a truly basic need 
standard. Relative measures, more commonly used in Europe, 
explicitly define poverty as a condition of comparative 
disadvantage. Thresholds are often pegged at, say, 50 percent 
of median household income. The key distinction between the two 
is that absolute poverty lines remain constant over time, while 
relative ones rise in real dollars as standards of living rise.
    The NAS panel proposed a hybrid, sometimes termed ``quasi-
relative poverty measure.'' The thresholds of such a measure 
changes as real spending on basic goods change. Because the 
poverty lines can change over time in real dollars, the measure 
is at least in part relative. However, since it is not based on 
mean or median incomes as most relative poverty measures are, 
it is not wholly relative either. There are advantages and 
disadvantages of alternative measures. The main advantage of 
absolute measures is that they are easy to understand. For 
example, if there is starvation and hunger, then there is 
clearly poverty, regardless of general standards of living.
    The main theoretical criticism of absolute measures is that 
what people judge to be poor varies across time and place. In 
addition, sometimes real needs also rise in richer countries. 
For example, a poor family cannot simply build a shack on the 
outskirts of a U.S. city without getting in trouble for 
violating building ordinances. If you own a car, then you must 
pay insurance leaving less money to meet other needs. Such 
requirements would be unreasonable in societies with low 
standards of living.
    I would like to just briefly show the figure also shown in 
Dr. Ruggles' testimony to make a couple of additional points 
and to highlight the different measures.

[GRAPHIC] [TIFF OMITTED] T3757A.003

[GRAPHIC] [TIFF OMITTED] T3757A.004

[GRAPHIC] [TIFF OMITTED] T3757A.005

[GRAPHIC] [TIFF OMITTED] T3757A.006


    Dr. ICELAND. So, again, here from the previous figure we 
saw the absolute poverty threshold, which remains the same over 
time, being as it is an absolute measure. There were questions 
asked by Gallup on what people thought about poverty. Notice 
how well it tracks median incomes. This is half the median 
income. The last thing I would like to note from here, at the 
end we have the NAS threshold, which goes back only to the 
early 1990s. The version of the NAS threshold that includes 
out-of-pocket medical expenses shown here is a little higher 
than the official threshold, though the two thresholds closely 
tracked each other for most of the 1990s.
    However, the NAS threshold rose modestly more quickly after 
1999 when real spending on a basic bundle of items rose faster 
than inflation, largely due to relative increases in housing 
and medical costs. Thus, the NAS measure again takes into 
account real changes in need, while the official threshold does 
not.
    Figure 2 shows using different poverty measures, so the 
poverty rate is highest when using the relative poverty 
measure, whose thresholds are higher than those used in the 
other measures. The ``disposable income'' measure, which 
recently appeared in a Census report, shows the lowest poverty 
rate, because it has a more refined measure of family resources 
that includes among other things in-kind transfers as it 
should.
    However, this measure still uses the outdated referenced 
family official threshold. The NAS poverty rate is only 
modestly above the official rate, because it has a higher 
threshold, but takes into account in-kind benefits. My written 
testimony provides more details on these issues, including how 
poverty rates differ across demographic groups when using 
alternative measures.
    To conclude, poverty measurement efforts in the U.S. are 
approaching a crossroads. A key theoretical issue is whether 
poverty should refer to a subsistence standard, such as severe 
malnutrition, economic marginalization or something in between. 
The NAS panel-recommended measure has the advantage of 
increasing, in real terms, spending on basic items increase, as 
to reflect changes in real standards of living. Yet, it is not 
responsive to changes in spending patterns on other more 
discretionary items such as luxury goods that may occur as 
median incomes rise and thus reflected in purely relative 
poverty measures.
    Thus, while all of these measures tell something useful 
about people's economic well-being, the NAS measure is in my 
view the single most informative poverty measure among them. 
While no measure will ever garner universal support, this NAS 
measure very much represents a broad consensus among a wide 
array of social scientists on how to best measure poverty.
    [The prepared statement of Dr. Iceland follows:]

    Prepared Statement of John Iceland, Ph.D., Associate Professor, 
       Sociology Department, University of Maryland, College Park

    Chairman McDermott and members of this subcommittee, I thank you 
for the opportunity to testify before you. I sincerely applaud your 
efforts to revisit poverty measurement issues. In order to best target 
our policy efforts, we, as a country, need to have a good yardstick by 
which to measure progress.
    There are a number of poverty measures one could use to estimate 
levels of economic well-being in society. Income poverty measures are 
perhaps the most common. They usually involve comparing a family or 
household's income to a poverty threshold to determine whether that 
family or household is poor. Two basic types of income poverty measures 
are absolute and relative measures. Absolute measures, such as the 
current U.S. official measure, are ones that typically attempt to 
define a truly basic--absolute--needs standard that remains constant 
over time and perhaps updated only for inflation, as in the case of the 
U.S. official poverty measure. Relative measures, which are more 
commonly used by researchers in Europe, explicitly define poverty as a 
condition of comparative disadvantage, to be assessed against some 
evolving standard of living. The key distinction between the two is 
that absolute poverty lines remain constant over time, while relative 
ones rise in real dollars as standards of living rise.
    In the United States there has been growing dissatisfaction with 
the current official poverty measure (described in more detail below). 
At the request of Congress, the National Academy of Sciences (NAS) 
convened a panel of researchers in the early1990s to review this 
poverty measure and make recommendations for a new one. The panel 
produced a report, Measuring Poverty, which proposed a hybrid poverty 
measure (National Research Council 1995). The thresholds of such a 
measure would change as real spending on basic goods (e.g., food, 
clothing, and shelter) change. Because the poverty lines change over 
time in real dollars, the measure is, at least in part, relative. 
However, since it is not based on mean or median incomes, as most 
relative poverty measures are, it is not wholly relative either.
    Overall, each of these income poverty measures is informative and 
they should be viewed as complementary sources of information about 
people's economic well-being. My own view, however, is that the hybrid 
poverty measure recommended by the NAS panel is the single most 
informative income poverty measure because it best measures the ability 
of families to meet their basic needs while also recognizing that such 
needs can change over time.\1\
---------------------------------------------------------------------------
    \1\ Much of the analysis in this testimony is drawn from a recent 
paper I wrote (Iceland 2005) that provides greater detail about poverty 
measurement issues and challenges.
---------------------------------------------------------------------------
Background
The Current Official Poverty Measure
    The current official poverty measure has two components: poverty 
thresholds and the definition of family income that is compared to 
these thresholds. Mollie Orshansky, an economist at the Social Security 
Administration, developed poverty thresholds in 1963 and 1964 by using 
the ``Economy Food Plan'' (the lowest cost food plan) for families of 
different types and sizes prepared and priced by the U.S. Department of 
Agriculture. To arrive at overall threshold figures, Orshansky 
multiplied the price of the food plans by three, based on information 
from the 1955 Household Food Consumption Survey that indicated that 
families of three or more people had spent about one-third of their 
after-tax income on food in that year. The thresholds have been updated 
yearly for inflation using the Consumer Price Index (CPI).
    The definition of family resources used to compare to the 
thresholds is the Census Bureau's definition of income--gross annual 
cash income from all sources, such as earnings, pensions, and cash 
welfare. A family and its members are considered poor if their income 
falls below the poverty threshold for a family of that size and 
composition.
    The current official poverty measure was, for a time, a sensible 
indicator of material deprivation in the U.S. At the time of its 
initial adoption by the Office of Economic Opportunity in 1965, the 
poverty lines were set at a dollar level that coincided with people's 
views of poverty. The method of measuring people's resources--gross 
cash income--also managed to fairly accurately capture the income 
people had to meet their basic needs.
    Over the past 40 years, however, the poverty measure has become 
increasingly outdated. The poverty lines, originally devised by 
multiplying the cost of food needs by three to account for other needs 
(such as clothing and shelter), no longer captures families' basic 
needs in par because of the rapid growth in housing prices and other 
expenditures (such as medical care and childcare) relative to food 
prices. Today, people spend closer to one-sixth or one-seventh of their 
income on food rather than one-third. While the official poverty 
threshold for a four-person family once coincided with people's views 
of the dollar amount needed to support such a family in the 1960s--as 
reported in public opinion surveys--this was no longer true by the 
1990s (National Research Council 1995).
    Many have also argued that the definition of money income used in 
the official measure--gross cash income--inadequately captures the 
amount of money people have at their disposal to meet basic needs. It 
has been argued that taxes should be subtracted from income, as this 
money cannot be spent to meet basic needs, and that in-kind or near-
money government benefits should be added, such as food stamps, housing 
and child care subsidies, and the EITC. The omission of these items 
from the official definition of income has become increasingly serious 
in recent years because government transfers are now concentrated in 
benefits that are not considered part of families' gross cash income. 
The unfortunate result is that the current official poverty measure no 
longer accurately captures either people's perceptions of poverty or 
the effect of various policies on people's resources.

The 1995 National Research Council Report on Poverty and Subsequent 
        Research
    In response to the increasingly apparent weaknesses of the official 
poverty measure, the U.S. Congress appropriated funds for an 
independent scientific study of the official poverty measure, which led 
to the 1995 National Research Council (NRC) report, Measuring Poverty: 
A New Approach. The report recommended that a new poverty threshold be 
calculated by determining, for a reference family of two adults and two 
children, a dollar amount for food, clothing, shelter, and utilities, 
and then increasing that dollar amount by a modest percentage to allow 
for other needs (such as household supplies, personal care, and non-
work-related transportation). The dollar amount would be scaled down 
from the median spending for those four basic items using data gathered 
in the Consumer Expenditure Survey (CE). This threshold would then be 
adjusted for families of different sizes and types by using an 
equivalence scale. Finally, unlike in the official U.S. poverty 
measure, the thresholds would be further adjusted for housing cost 
variations across regions and metropolitan areas of different 
population sizes.
    Family resources in the NRC report are defined as the value of cash 
income from all sources plus the value of near-money benefits that are 
available to buy goods and services covered by the new thresholds, 
minus some basic expenses. Cash income sources are the same as those in 
the current official Census Bureau poverty measure. The income 
definition also includes near-money income: food stamps, housing 
subsidies, school breakfast and lunch subsidies, home energy 
assistance, assistance received under the Woman, Infants, and Children 
nutritional supplement (WIC) program (if the data are available), the 
EITC, and realized capital gains (or losses). Basic expenses to be 
subtracted include taxes, child care and other work-related expenses of 
working parents, medical out-of-pocket costs, and, if the data are 
available, child support payments made to another household. Taxes 
represent a nondiscretionary expense in that people cannot spend this 
money. Child care and other work-related expenses (such as commuting 
expenses) are also subtracted because, the panel argued, these costs 
are often incurred if parents are to work and earn labor market income.
    The release of the NRC report in 1995 was followed by considerable 
research activity. The Census Bureau released a few subsequent reports 
that were devoted to experimental poverty measures (for example, Short 
et al. 1999; Short 2001). Over 50 research papers on experimental 
poverty measures have been written by researchers in various other 
government agencies, including the Bureau of Labor Statistics, the 
Department of Health and Human Services, and the Office of Management 
and Budget, to name a few, and by researchers at think tanks and 
various universities.\2\ This research has helped identify strengths 
and weaknesses in the NRC recommendations. The National Academy of 
Sciences convened another workshop in 2004 to review the elements in 
the measure. On the whole, workshop participants agreed that the 
measure represented a significant improvement over the current official 
poverty measure; participants also made additional recommendations on 
some of the elements (National Research Council 2005).
---------------------------------------------------------------------------
    \2\ Many of these papers are available on a Census Bureau website. 
See http://www.census.gov/hhes/www/povmeas/nas.html.
---------------------------------------------------------------------------
Strengths and Weaknesses of Absolute and Relative Poverty Measures
    Technical issues aside, there are conceptual advantages and 
disadvantages of alternative measures. The main advantage of absolute 
measures is that they are conceptually easy to understand and 
intuitively appealing. For example, if there is starvation and hunger, 
then there is clearly poverty--regardless of how high or low the 
overall standards of living in a society. The main theoretical 
criticism of absolute measures is that what people judge to be poor 
varies across both time and place. Standards of living in the developed 
and developing world clearly differ. Even within the U.S., as standards 
of living change, so have people's perceptions of what poverty means. 
Poverty lines and minimum subsistence budgets devised by researchers 
and social workers in the early 1900s were, in inflation-adjusted 
dollars, generally between 43 and 54 percent of the subsequent U.S. 
official poverty thresholds devised in 1963 (Fisher 1995). Economists 
describe this phenomenon as the ``income elasticity of the poverty 
line''--the tendency of successive poverty lines to rise in real terms 
as the real income of the general population rises. Some people 
therefore argue that poverty is by its nature relative; people are poor 
when others think of them as poor.
    Relative poverty measures address this weakness of absolute 
measures. Relative measures are explicitly based on the notion that 
poverty is relative to a society's existing standards of living. 
Implicit is that people are social beings who operate within 
relationships. People whose resources are significantly below the 
resources of others, even if they are physically able to survive, may 
not be able to participate adequately in social organizations and 
relationships. Adam Smith (1776) argued that to be poor was to lack 
what was needed to be a ``creditable'' member of society. He noted that 
in his day (the 18th century), a man needed a linen shirt if 
he was to appear in public ``without shame.''
    The most common method of measuring relative poverty is setting a 
threshold at a percentage of the national median household income. For 
example, analysts comparing poverty across countries in the European 
Community and the United Kingdom have often specified a poverty 
threshold at half the median income. Other relative thresholds, such as 
40 percent of the median or 60 percent of the median household income 
(the latter is the official European Union poverty threshold), have 
also been used by researchers.
    Relative measures also have advantages and disadvantages. On the 
positive side, advocates argue that the relative notion underlying 
these measures fits with both the historical record and changing views 
of poverty. Second, sometimes real needs do indeed rise in richer 
countries. For example, while a car may be a luxury in some countries, 
in a society in which most families own cars, and where public 
transportation services are also poor, a car may often be needed to 
find a job and commute to work. Moreover, car owners in many places may 
be required to purchase car insurance, thus leaving families with less 
disposable income to meet other needs. Such requirements would be 
considered unreasonable in societies with lower standards of living.
    On the other hand, some have asserted that relative measures 
conceptually unappealing, believing that ``poverty'' should refer to a 
truly subsistence standard. Relative measures can also, at times, 
behave in deceptive ways over the short run, particularly during 
periods of economic growth and recession. In particular, relative 
thresholds sometimes decline in bad times as median incomes fall. This 
could result in a decline in measured poverty rates, even though low-
income people are faring (and feel themselves faring) worse than 
before.
    Nevertheless, it is no accident that relative measures have become 
more common in rich industrialized countries and in analyses that 
involve cross-national comparisons in the developed world. The 
Organization for Economic Cooperation and Development (OECD) argues, 
for example, that absolute poverty lines have little meaning in such 
societies, and that poverty should be thought in more in terms of 
exclusion from standards of living generally available to others in the 
same society (OECD 2001). Measuring poverty in terms of absolute need--
such as starvation--has simply become less meaningful because of how 
infrequently it occurs in these contexts.

Empirical Analysis
    The analysis below has three parts. I begin by examining how 
different poverty thresholds behave over time, including how they 
compare to people's subjective notions of poverty. This is followed by 
a look at poverty rates derived from different measures. Finally, I 
compare official and NAS poverty rates across demographic groups to 
show what types of differences they produce.

Trends in Thresholds
    As described earlier, research has shown that people's opinions of 
what constitutes poverty increase as standards of living increase. A 
pair of studies by Denton Vaughan (1993, 2004) examined subjective, 
absolute, and relative poverty thresholds in the United States. The 
subjective poverty thresholds were essentially based on the following 
question last asked by the Gallup Organization in 1993:

          People who have income below a certain level can be 
        considered poor. That level is called the ``poverty line.'' 
        What amount of weekly income would you use as a poverty line 
        for a family of four (husband, wife and two children) in this 
        community?

    Vaughan estimated a subjective poverty standard back to 1946 based 
on a few assumptions (see his papers for details). He found that over 
the period, the subjective poverty threshold averaged about 52 percent 
of the median four-person family income net of taxes--a figure that 
closely approximates the level at which a typical relative poverty 
threshold is operationalized (see Figure 1). Despite some fluctuations, 
the subjective poverty needs standard declined from about 56 percent of 
the median income in the 1947-1950 period to about 49 percent in the 
1984-1989 period, perhaps indicating that subjective poverty thresholds 
may rise modestly less quickly than relative poverty thresholds 
(Vaughan, 2004: 16).
    Nevertheless, it is clear that relative thresholds perform better 
when evaluated vis-a-vis subjective thresholds than the official U.S. 
poverty threshold, which is an absolute threshold. As such, this 
threshold remained constant over time in real dollars. Vaughan's (2004) 
study indicates that while the official poverty threshold projected 
back to 1947 was higher than the subjective poverty threshold in that 
year (35 percent greater), these thresholds were about equal at the 
time that Mollie Orshansky devised the official poverty thresholds in 
1963 and 1964, and by 1989 the official poverty threshold was in fact 
only 81 percent of the subjective one. This indicates that the official 
poverty threshold has indeed become less socially meaningful since the 
1960s, and considerably less meaningful over time than the relative 
threshold.

[GRAPHIC] [TIFF OMITTED] T3757A.007


    There is no poverty threshold time series based on recommendations 
by the National Academy of Sciences that spans enough time to 
appropriately evaluate how they compare with subjective notions of 
poverty, since no version of NAS thresholds exist before 1989. The 
version of the NAS poverty threshold that includes out-of-pocket 
medical expenses (shown in figure 1) is a little higher than the 
official threshold, though the two thresholds fairly closely tracked 
each other for most of the 1990s. However, the NAS threshold rose 
modestly more quickly after 1997, when real spending on a basic bundle 
of items rose faster than inflation, largely due to relative increases 
in housing and medical costs (see also U.S. Census Bureau 2007a).
Poverty Estimates Using Alternative Measures
    Figure 2 shows poverty rates using different poverty measures in 
2005 (except for the relative measure, which refers to poverty in 
2000). In addition to the official poverty measure, the figure includes 
two NAS-based measures. One has thresholds that have been updated only 
for inflation since 1999, while the other has thresholds that have been 
updated for changes in real spending on basic goods using Consumer 
Expenditure Survey data, as recommended by the NAS panel (U.S. Census 
Bureau 2007a).\3\ The ``disposable income'' measure is a new one 
included in a recent Census Bureau Report on income and poverty (U.S. 
Census Bureau 2007b). This measure uses the same reference family 
threshold as is used in the official poverty measure (though it uses a 
different method for adjusting this threshold for families of different 
sizes and composition). In addition to money income, this measure adds 
capital gains, imputed rental income, and the value of noncash 
transfers such as food stamps, housing subsidies, and free lunches. It 
subtracts work expenses (though not childcare), federal and state 
income taxes, payroll taxes, and property taxes for owner-occupied 
homes. The relative poverty measure comes from Luxembourg Income Study 
(2007), and it uses a threshold equal to half the median household 
income in the U.S.
---------------------------------------------------------------------------
    \3\ The inflation-adjusted measure is termed ``MSI-GA-CPI'' while 
the other is ``MS-GA-CE'' in the Census Bureau tables.

[GRAPHIC] [TIFF OMITTED] T3757A.008


    The poverty rate is highest when using the relative poverty measure 
(17.6 percent), whose thresholds are higher than those used in the 
other measures. The ``disposable income'' measure shows the lowest 
poverty rate (10.3 percent) because it has a more refined measure of 
family resources that includes in-kind transfers. However, this measure 
still uses the outdated official thresholds (except for including a 
more refined equivalence scale).
    The figure also shows that the official poverty and the inflation-
adjusted NAS poverty rates are the same, at 12.6 percent each. Note 
that the NAS measure with CE-adjusted thresholds is a little higher at 
13.5 percent, mainly because spending on basic goods has risen in real 
dollars since 1999. The early 2000s witnessed a rise in housing prices 
in many areas of the country. Figure 3 illustrates these poverty rate 
trends in more detail.
    Table 1 shows how poverty rates vary across demographic groups when 
using the official poverty measure versus the NAS measure with 
inflation-adjusted thresholds.\4\ While the overall poverty rates are 
the same, we see that NAS poverty rates are higher for people in 
married-couple families and the elderly. These differences have been 
noted by previous research (Short et al., 1999). Married-couple 
families are less likely to receive government transfers and often 
incur higher work-related expenses. The elderly often have higher out-
of-pocket medical expenses. African Americans and people in female-
householder families tend to have lower poverty rates when using the 
NAS measure, in part due to greater receipt of non-cash government 
transfers.
---------------------------------------------------------------------------
    \4\ I would have preferred to use the NAS measure with CE-adjusted 
thresholds rather than inflation-adjusted thresholds, but there were no 
demographic cross-tabulations with the former available on the Census 
Bureau website.

[GRAPHIC] [TIFF OMITTED] T3757A.009

[GRAPHIC] [TIFF OMITTED] T3757A.010


Conclusion
    Poverty measurement research efforts in the United States are 
approaching a crossroads. Most people recognize the significant faults 
of the current official poverty measure, but no new measure has yet 
taken its place. There has been increasing use of relative measures 
among academic researchers, as is already common in Europe, but not 
really among those outside the academy. Some poverty researchers have 
also shown interest in the quasi-relative measure recommended by the 
National Academy of Sciences panel. A key theoretical issue is whether 
``poverty'' should refer to a subsistence standard, such as severe 
malnutrition or starvation (a notion associated with absolute poverty 
measures), or to economic marginalization (one associated with relative 
measures), or to something in between.
    I would argue that the NAS panel-recommended poverty measure 
addresses many weaknesses of both purely absolute and purely relative 
measures. On the positive side, the NAS panel-recommended measure is 
technically a more refined measure than the current official poverty 
measure in both the construction of the thresholds and the definition 
of income used. It is designed to gauge the impact of government 
programs on poverty, given that both cash and non-cash government 
benefits are taken into account in the measure of family income.
    Conceptually, the NAS measure has the advantage of increasing, in 
real terms, as spending on basic items increase, as to reflect changes 
in real standards of living. Yet, it is not responsive to changes in 
spending patterns on other, more discretionary items--such as luxury 
goods--that may occur as median incomes rise. I believe that this is a 
desirable property of a poverty measure. Relative poverty thresholds, 
in contrast, are simply responsive to changes in median income; as such 
they less directly measure the ability to attain basic goods or 
capabilities. Thus, while all of these measures tell us something 
useful about people's economic well-being, the NAS poverty measure is, 
in my view, the single most informative poverty measure among them.

References
    Fisher, Gordon M. 1995. ``Is There Such a Thing as an Absolute 
Poverty Line Over Time? Evidence from the United States, Britain, 
Canada, and Australia on the Income Elasticity of the Poverty Line.'' 
U.S. Census Bureau, Poverty Measurement Working Paper: http://
www.census.gov/hhes/www/povmeas/papers/elastap4.html.
    Iceland, John. 2006. Poverty in America (2nd Edition). 
Berkeley, CA: University of California Press.
    Iceland, John. 2005. ``Measuring Poverty: Theoretical and Empirical 
Considerations.'' Measurement 3, 4: 199-235.
    Luxembourg Income Study. 2007. ``Luxembourg Income Study (LIS) Key 
Figures.'' Available at: http://www.lisproject.org/keyfigures.htm, 
retrieved July 27, 2007.
    National Research Council. 1995. Measuring Poverty: A New Approach. 
Panel on Poverty and Family Assistance, Constance F. Citro and Robert 
T. Michael, eds. Committee on National Statistics. Washington, DC: 
National Academy Press.
    National Research Council. 2005. Workshop on Experimental Poverty 
Measures: Summary of a Workshop. Washington, D.C.: National Academy 
Press.
    Organization for Economic Cooperation and Development. 2001. OECD 
Employment Outlook. OECD (June).
    Short, Kathleen. 2001. Experimental Poverty Measures: 1999. U.S. 
Census Bureau, Current Population Report, Consumer Income, P60-216. 
Washington, D.C.: U.S. Government Printing Office.
    Short, Kathleen. 2003. ``Material and financial hardship and 
alternative poverty measures 1996.'' Paper presented at the annual 
meeting of the American Statistical Association, San Francisco.
    Short, Kathleen and Thesia I. Garner. 2002. ``A Decade of 
Experimental Poverty Thresholds: 1990 to 2000.'' U.S. Census Bureau 
Poverty Measurement Working Paper (June). http://www.census.gov/hhes/
www/povmeas/papers/decade.pdf.
    Short, Kathleen, Thesia I. Garner, David Johnson, and Patricia 
Doyle. 1999. Experimental Poverty Measures: 1990 to 1997. U.S. Census 
Bureau, Current Population Report, Consumer Income, P60-205. 
Washington, D.C.: U.S. Government Printing Office.
    Smith, Adam. 1776. An Inquiry into the Nature and Causes of The 
Wealth of Nations. Republished, Oxford: Clarendon Press, 1976.
    U.S. Census Bureau. 2007a. ``Official and National Academy of 
Sciences NAS Based Poverty Rates: 1999 to 2005.'' U.S. Census Bureau 
Tables of Alternative Poverty Estimates, available at: http://
www.census.gov/hhes/www/povmeas/tables.html, retrieved July 27, 2007.
    U.S. Census Bureau. 2007b. The Effect of Taxes and Transfers on 
Income and Poverty in the United States: 2005. U.S. Census Bureau, 
Current Population Report, P60-232. Washington, D.C.: U.S. Government 
Printing Office.
    Vaughan, Denton R. 2004. ``Exploring the use of the public's views 
to set income poverty thresholds and adjust them over time.'' U.S. 
Census Bureau Poverty Measurement Working Paper. http://www.census.gov/
hhes/www/povmeas/papers/wkppov20_cen.pdf.
    Vaughan, Denton R. 1993. ``Exploring the use of the public's views 
to set income poverty thresholds and adjust them over time.'' Social 
Security Bulletin 56, 2 (summer): 22-46.

                                 

    Chairman MCDERMOTT. Thank you, very much.
    Nancy Cauthen is a Ph.D. from Columbia University from the 
National Center for Children in Poverty, Mailman School of 
Public Health.

STATEMENT OF NANCY K. CAUTHEN, DEPUTY DIRECTOR, NATIONAL CENTER 
   FOR CHILDREN IN POVERTY, MAILMAN SCHOOL OF PUBLIC HEALTH, 
                      COLUMBIA UNIVERSITY

    Dr. CAUTHEN. Good morning, and thank you Chairman McDermott 
and members of the Subcommittee for this opportunity to 
testify.
    I want to make three points this morning. First, I want to 
emphasize why the subject of this hearing--that is, how we 
measure poverty in the United States--is so important. Child 
and family poverty exact a high toll on our society. To reduce 
both the human and societal costs of poverty, we need a better 
measure than we currently have to identify who needs assistance 
and what kind of assistance.
    An extensive body of research has definitively linked 
economic hardship to a range of adverse educational, health, 
social, and emotional outcomes for children that place 
constraints on their human potential and limit their future 
productivity. At the same time, there is compelling evidence 
that we can positively affect the developmental trajectories of 
children affected by poverty, if we invest adequate resources 
and proven strategies and especially if we intervene early.
    If, as a nation, we decide to make a commitment to reduce 
child poverty, which to date we have not done, it is imperative 
that we have the right measures to identify it and quantify its 
scope. My second point is that, as the two previous witnesses 
have argued, that the National Academy of Science's approach 
for updating the poverty measure would be a welcome improvement 
over our current measure. But we need to be clear that the NAS 
alternative still represents a minimal level of subsistence, 
not a decent, modest, standard of living.
    The NAS recommendations produce poverty thresholds that are 
not substantially higher than the current thresholds as we just 
saw on the charts. We are still talking about a poverty level 
of roughly $20,000 to $23,000 a year for a family of four, 
whether that family lives in New York City or rural Talbot 
County, Georgia, for example--localities which obviously have 
dramatically different living costs. Research consistently 
shows that families with incomes of up to twice the official 
poverty level experience many of the same material hardships as 
families who are officially poor. These hardships include 
things like being evicted from one's apartment, having 
utilities shut off, going without needed medical or dental 
care, or having unstable or unsafe childcare.
    Emerging findings from research on child development 
suggest that these types of material hardships are key to 
understanding why poverty harms children, and I would be happy 
to say more about that later.
    My final point is that there has been a considerable amount 
of research, especially over the last decade, about what it 
really takes for families to make ends meet. Many of us have 
adopted 200 percent of the Federal poverty level as a proxy for 
low income, that is, a level below which families will have 
difficulty meeting basic needs and will face material hardship. 
But of course this level varies by region, State and locality. 
Family budget research conducted by my organization and others 
suggests that families need an income of anywhere between one 
and a half to over three times the current poverty level to 
make ends meet, and I have provided a number of specific 
examples in my written testimony.

[GRAPHIC] [TIFF OMITTED] T3757A.011

    But even research on family budgets makes conservative 
assumptions about expenses. This is still an approach that 
focuses on day-to-day needs. The work on basic budgets includes 
housing, food, childcare, health insurance, transportation, 
payroll and income taxes, and a small amount for other 
necessities. But none of this includes resources for things 
like household furnishing, a rainy day fund, disability or life 
insurance, or any of the kinds of cushions that would help a 
family withstand a major medical crisis, a job loss or other 
financial setback.
    Family budget approaches are helpful for understanding what 
it takes for a family to get by but not what it takes to get 
ahead.
    In conclusion, I would like to suggest that the United 
States, as the wealthiest nation in the world, needs a range of 
measures to assess how children and families are doing that go 
beyond a minimal level of subsistence. Adopting the NAS 
recommendations for a revised poverty measure would be an 
important and highly worthwhile first step, but it is not 
enough.
    Thank you.
    [The prepared statement of Dr. Cauthen follows:]

 Prepared Statement of Nancy Cauthen, Ph.D., Deputy Director, National 
   Center for Children in Poverty, Mailman School of Public Health, 
                          Columbia University

    Thank you, Chairman McDermott and members of the subcommittee for 
this opportunity to testify. I'd like to begin by thanking you for 
holding this hearing and addressing the important issue of how we 
measure poverty.
    My name is Nancy Cauthen, and I am the Deputy Director of the 
National Center for Children in Poverty (NCCP). NCCP is a policy 
research organization at Columbia University's Mailman School of Public 
Health. Our mission is to promote the health, economic security, and 
well-being of America's most vulnerable children and families. NCCP 
uses research to identify problems and find solutions at the state and 
national levels.
    My testimony will address the following points:

      Child and family poverty exact a high toll on our 
society, so it is critical that we measure it in a way that allows us 
to best identify who needs assistance and what kinds of assistance.
      Although the National Academy of Sciences 1995 
recommendations and subsequent refinements for updating the official 
poverty measure offer the most promising approach, the thresholds would 
still be too low to identify all those who need help.
      To improve child and family well-being, we must address 
not only income poverty but also material hardship.
      Family budgeting approaches provide an alternative way to 
understand what it takes for families to meet their basic needs and to 
achieve a reasonable standard of living.
What's at Stake: Why Poverty Matters
    There is now abundant evidence that not only does poverty create 
hardship and adversity for those who experience it, but poverty also 
exacts a high toll on our entire society. Testimony presented before 
the full Ways and Means Committee in January estimated that child 
poverty costs the United States $500 billion per year, which is roughly 
equivalent to 4 percent of Gross Domestic Product. These costs are 
attributed to reductions in productivity and economic output, increases 
in crime, and increases in health expenditures (Holzer, Schanzenbach, 
Duncan, and Ludwig 2007). A report prepared by the General Accounting 
Office and presented at the same hearing also found that poverty has 
large negative economic and social impacts (Nilsen 2007).
    These and many other studies point to the seriousness of child 
poverty as a longstanding, nationwide problem. Using our current 
poverty measure, in 2005, 13 million children--18 percent of children 
in the United States--were growing up in families with income below the 
federal poverty level, which in 2007 is $17,170 for a family of three 
and $20,650 for a family of four (Fass and Cauthen 2006).\1\ But as I 
will argue, these figures significantly underestimate the numbers of 
children living in families who struggle to make ends meet. 
Considerable research indicates that it takes, on average, an income of 
twice the federal poverty level to meet basic needs. Using this 
definition of low income, 39 percent of children are living in families 
that are struggling financially.
---------------------------------------------------------------------------
    \1\ These figures refer to the federal poverty guidelines, which 
are used for administrative purposes, such as determining financial 
eligibility for benefit programs. For statistical purposes, researchers 
use a different--but quite similar--version of the federal poverty 
measure, the federal poverty thresholds, issued by the U.S. Census 
Bureau. Both the guidelines and the thresholds are commonly referred to 
as the federal poverty level (FPL).
---------------------------------------------------------------------------
The Effects of Income Poverty on Children
    An extensive body of research literature has definitively linked 
economic hardship to a range of adverse educational, health, and social 
outcomes for children that limit their future productivity (for reviews 
of this literature, see Gershoff, Aber, and Raver 2003; Cauthen 2002). 
Poverty can impede children's cognitive development and their ability 
to learn. It can contribute to behavioral, social, and emotional 
problems. And poverty can contribute to poor health among children.
    Research also indicates that the strength of the effects of poverty 
on children's health and development depends in part on the timing, 
duration, and intensity of poverty in childhood. The risks posed by 
poverty appear to be greatest among children who experience poverty 
when they are young and among children who experience persistent and 
deep poverty. The negative effects of poverty on young children, 
troubling in their own right, are also cause for concern given that 
these effects are associated with difficulties later in life--teenage 
childbearing, dropping out of school, poor adolescent and adult health, 
and poor employment outcomes.
    As discouraging as this research might be, there is compelling 
evidence that we can positively affect these trajectories by investing 
adequate resources in proven anti-poverty strategies. Research is clear 
that we must reach children in poor families when they are very young 
and simultaneously address the needs of their parents (Shonkoff and 
Phillips 2000).
    A holistic approach to reducing child poverty requires increasing 
family incomes, improving parental employment outcomes, investing in 
high-quality early care and learning experiences, and strengthening 
families. I do not mean to downplay the enormity of the task (Haskins 
2007)--it would require a huge financial commitment as well as 
tremendous political will. But the point is simply that it's possible--
the evidence is clear that in the long term, sound investments in the 
healthy development of children can increase economic productivity and 
improve overall prosperity, while reducing inequality (Knitzer 2007).
Increasing Family Income Improves Child Outcomes
    More than a decade of research shows that increasing the incomes of 
low-income families--net of other changes--can positively affect child 
development, especially for younger children (for a review, see Cauthen 
2002). Experimental studies of welfare programs offer some of the 
strongest evidence to date about the importance of income. For example, 
welfare programs that increase family income through employment and 
earnings supplements have consistently shown improvements in school 
achievement among elementary school-age children; other studies have 
also shown links between increased income and improved school readiness 
in young children.
    In contrast, welfare programs that increase levels of employment 
without increasing income have shown few consistent effects on 
children. Moreover, findings from welfare-to-work experiments show that 
when programs reduce income, children are sometimes adversely affected. 
Other studies have shown links between increased income and reductions 
in behavioral problems in low-income children and youth (Costello, 
Compton, Keeler, and Angold 2003). It is not just the amount of income 
that matters but also its predictability and stability over time; 
research has shown that unstable financial situations also can have 
serious consequences for children (Wagmiller, Lennon, Kuang, and Aber 
2006).
    Reducing the consequences of child poverty will require more than 
increasing family incomes. But too often, policy discussions about 
reducing child poverty focus only on the symptoms of poverty--low 
educational achievement, social and behavioral problems, and poor 
health. Yet poverty itself is the single biggest threat to healthy 
child development: improving child outcomes requires explicit attention 
to lifting families up economically.

Determining the Best Way to Measure Poverty
    For quite some time, there has been a consensus among social 
scientists that the current poverty measure needs to be improved. The 
United States measures poverty by a standard developed more than 40 
years ago, using data from the 1950s that indicated families spent 
about one-third of their income on food. The official poverty level was 
set by multiplying food costs by three. Since then, the figure has been 
updated annually for inflation but the methodology has otherwise 
remained unchanged. The federal poverty level is adjusted by family 
size but is the same across the continental U.S.
The Current Measure
    The usefulness of the current measure has declined over time for 
two reasons (Cauthen and Fass 2007):

    1.  The poverty thresholds--that is, the specific dollar amounts--
are too low because they are based on outdated assumptions about family 
expenditures.

    Food now comprises about one-seventh of an average family's 
expenditures--not one-third as was assumed under the original poverty 
measure. At the same time, the costs of housing, child care, health 
care, and transportation have grown disproportionately. Thus, the 
poverty level no longer reflects the true cost of supporting a family 
at a minimally adequate level. In addition, the current poverty measure 
is a national standard that does not adjust for the substantial 
variation in the cost of living from state to state and among urban, 
suburban, and rural areas.

    2.  The method used to determine whether a family is poor does not 
accurately count family resources, overestimating resources for some 
and underestimating them for others.

    When determining whether a family is poor, income sources counted 
include earnings, interest, dividends, Social Security, and cash 
assistance. But income is counted before subtracting payroll, income, 
and other taxes, overestimating how much families have to spend on 
basic needs. And the method understates the resources of families who 
receive some types of government assistance because the federal Earned 
Income Tax Credit is not counted nor are in-kind government benefits--
such as food stamps and housing assistance--taken into account.
    Thus, by not reflecting an accurate picture of family expenses and 
resources, one unfortunate consequence of the way we currently measure 
poverty is that the measure cannot be used to evaluate the 
effectiveness of the very programs designed to help alleviate poverty.
The 1995 National Academy of Sciences Recommendations
    Social scientists have been debating the usefulness of the current 
poverty measure for quite some time. The most extensive effort to date 
to address the concerns about the measure began with the work of a 
distinguished panel of experts appointed by the National Academy of 
Sciences (NAS) at the behest of Congress. In the decade since the 
panel's report was released in 1995 (National Research Council 1995), 
social scientists at the U.S. Bureau of the Census and the Bureau of 
Labor Statistics, as well as at universities and research centers, have 
continued to build on the panel's work.
    To address the primary concerns about the current poverty measure, 
the NAS panel recommended that:

    1.  The poverty threshold comprise a budget for food, clothing, and 
shelter.

    The amounts budgeted would be based on expenditure data, and the 
figures would be updated annually. The shelter amount would include 
utilities, and the threshold would allow a small additional amount for 
other common needs (such as household supplies, personal care, and non-
work-related transportation). The panel discussed whether the measure 
should be adjusted for regional differences in living costs. This point 
has generated considerable debate and contention--the concerns are both 
technical and political.

    2.  The measure of resources include cash and near-cash disposable 
income that is available for basic needs that are common to all 
families.

    The resource measure would exclude certain expenses that are non-
discretionary for the families that incur them (e.g., work-related 
expenses such as child care and out-of-pocket medical care expenses). 
But it would include in-kind benefits (e.g. food stamps, subsidized 
housing, school lunches, and home energy assistance). The measure is 
calculated after taxes, so payroll taxes would be excluded, but the 
Earned Income Tax Credit and other tax credits would be included in 
determining family resources.
    Researchers do not agree on all the specific technical aspects of 
the NAS and subsequent recommendations. But there is almost universal 
agreement among social scientists that the NAS recommendations would 
provide the nation with a far more useful poverty measure than the 
current one. And pragmatically, the NAS approach is viewed as the most 
viable option for creating a bipartisan political consensus around a 
new measure.
    The NAS recommendations would undoubtedly be an important 
improvement over what we have. And they also provide a way to measure 
the impact of poverty reduction programs, most of which did not exist 
when the original measure was created.
What Are We Measuring?
    But even if we reach a consensus on a revised poverty measure along 
the lines of the NAS recommendations--and I hope we do--we need to be 
clear about what we are measuring. Both the current measure and the NAS 
versions attempt to quantify a minimal level of subsistence below which 
we have agreed, as a society, that no individual or family should fall.
    Any judgment about what constitutes a minimally acceptable level of 
subsistence is, of course, normative. Human beings can survive on a 
variety of income levels. In 2005, 8 percent of children in the U.S.--
nearly 6 million children--were surviving despite living in households 
with incomes of less than half the poverty line, which was just under 
$10,000 annually for a family of three. Yet, in the wake of Hurricane 
Katrina, many Americans seemed shocked to learn that we still have a 
sizable number of desperately poor people in our country.
    In short, questions about how we define poverty require value 
judgments not only about how to define a minimal level of subsistence 
but whether that is in fact a decent and just way to define poverty in 
a wealthy society.
    Implementing the NAS recommendations produces poverty thresholds 
that are not vastly different from the current ones, which means they 
do not reflect the substantial improvement in living standards that 
have occurred in the U.S. over the last 40-plus years. When the current 
poverty measure was developed, the threshold for a family of four 
equaled about 50 percent of the median income for a four-person family. 
But over time, that percentage has dropped dramatically. Today the 
poverty threshold for a four-person family represents only about 30 
percent of the median income (Ziliak 2005).
    The question becomes: for what purpose are we measuring poverty and 
what do we want to do with the information? One of the most compelling 
reasons to establish an agreed upon measure of poverty is to identify 
who in the population is in need of assistance--and what kind of 
assistance--and the scope of that need. To the degree that we want a 
poverty measure that can inform policy, especially with regard to 
improving the well-being of children and families, we may need 
different kinds of measures.

The Difference Between Poverty and Material Hardship
    The current poverty line does not accurately predict the likelihood 
that a family will experience material hardship (Iceland and Bauman 
2007). Examples of material hardships include being evicted, missing 
rent payments, having utilities shut off, going without needed medical 
or dental care, or having unstable child care. Research consistently 
shows that families with income of up to twice the official poverty 
level experience many of the same hardships as families who are 
officially poor--while families with income above twice the poverty 
line are substantially less likely to experience material hardships. 
Overall, about two thirds of families with income between 100 and 200 
percent of the federal poverty level experience one or more material 
hardships such as not having enough food or having utilities turned off 
because of inability to pay bills (Boushey, Brocht, Gundersen, and 
Bernstein 2001; Amey 2000). Some hardships, such as difficulties paying 
for child care and health care, are common among middle-income families 
as well.
    A critical finding emerging from the child development literature 
is that material hardships play an important role in determining 
whether or not children will be negatively affected by growing up in a 
low-income family. Not surprisingly, facing such hardships is 
associated with diminished parental investments in children and 
increased parental stress, which in turn negatively affect children 
(Gershoff, Aber, Raven, and Lennon 2007). It is now clear that to 
reduce the effects of poverty on children, we need to increase family 
incomes and reduce the experience of material hardship (Gershoff 2003).
    Any new poverty thresholds based on the NAS recommendations would 
not be substantially higher than current thresholds. Alternative 
poverty levels calculated by the Census Bureau that incorporate many of 
the NAS suggestions indicate that the threshold for a two-parent family 
with two children would increase by about $3,000 (Bernstein 2007). 
Since research indicates that families with incomes of up to twice the 
current poverty thresholds face high levels of material hardship, it 
seems likely that even with an NAS-based alternative, there will 
continue be many families who are deemed non-poor by the new measure 
while not being able to meet their basic needs.

Measuring What It Takes to Make Ends Meet
    There has been a considerable amount of research over the last 
decade about what it takes to make ends meet. One such effort was 
spearheaded by Diana Pearce, for Wider Opportunities for Women, who 
developed a methodology for creating ``Self-Sufficiency Standards'' 
(Pearce 2001, 2006). The standards quantify how much money a family 
needs to cover basic expenses, such as housing, food, child care, 
transportation, health insurance, and payroll and income taxes; a small 
amount is also allocated for other necessities (examples include 
clothing, diapers, household items, and school supplies). The standards 
vary by locality--to account for variations in the cost of living--and 
by family type (two-parent or single-parent and the number and ages of 
children). The budgets assume that the families receive no public 
benefits. Self-Sufficiency Standards have been developed for 36 states.
    The Economic Policy Institute (EPI) undertook a similar effort and 
created ``Basic Family Budgets'' (Berstein, Brocht, and Spade-Aguilar 
2000; Allegretto 2005). The methodology differs somewhat from that for 
the Self-Sufficiency Standards, but the concept is the same--what does 
it take for different types of families in different localities to 
cover the costs of basic living expenses?\2\ EPI has calculated basic 
budgets for over 400 localities across the country. The organization 
characterizes Basic Family Budgets as providing ``a realistic measure 
of the income required to have a safe and decent though basic standard 
of living.''
---------------------------------------------------------------------------
    \2\ Basic Family Budgets vary based on the number of children in a 
family but not their ages.
---------------------------------------------------------------------------
    Building on this earlier work, NCCP has created ``Basic Needs 
Budgets'' for different family types in over 80 localities in 14 states 
plus the District of Columbia.\3\ We developed these budgets in 
conjunction with a project, Making ``Work Supports'' Work, that 
analyzes the effects of federal and state work support programs--earned 
income tax credits, child care and housing assistance, and food 
stamps--on the ability of low-wage workers to make ends meet.
---------------------------------------------------------------------------
    \3\ For a detailed description of the methodology used to create 
NCCP's Basic Needs Budgets, see the User Guide for the Family Resource 
Simulator and consult the section on ``Calculating Family Expenses.''
---------------------------------------------------------------------------
    Despite some differences in methodology, all three of these efforts 
provide additional evidence for the finding that families on average 
need an income of twice the current poverty level to cover the costs of 
basic expenses. NCCP has found that, depending on locality, this figure 
ranges from about 150 to over 300 percent of poverty. For example, 
Table 1 shows that it takes an annual income of about $30,000 for a 
single-parent family with two children to make ends meet in Atlanta, 
Georgia, but a similar family living in Rockville, Maryland would need 
over $50,000.

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    NCCP's Basic Needs Budgets, as well as the Self-Sufficiency 
Standards and EPI's Basic Family Budgets, include only the most basic 
daily living expenses and are based on modest assumptions about costs. 
For example, the budgets in Table 1 assume that family members have 
access to employer-sponsored health coverage when not covered by public 
insurance, even though the majority of low-wage workers do not have 
access to employer coverage. NCCP's Basic Needs Budgets do not include 
the cost of out-of-pocket medical expenses for copayments and 
deductibles, which can be quite costly, particularly for families with 
extensive health care needs. The budgets do not include money to 
purchase life or disability insurance or to create a rainy-day fund 
that would help a family withstand a job loss or other financial 
crisis. Nor do they allow for investments in a family's future 
financial success, such as savings to buy a home or for a child's 
education. In short, these budgets indicate what it takes for a family 
to cover their most basic living expenses--enough to get by but not 
enough to get ahead.

Implications
    These various measures--poverty measures, measures of material 
hardship, basic budgets--are not alternative ways of looking at the 
same thing, but rather they provide mechanisms for capturing and 
quantifying different phenomenon, which may require different (if 
overlapping) policy responses. Given this, what are the implications of 
adopting a new poverty measure along the lines of the NAS 
recommendations?
    First, we would need to acknowledge that the official poverty level 
in the United States would remain a measure of deprivation and hardship 
rather than a measure of a decent, if modest, standard of living. Such 
a measure would still--if more accurately--identify only the most 
needy. Many families above this level still need assistance.
    Second, we would need to think through the implications for 
programs that currently use the poverty level (or a percent of the 
poverty level) to determine eligibility. One possibility is to 
structure our assistance programs in ways that reflect the fact that 
working families with incomes above the poverty level need assistance 
with basic needs. The provision of public health insurance is one such 
model to build on--for example, providing free health insurance to 
families below (or near) the poverty line, and subsidized health 
insurance to somewhat higher income families, with premiums and 
copayments that gradually rise with family income. Similarly, a child 
care program informed by this understanding might provide free or very 
low-cost care to families living below the poverty line and reduced-
cost child care to those above poverty but below a basic budget level 
(with the government subsidy decreasing as income increases). Cash 
assistance programs, on the other hand, would remain targeted at 
officially poor families, who have very low (or no) earnings (most 
state eligibility limits for cash assistance are currently well below 
the poverty level).
    Third, I would hope that adopting the NAS approach for measuring 
income poverty would be accompanied by government efforts to also 
measure hardship, asset poverty, and other measures that inform us 
about how families are doing. Too many of our current policies are 
``too little, too late.'' We typically wait until children and families 
are in deep trouble before we assist them, rather than investing 
heavily in prevention--we should help all families succeed instead of 
trying to patch them up once they have fallen. But we will need better 
measures--and concepts broader than poverty--to do so.

References
    Allegretto, Sylvia A. 2005. Basic Family Budgets: Working Families' 
Incomes Often Fail to Meet Living Expenses Around the U.S. Washington, 
DC: Economic Policy Institute.
    Amey, Cheryl. 2000. Families Struggling to Make it in the 
Workforce: A Post Welfare Report. Washington, DC: Children's Defense 
Fund.
    Bernstein, Jared. 2007. More Poverty than Meets the Eye (Economic 
Snapshots April 11, 2007). Washington, DC: Economic Policy Institute.
    Bernstein, Jared, Chauna Brocht, and Maggie Spade-Aguilar. 2000. 
How Much is Enough? Basic Family Budgets for Working Families. 
Washington, DC: Economic Policy Institute.
    Boushey, Heather, Chauna Brocht, Bethney Gundersen, and Jared 
Bernstein. 2001. Hardships in America: The Real Story of Working 
Families. Washington, DC: Economic Policy Institute.
    Cauthen, Nancy K. 2002. Policies that Improve Family Income Matter 
for Children. New York: National Center for Children in Poverty, 
Mailman School of Public Health, Columbia University. Available at: 
http://nccp.org/publications/pub--480.html.
    Cauthen, Nancy K. and Sarah Fass. 2007. Measuring Income and 
Poverty in the United States. New York: National Center for Children in 
Poverty, Mailman School of Public Health, Columbia University. 
Available at: http://nccp.org/publications/pub--707.html.
    Costello, E. J, Compton, S., Keeler, G., Angold, A. 2003. 
``Relationships between poverty and psychopathology: A natural 
experiment.'' Journal of the American Medical Association, 290(15), 
2023-2029.
    Fass, Sarah and Nancy K. Cauthen. 2006. Who Are America's Poor 
Children: The Official Story. New York: National Center for Children in 
Poverty, Mailman School of Public Health, Columbia University. 
Available at: http://nccp.org/publications/pub--684.html.
    Gershoff, Elizabeth T. 2003. Low Income and Hardship Among 
America's Kindergartners. New York: National Center for Children in 
Poverty, Mailman School of Public Health, Columbia University. 
Available at: http:// /nccp.org/publications/pub--530.html.
    Gershoff, Elizabeth T., J. Lawrence Aber, and C. Cybele Raver. 
2003. Child poverty in the United States: An evidence-based conceptual 
framework for programs and policies. In F. Jacobs, D. Wertlieb, & R. M. 
Lerner (Eds.), Handbook of Applied Developmental Science: Promoting 
Positive Child, Adolescent, and Family Development through Research, 
Policies, and Programs (Vol. 2, pp. 81--136). Thousand Oaks, CA: Sage.
    Gershoff, Elizabeth T., J. Lawrence Aber, C. Cybele Raver, and Mary 
Clare Lennon. 2007. ``Income is not enough: Incorporating material 
hardship into models of income associations with parent mediators and 
child outcomes.'' Child Development, 78, 70-95.
    Haskins, Ron. 2007. Alleviating Child Poverty in the Long Run. 
Testimony before the Chairman, Committee on Ways and Means, House of 
Representatives. January 24, 2007.
    Holtzer, Harry, Diane W. Schanzenbach, Gregory J. Duncan, and Jens 
Ludwig. 2007. The Economic Costs of Poverty in the United States: 
Subsequent Effects of Children Growing Up Poor. Washington, DC: Center 
for American Progress.
    Iceland, John and Kurt Bauman. 2007. ``Income poverty and material 
hardship: How strong is the association?'' The Journal of Socio-
Economics 36, 376-396.
    Knitzer, Jane. 2007. Testimony on the Economic and Societal Costs 
of Poverty. Testimony before the Chairman, Committee on Ways and Means, 
House of Representatives. January 24, 2007. Available at: http://
nccp.org/publications/pdf/text--705.pdf.
    National Research Council. 1995. Measuring Poverty: A New Approach. 
Panel on Poverty and Family Assistance, Constance F. Citro and Robert 
T. Michael, eds. Committee on National Statistics. Washington, DC: 
National Academy Press.
    Nilsen, Sigrid R. 2007. Poverty in America: Consequences for 
Individuals and the Economy. Testimony before the Chairman, Committee 
on Ways and Means, House of Representatives. Washington, DC: Government 
Accounting Office.
    Pearce, Diana M. 2001. ``The Self-Sufficiency Standard: A new tool 
for evaluating anti-poverty policy.'' Poverty & Race, 10 (2).
    Pearce, Diana M. 2006. The Self-Sufficiency Standard for 
Pennsylvania. Holmes, PA: PathWaysPA.
    Shonkoff, Jack P. Deborah A. Phillips. (Eds.). National Research 
Council & Institute of Medicine. 2000. From Neurons to Neighborhoods: 
The Science of Early Childhood Development. Washington, DC: National 
Academies Press.
    Wagmiller, Robert., Mary Clare Lennon, Li Kuang, Philip Alberti, 
and J. Lawrence Aber. 2006. ``The dynamics of economic disadvantage and 
children's life chances.'' American Sociological Review, 71(5): 847-
866.
    Ziliak, James. 2006. ``Understanding poverty rates and gaps: 
Concepts, trends, and challenges.'' Foundations and Trends in 
Microeconomics, 1(3), 127-199.

                                 

    Chairman MCDERMOTT. Thank you very much for your testimony.
    Douglas Besharov is the Joseph and Violet Jacobs Scholar in 
Social Welfare Studies at the American Enterprise Institute.
    Mr. Besharov?

  STATEMENT OF DOUGLAS J. BESHAROV, JOSEPH AND VIOLET JACOBS 
  SCHOLAR, SOCIAL WELFARE STUDIES AT THE AMERICAN ENTERPRISE 
                           INSTITUTE

    Mr. BESHAROV. Chairman McDermott, Mr. Weller, and other 
Members of the Committee, it is a pleasure to be here.
    My message, reluctantly, is to tell you why you should not 
change the official measure, and in fact why you cannot do it. 
I come to this conclusion after having gone through a twelve-
month process of exploring all sorts of options with a blue 
ribbon group, government officials and outside experts.
    In my written testimony, I go through the flaws of the 
current official measure, about which you have heard a great 
deal. You have mentioned them as well: it does a poor job 
accounting for inflation; does not count market income very 
well; and it does not take wealth into consideration. (That 
$750,000 townhouse doesn't even fit in the measure.) It doesn't 
subtract taxes. It doesn't account for changing household 
composition or changing consumption patterns which you also 
mentioned, Mr. Chairman. It doesn't deal with growing national 
affluence. It doesn't even try to deal with geographic 
differences in expenditures and costs.
    Finally, and most importantly, it doesn't give credit for 
our large, maybe insufficient, efforts to alleviate poverty. 
First, I think you should not change the official poverty line. 
My testimony opens with Ronald Reagan's famous quip, ``We 
declared war on poverty and poverty won.'' That's only possible 
because the current measure doesn't count all the things we do 
for low-income America.
    Our committee examined two papers that were quite decisive 
in our thinking. One was by Christopher Jencks from Harvard 
University. His work, like that of a number of other 
specialists, found that the material condition of the poor has 
improved tremendously over the last 30 years.
    We have not talked about how people are actually doing, but 
that's tremendously important. Another paper, which is from the 
Democrats on the Joint Economic Committee of 2 years ago, 
analyzes the kinds of changes to the poverty measure that many 
people have proposed, which suggests that progress and poverty 
reduction over the past two decades is much greater than the 
official poverty measure would indicate. Anti-poverty programs 
like the EITC, combined with changing family formation 
patterns, rising teen birthrates, and increases in 
cohabitation, resulted in significant decreases in poverty.
    My point is not that we shouldn't do everything else that 
has been suggested, but it is essential, as a matter of policy, 
to be able to understand and accept the credit that the tens of 
billions of dollars of Federal aid now make for low-income 
people; the analysis from the Joint Economic Committee and 
others--on the left and the right--is that we ought to give 
credit to past efforts, and raising the thresholds without 
doing anything else negates that possibility.
    That is why I think you shouldn't change the official 
measure. One quick mention about relative measures of poverty; 
Western Europe is now in the throes of reconsidering relative 
measures, because as an economy gets richer, and when income 
dispersion increases as it did in Ireland and is now happening 
in England and in Germany, poverty rises even though the 
incomes of people at the bottom are also increasing. I would 
say this is why there should be many measures. You can have a 
relative measure but you have to couple it with an absolute 
measure.
    You can potentially have a measure about economic 
marginalization. You just cannot use it as the measure for 
determining eligibility for food stamps, because I think that 
we are talking about the true economic margin and 
marginalization at $40,000 a year of income. I wouldn't suggest 
food stamps for that family. Median family income is about 
$49,000, so this family is pretty close to the median.
    Before I run out of time, allow me to suggest why you 
cannot, in my opinion, change the official measure. I say this 
with all due respect, we thought this through a lot, because we 
were eager to have a success here. First, technically, there is 
absolutely no agreement about how to correct or geographic 
differences in the cost of living. Just to give you an example, 
the one attempt that was made by the Census Bureau shows that 
the poverty rate in California would go from 13.2 percent to 
17.8 percent.
    There is a vast argument about how to value housing. There 
also are large conceptual problems within the NAS approach. 
Some people think that subtracting the cost of transportation 
from someone's income who lives in West Virginia, and commutes 
to Washington so that that family can live in a bigger home 
than those of us closer to the city is not a way to measure 
poverty. That's also not involved in the Federal poverty 
measure. People want to account for the cost of child care, but 
rarely want to count the $24 billion we spend a year on child 
care subsidies.
    I mention these things, not because I think there is a 
solution, but because I think there is no solution to the 
technical and conceptual problems of changing the poverty 
measure in a way that it can be used for setting eligibility 
for programs, and that's the key point I want to make here.
    Today's debate in the House is about multiples of the 
poverty line, not because Congress thinks that the poverty line 
itself is magical, but because the Congress, in its political 
wisdom, is finding a more absolute number within that.
    I have clearly run out of time here. I would be delighted 
to answer any questions.
    [The prepared statement of Mr. Besharov follows:]

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    Chairman MCDERMOTT. Thank you. Mark Greenberg is the 
Executive Director of the taskforce on poverty, Center of 
American Progress Institute.
    Mark?
    We will probably have another vote, and then we'll have a 
little bit, and so understand, we are going to get up and go. 
Whatever you have got to say, say it up front.

 STATEMENT OF MARK GREENBERG, DIRECTOR, TASK FORCE ON POVERTY, 
             CENTER FOR AMERICAN PROGRESS INSTITUTE

    Mr. GREENBERG. We are aware and, Mr. Chairman and members 
of the Subcommittee, first let me thank you for holding this 
hearing, for the other hearings you have held over the course 
of the year in efforts to bring renewed attention to the 
importance of addressing poverty in the United States.
    For purposes of my oral testimony right now, I want to do 
three things. I want to briefly focus on why, in my view, it is 
important to develop and improve measure of poverty. I want to 
talk about some principles to guide the process and then make 
some suggestions for how you might move forward.
    As indicated, I have been serving as the Director of a task 
force on poverty for the Center for American Progress, and we 
actually spent the better part of the year working on how to 
make the case for why the nation should address poverty and 
making recommendations for what should be done about it. In the 
course of that, we did a lot of consultation around the country 
and as we did so, our principal focus was not on the measure of 
poverty, but a couple of things kept coming up. First, when we 
would talk to people around the country about approaches to 
addressing poverty, the recurrent theme is that it is 
problematic to start with the existing measure, because the 
existing measure is rarely useful as a way of measuring need, 
because it is so low in relation to the cost of living.
    The existence of things like family budgets, of self-
sufficiency standards, of setting program eligibility as the 
multiple of the poverty line, of a set of research that 
increasingly treats 200 percent of poverty as a measure of low 
income. All those are different ways in which people are saying 
we need a better measure to reflect what it costs to make ends 
meet, that the poverty line simply does not reflect it.
    It is also true that it is a problem in my view that the 
existing measure does not well pick up the effects of policy. 
When we looked at a set of policies for improving family well-
being, expanding the earned income tax credit, raising the 
child tax credit, improving childcare assistance, increasing 
housing subsidies, in each case we faced the issue that if you 
make a set of changes which will clearly improve well-being, it 
is not going to be picked up in the official measure. It is, in 
my view, important that we have an effective measure that both 
looks at what families need to get by and then does effectively 
measure the resources that are available to them to do it.
    That really is crucial as a means of developing policies 
for moving ahead. Now, I also think that the case for 
developing a better poverty measure had been made in a 
thoughtful and compelling way by the National Academy of 
Sciences panel a dozen years ago, and when they did so, I think 
a central insight from their approach is that in thinking about 
how to address poverty, the first question should not be what 
income do we count, but rather, what is it that we are trying 
to measure.
    The poverty line needs to be something where we can 
articulate what it is trying to measure. It needs to be a 
reasonable one, something that is understandable to the public, 
something that is broadly acceptable, and the current measure 
fails to meet that standard. It does so for many of the reasons 
Mr. McDermott talked about in his opening, that when one tries 
to explain to anyone that this was a measure developed in the 
early 1960s, based upon a food plan at that time multiplied by 
three, and we have only since then adjusted for prices, people 
do not understand how that is a useful way of thinking about 
what it is that families need to get by. So, we need a better 
measure to do it.
    The National Academy of Sciences also focused on what they 
refer to as internal consistency in thinking about the measure, 
and essentially what they meant by that is that you want to 
start by what it is that you are trying to measure, then 
develop a measure of it. That if you are trying to measure the 
cost, if you think what should be in the poverty measure is a 
set of basic needs, articulate what those are, determine what 
the costs of those are, count the resources that are available 
to meet them, don't count the resources that are not available 
to meet them.
    In my view, that is a thoughtful, reasonable way to think 
about moving ahead. There can certainly be and indeed there are 
real disagreements about what we should think about as the 
basic need. In the case of the National Academy of Sciences 
panel, the approach they took was to essentially say we should 
look at food, clothing, shelter, and a little more. I think a 
compelling case can be made, but that is an inadequate way of 
looking at basic needs, that we need to have a broader sense of 
it.
    That it is not that everything beyond that is. If we are 
thinking about what it is that children need to grow up in a 
healthy, developmentally appropriate way to be contributing 
members of society, we all aspire to more than food, clothing 
and shelter. So it makes sense to build that in. Similarly, if 
we think about the recognized importance of people being able 
to save for education or homeownership, for retirement, or for 
the future needs of children, we would want to build in things 
like that. So, a whole set of things ought to be considered, 
but I would most emphasize that I think the NAS overall 
framework offers a useful starting point for moving forward.
    So, let me just quickly say, in terms of a concrete 
recommendation for the panel, while the NAS has a useful 
approach, it clearly is a starting point. There are a lot of 
both conceptual and technical issues still to be resolved. So, 
I would make two broad recommendations to you. One is that I 
believe it would be useful to direct the Census Bureau to 
report back to you, and in that report for them to address to 
what extent it is feasible to replace the existing measure with 
something using the NAS as a starting point.
    Second, what are the kinds of data limitations that affect 
the ability to do that and the ability to measure poverty well.
    What would need to be done to address them? What would it 
cost to do that? So, that Congress can have that in front of 
you; and, then, because it has been a dozen years since the NAS 
report, what does the research and experimentation and analysis 
since then tell us about whether particular recommendations 
ought to be reconsidered or new ones built in.
    My final point then is, as several other panelists have 
suggested, it is important to have additional measures. No 
single measure is going to reflect everything that we would 
want to know. Just as we have a poverty measure, it would be 
useful to develop this broader measure of a make ends meet or a 
decent living standard. It might be useful to have the measure 
of relative poverty in relation to median income. It would be 
useful to have a measure of asset poverty.
    [The prepared statement of Mr. Greenberg follows:]

Prepared Statement of Mark Greenberg, Executive Director, Task Force on 
                 Poverty, Center for American Progress

    Mr. McDermott and Members of the Subcommittee:
    Thank you for holding this hearing and others this year, bringing 
renewed attention to the importance of addressing poverty in America. 
In this testimony, I will provide some brief background, and then 
discuss why the method for measuring poverty should be updated, some 
principles that should guide the effort and recommendations to move the 
process forward.
    I am the director of the Task Force on Poverty at the Center for 
American Progress (CAP), a non-profit, non-partisan public policy think 
tank in Washington, D.C. I am on leave from the Center for Law and 
Social Policy, where I was the Director of Policy. CAP's fourteen-
member Task Force\1\ was charged with making a case for why the nation 
should address poverty and proposing a strategy for how to do so. In 
April, CAP's Task Force released its report, From Poverty to 
Prosperity: A National Strategy to Cut Poverty in Half.\2\
---------------------------------------------------------------------------
    \1\ Task Force members were Angela Glover Blackwell, Founder and 
CEO, PolicyLink (co-chair); Peter B. Edelman, Professor of Law, 
Georgetown University (co-chair); Rebecca Blank, Dean, Gerald R. Ford 
School of Public Policy, Henry Carter Adams Collegiate Professor of 
Public Policy, University of Michigan; Linda Chavez-Thompson, Executive 
Vice President, AFL-CIO; Reverend Dr. Floyd H. Flake, President, 
Wilberforce University; Wizipan Garriott, Law Student and Board 
President of the He Sapa Leadership Academy; Maude Hurd, National 
President, ACORN; Charles E. M. Kolb, President, Committee for Economic 
Development; Meizhu Lui, Executive Director, United for a Fair Economy; 
Alice M. Rivlin, Senior Fellow and Director, Greater Washington 
Research Program, Brookings Institution; Barbara J. Robles, Associate 
Professor, Arizona State University; Robert Solow, Professor Emeritus, 
Massachusetts Institute of Technology; Dorothy Stoneman, Founder and 
President, YouthBuild USA; and Wellington E. Webb, Former Mayor of 
Denver.
    \2\ Task Force on Poverty, From Poverty to Prosperity: A National 
Strategy to Cut Poverty in Half (Center for American Progress, April 
2007), available at http://www.americanprogress.org/issues/2007/04/pdf/
poverty_report.pdf.
---------------------------------------------------------------------------
    Our Task Force's principal focus was not on the definition of 
poverty, but rather strategies for addressing it. Nevertheless, the 
question of how poverty should be defined came up repeatedly in our 
efforts, in two significant and related ways.

      First, when seeking the views of state and local actors 
about strategies to reduce poverty, one of the most common initial 
observations was that it was rarely useful to use the official poverty 
line as a measure of need, because it was so low in relation to living 
costs. In recent years, the increased reliance on approaches like self-
sufficiency standards, family budgets, and setting program eligibility 
at some multiple of the poverty line is a direct response to concerns 
that the poverty line simply doesn't adequately reflect the amounts 
that families need in order to get by.
      Second, as our Task Force considered policy responses to 
reduce poverty, we faced, in practical terms, an issue that is 
routinely recognized in the academic discussions of poverty 
measurement. Many initiatives that would clearly improve economic well-
being for low-income families would have no effect on poverty under 
official measures, because the official measure does not count the 
effects of tax policy and near-cash benefits or adjust for work-related 
costs. For example, expanding the Earned Income Tax Credit or Child Tax 
Credit would not reduce the official poverty rate (except indirectly if 
it affected employment), even though it would increase family 
resources. Expanding child care assistance would not reduce the 
official poverty rate (except by raising employment) even though it 
would defray costs that families face in going to work. Expanded 
housing subsidies or improved food stamp participation rates would also 
not affect the official poverty rate.

    We ultimately addressed the first issue by emphasizing in our 
report that while 37 million Americans were living in poverty, a far 
larger group faced the challenge of making ends meet, and by developing 
policy proposals that were sensitive to and grounded in this reality. 
We addressed the second issue by using a modified measure of poverty 
when calculating the poverty reduction effects of our proposals, 
drawing upon recommendations from the National Academy of Sciences' 
Panel on Poverty and Family Assistance: Concepts, Information Needs and 
Measurement Methods in Measuring Poverty: A New Approach (National 
Research Council, 1995). This modified measure counted the effects of 
tax policy, treated food stamps and housing benefits as income, and 
deducted out-of-pocket child care expenses from income. Only in doing 
so could one fully see the real effects of a set of policies in 
improving family well-being. At the same time, we could not readily 
incorporate every NAS recommendation into our analysis, and only 
adjusted poverty thresholds to the extent necessary to begin our 
analysis with the same number of people in poverty as would be the case 
under official measures.\3\ Our experience underscored the need for the 
federal government to improve and modernize the definition of poverty, 
in order to develop both more realistic thresholds, a better measure of 
resources, and a more effective way to gauge the effects of government 
policies.
---------------------------------------------------------------------------
    \3\ For a detailed discussion of the methodology, see Linda 
Giannarelli, Laura Wheaton, and Joyce Morton, Estimating the Anti-
Poverty Effects of Changes in Taxes and Benefits with TRIM3 (Urban 
Institute, April 25, 2007), available at http://www.urban.org/
publications/411450.html.
---------------------------------------------------------------------------
    While my principal focus in this testimony is on the need to 
improve the poverty measure, I want to begin by emphasizing that we get 
much valuable information from the current one. The current measure is 
a useful and reliable indicator of the extent of serious deprivation, 
and of the extent of disparities across races, sex, and ages, workers 
and non-workers, and other groups. Most importantly, year-to-year 
changes help us understand whether more or fewer families are 
struggling to get by. Alternative measures--including those based on 
the National Academies of Sciences recommendations--show different 
poverty levels, but typically reflect quite similar trends because the 
largest sources of income and, thus, the largest ``driver'' of poverty 
rates will be cash income from sources that are included in the 
official measure.
    I believe the poverty measure can be significantly improved. Still, 
the shortcomings of the current measure should not be used to dismiss 
the information provided by the current poverty measure about the state 
of our nation.
Why Should the Measure of Poverty be Updated?
    There are few, if any, defenders of the current poverty measure. It 
remains in place for two principal reasons. First, there are a host of 
genuinely difficult conceptual and technical issues to be resolved in 
determining how poverty should be measured. Second, adopting any 
alternative measure is fraught with political controversy because it 
will likely result in either more or fewer people reported as ``poor'' 
(either immediately or in the long run); greater or lesser measured 
poverty rates for particular demographic, racial, and geographical and 
other subgroups; and uncertain implications for determining eligibility 
and distributing funds for individuals, localities, and states.
    Given these challenges, why is it important to update the measure 
of poverty?
    No single statistic can capture every dimension of need, 
consumption, hardship or well-being. An income statistic measures, at 
best, income, but not how that income is spent; what would have 
happened if it had been spent differently; or whether a family has 
greater or lesser needs due to particular individual, family, 
neighborhood, or regional factors. An income statistic may provide 
little or no insight into factors that affect current and future well-
being such as health, education, social and family relationships, 
community conditions, and others. Moreover, any time a line is drawn, 
differences between those slightly below and slightly above the line 
may be minimal or non-existent. And, even families with identical 
incomes and needs may be very differently situated based on the 
presence or absence of assets, which are reflected at best only 
indirectly through any income-based poverty measure.
    Moreover, important dimensions of need cannot be measured by income 
alone. Policy efforts in Europe often situate their discussions of 
income poverty within a broader context of social inclusion, a term 
used to encompass concern about those outside the social mainstream who 
are unable to fully participate in the normal activities of citizens. 
The idea of social inclusion emphasizes that integration of people into 
the social mainstream calls for addressing the range of issues that 
prevent full participation in society, and that this necessarily calls 
for going beyond a narrow focus on income.
    Accordingly, the poverty measure cannot and should not be the sole 
measure of need or well-being, but it is important. Research 
commissioned for CAP's Task Force on Poverty found that the cost to the 
U.S. economy from children growing up in persistent poverty is in the 
range of $500 billion a year.\4\ The poverty measure provides a broad 
picture of the number and characteristics of Americans who are living 
with incomes below a level generally recognized as inadequate to meet 
crucial needs. Moreover, ideally the poverty measure would show the 
extent of deprivation before and after taxes and government transfers, 
so that there is a clear picture of the extent to which government 
policy is or is not reducing deprivation. As such, it is in all of our 
interests to have a better measure than the current one.
---------------------------------------------------------------------------
    \4\ Harry Holzer, Diane Whitmore Schanzenbach, Greg J. Duncan, and 
Jens Ludwig, al., The Economic Costs of Poverty: Subsequent Effects of 
Children Growing Up Poor (Center for American Progress, January 24, 
2007), available at http://www.americanprogress.org/issues/2007/01/pdf/
poverty_report.pdf.
---------------------------------------------------------------------------
    What are the principal problems with the current measure? Many of 
the difficulties were catalogued in the thoughtful and balanced 1995 
report of the National Academy of Sciences panel, Measuring Poverty: A 
New Approach. Among the concerns identified by the NAS panel:

      the current poverty thresholds cannot be justified as 
reflecting contemporary costs for meeting basic needs;
      the poverty measure does not reflect the costs of child 
care and other work-related expenses;
      it does not reflect regional cost variations;
      it does not reflect that funds spent to meet health care 
costs are not available to meet other needs;
      it does not reflect that funds spent to meet child 
support obligations are not available to meet other needs;
      it does not reflect the impact of taxes; and
      it does not reflect the provision of near-cash benefits 
such as food stamps and housing assistance.

    Sometimes in discussing poverty measurement, an individual may 
focus on one particular problem with the measure--e.g., that it is too 
low, or does not count taxes or near-cash benefits. An important 
insight from the NAS panel is the need to look at the issues together 
using an internally consistent approach to measurement. A poverty 
measurement effort should be able to articulate what it is seeking to 
measure, and its thresholds and rules about which resources are counted 
should be consistent with each other and the underlying purpose. For 
example, if the goal is to measure whether families have sufficient 
resources to meet their food, clothing, and shelter needs, then it 
makes sense to set a threshold that reflects the resources needed to do 
so, to count resources that are available to meet the needs, and not 
count as resources items that are not available to meet those needs. 
But if, for example, the threshold is not constructed to include the 
amounts needed to pay for medical costs, child care, and work expenses, 
then the amounts families must pay for those costs should not be 
counted as available to meet other needs. Alternatively, if the goal is 
to measure whether families have resources to meet a broader set of 
needs, then the thresholds and counting rules should be constructed 
consistent with that intent.
    Thus, a fundamental problem with the current measure is that it is 
not clear what it seeks to measure, the thresholds are not based on the 
actual costs of meeting a set of needs in today's economy, and it 
brings no consistent approach to when income is counted or excluded in 
the measurement. It fails to count resources that are available to meet 
basic living costs, and yet counts resources that are not available to 
meet basic living costs. The result is a framework that distorts our 
understanding of when families are in need, and impairs our ability to 
see whether government efforts to provide assistance are improving 
family well-being.

What Should the Poverty Line Measure?
    The key insight offered by the NAS should be the starting point for 
any discussion of measuring poverty: before asking what should be 
counted as income, one should begin by asking what the poverty line 
seeks to measure. Then, decisions about how thresholds are set and 
which resources are included or excluded should be made in a manner 
consistent with the decision about what's being measured.
    In a broad sense, the current thresholds are often viewed as being 
the levels of income that families need in order to meet their most 
basic needs. However, the actual dollar figure for the current 
thresholds is essentially an arbitrary figure: it reflects an early-
1960s calculation of the cost of a low cost food plan designed for 
temporary or emergency use when funds are low, multiplied by three 
because food represented about one-third of a family budget in 1955, 
and then essentially adjusted only for changes in the consumer price 
index. Since that time, there have been dramatic changes in family 
budgets and living standards that are not reflected in the measure. As 
such, there is no real justification for the current thresholds other 
than they continue a historical series and there is not agreement on 
what should replace them.
    Since the poverty line has only been adjusted to reflect changes in 
prices since the 1960s, it has fallen over time in relation to family 
median income. The poverty threshold for a family of four was about 49 
percent of median income for a family of four in 1959; it was 28.4 
percent of median income for a family of four in 2005. Thus, having 
income below the poverty line now means that a family is much further 
from the mainstream than was the case in earlier decades. Notably, 
international comparisons often measure poverty in relation to 50 
percent of median income. In the United Kingdom's commitment to end 
child poverty by 2020, a principal measure is the share of children in 
families below 60 percent of median income.
    Evidence from multiple sources suggests that a substantially higher 
figure would be used if the goal were to determine the amount that a 
family needs to ``get by'' or ``make ends meet.'' The NAS' report 
expressly recognized that by 1992, the amount that survey respondents 
estimated a family needed to ``get along'' in the community was 76 
percent higher than the poverty level. In recent years, a number of 
groups have developed various family budgets, generally intended to 
reflect a level at which a family can ``make ends meet'' or live 
decently. While methodologies differ, the analyses typically find that 
the average amount needed to attain such a standard is roughly twice 
the current poverty line, with significant regional variation. For 
example, the Economic Policy Institute has calculated basic family 
budgets for over 400 communities, intended to reflect the income a 
family needs to secure safe and decent-yet-modest living standards in 
the community. The budget items that are included in the basic family 
budgets are: housing, food, child care, transportation, health care, 
other necessities, and taxes. EPI concluded that the range of basic 
family budgets for a two-parent, two-child family was $31,080 (rural 
Nebraska) to $64,656 (Boston, Massachusetts). The median family budget 
of $39,984 contrasted with the $19,157 poverty threshold for this size 
family.\5\ Wider Opportunities for Women has worked with states, 
localities, and community groups in most states to develop self-
sufficiency standards. Self-sufficiency standards are calculated using 
a standard methodology that considers the costs of food, housing, 
medical care, transportation, child care, miscellaneous costs, and 
taxes. These studies routinely find that the amount a family needs to 
meet basic costs under such a budget is at least twice the federal 
poverty line.\6\ The National Center for Children in Poverty's 
estimates, using its Basic Needs Budget Calculator, are that across the 
country, families on average need an income of about twice the official 
poverty level, or roughly $40,000 for a family of four, to meet basic 
needs. In a high-cost city like New York, the figure is over $50,000, 
whereas in rural areas, the figure is in the low $30,000s.\7\
---------------------------------------------------------------------------
    \5\ Sylvia Allegretto, Basic family budgets: Working families' 
incomes often fail to meet living expenses around the U.S. (Economic 
Policy Institute, September 1, 2005), available at http://www.epi.org/
briefingpapers/165/bp165.pdf.
    \6\ Wider Opportunities for Women, Setting the Standard for 
American Working Families (2003), available at http://
www.wowonline.org/docs/FINAL_FESS_report_072103.pdf.
    \7\ National Center for Children in Poverty, Measuring Income and 
Poverty in the United States, (April 2007), http://www.nccp.org/
publications/pdf/text_707.pdf.
---------------------------------------------------------------------------
    Recent public opinion surveys also repeatedly find the public 
estimates that amounts needed to live decently are substantially higher 
than the poverty level. Note that surveys use a range of wording which 
could affect survey results:

      In a 2004 survey by Corporate Voices for Working 
Families, 59 percent of respondents thought a family of four needed to 
earn at least $40,000--an amount over twice the federal poverty line--
``to support a family of four at a decent level.'' Only one percent 
thought that income of $15,000 to $20,000 was sufficient to do so.\8\
---------------------------------------------------------------------------
    \8\ Corporate Voices for Working Families Survey, (July-August 
2004).
---------------------------------------------------------------------------
      A 2006 survey for the Catholic Campaign for Human 
Development reported that most (55 percent) respondents thought the 
amount of income a family of four needed to meet basic needs was 
$36,000 or more; 11 percent thought it was $20,000 or less.\9\
---------------------------------------------------------------------------
    \9\ Market Research Bureau LLC, Poverty Pulse, Wave VII, (Catholic 
Campaign for Human Development, January 2007), available at http://
www.usccb.org/cchd/PovertyPulseVII.pdf.
---------------------------------------------------------------------------
      In an April 2007 survey conducted for Northwest Areas 
Foundation, 69 percent of a national sample indicated that a family of 
four needed to earn $40,000 or more ``in order to make ends meet'' in 
their community. In state samples, the percentage indicating $40,000 or 
more was needed was 55 percent in Idaho; 57 percent in Iowa; 66 percent 
in Minnesota; 51 percent in Montana; 54 percent in North Dakota; 62 
percent in Oregon; 50 percent in South Dakota; and 71 percent in 
Washington. Seven percent of national respondents, and 5 to 16 percent 
of state respondents thought $20,000 or less was sufficient to ``make 
ends meet.''\10\
---------------------------------------------------------------------------
    \10\ Lake Research Partners, Survey Conducted for Northwest Areas 
Foundation, (April 2007), available at http://programs.nwaf.org/pr/
nwaf/info/document/NWAF_topline_natl_and_states.pdf.

    Note that the public appears to draw a distinction between the 
amounts needed to make ends meet and the appropriate level for a 
poverty line. In 2001, an NPR/Kaiser/Kennedy School poll asked what 
income level would make a family of four poor. In that year, when the 
poverty threshold for four was $17,960, most respondents would use a 
higher figure, with 64 percent considering a family with earnings of 
$20,000 to be poor, and a substantial group (42 percent) considering a 
family with earnings of $25,000 to be poor.\11\
---------------------------------------------------------------------------
    \11\ See http://www.npr.org/programs/specials/poll/poverty/
staticresults.html.
---------------------------------------------------------------------------
    Thus, if the goal were to set a line for the level at which 
families could ``live decently'' or meet all basic needs, it seems 
clear that the poverty line would be set substantially higher than the 
current one. The NAS took a far more modest approach. It proposed that 
the poverty thresholds should represent a budget for food, clothing, 
shelter (including utilities) and a small additional amount for other 
needs, e.g., household supplies, personal care, non-work-related 
transportation. It then proposed that family resources be defined as 
the sum of money income from all sources and the value of near-money 
benefits that are available to buy goods and services in the budget, 
minus expenses that cannot be used to buy these good and services. 
Thus, it did not recommend comparing all income to this more modest 
level--rather, it recommended excluding income that that was not 
available to purchase these basic goods and services, e.g., child care 
and work-related expenses, medical expenses, child support paid, and 
taxes.
    Given the modest approach taken by the NAS panel, the result is a 
set of poverty thresholds that are somewhat higher than the official 
ones, but far short of the higher figures discussed above. 
Specifically, in 2005, when the official threshold for four was 
$19,806, the NAS-based threshold calculated by the Census Bureau was 
$20,708 if medical expenses were not counted in the threshold and 
$22,841 if medical expenses were included in the threshold.\12\ The 
threshold with medical expenses was based on three years of consumer 
expenditure data, updated to the threshold year, representing about 80 
percent of median family expenditures for food, clothing, shelter, 
utilities, and medical care, with an additional allowance for other 
non-work related expenditures. The approximate breakdown for the 
components of the threshold was $6624 for food, $1370 for clothing, 
$6395 for shelter, $3198 for utilities, $1599 for medical costs, and 
$3655 for all other non-work-related costs.
---------------------------------------------------------------------------
    \12\ U.S. Census Bureau, Poverty Thresholds for Two-Adult-Two-Child 
Family Following NAS Recommendations: 1999-2005, available at http://
www.census.gov/hhes/www/povmeas/altmeas05/nas_povmeasures2005.xls
---------------------------------------------------------------------------
    Is the NAS approach a reasonable one? In my view, it is, but only 
if one recognizes that it does not purport to represent a ``decent'' 
living standard. It leaves out a considerable amount that most of us 
take for granted in our daily lives, and allows only a modest residual 
sum for the wide array of living costs that do not fall within the 
identified needs. It leaves out many of the cultural enrichment 
activities that parents would view as essential to healthy child 
education and development. The approach was developed at a time when 
the Internet was first coming into our awareness, so does not include 
costs for a family to own a computer or have Internet access. It does 
not explicitly provide room in the budget to save for education, or 
retirement, or home ownership, or future needs of children.
    Moreover, the original NAS approach opted to treat medical costs, 
child care, and other work-related costs as deductions, viewing them as 
not available to meet the listed basic needs. An argument can be made 
that the costs of each should be included as part of the threshold 
instead and treated as comparable to other basic needs--certainly, many 
Americans would view access to needed child care and health care as 
basic needs. The Census Bureau now calculates NAS-based thresholds with 
and without medical expenses. Thus, other approaches could be 
considered, but any approach should ensure that it provides the 
internal consistency urged by the NAS.

Measuring Poverty Under NAS Measures
    Since the release of the NAS report in early 1995, a considerable 
amount of research and further study has been undertaken. While there 
may never be unanimity on any complex or controversial issue, many 
observers have commended the overall NAS approach, but there are still 
a number of questions on which researchers disagree, sometimes for 
conceptual reasons and sometimes because of data limitations. For 
example, many, though not all, would agree that it would be desirable 
to build geographical variation into the poverty measurement. However, 
there are sharp disagreements as to whether the data are adequate to do 
so. Many would agree that it would be important to build an adjustment 
for medical costs into the poverty measure, but there are disagreements 
as to whether it is better to build an allowance for medical costs into 
the threshold, subtract costs from countable income, or do some 
combination of the two. It is clear that continued work is needed.
    Since the release of the NAS report, the Census Bureau has issued a 
set of valuable reports applying and refining NAS recommendations to 
provide alternative poverty measures.\13\ The most recent tables, 
issued for 2005, show that at a time when the official poverty rate was 
12.6 percent, the rate under NAS measures would have been between 12.5 
percent and 14.2 percent, depending on how medical expenses and 
geographic adjustments are treated in the measure, and depending on 
whether the thresholds are computed using the Consumer Expenditure 
Survey (as recommended by the NAS panel) or by updating for inflation 
using the CPI-U.\14\ Over time, under most NAS measurements, the 
numbers in poverty are consistently above the numbers under the 
official measures.\15\
---------------------------------------------------------------------------
    \13\ See Kathleen Short et al, Experimental Poverty Measures, 1990-
1997, P60-205, (June 1999), available at http://www.census.gov/prod/
99pubs/p60-205.pdf; John Iceland, Poverty Among Working Families: 
Findings from Experimental Poverty Measures, P20-203, (September 2000), 
available at http://www.census.gov/prod/2000pubs/p23-203.pdf; Kathleen 
Short, Experimental Poverty Measures 1999, P60-216 (October 2001), 
available at http://www.census.gov/prod/2001pubs/p60-216.pdf; Joe 
Dalaker, Alternative Poverty Estimates in the United States: 2003, P60-
227 (June 2005), available at http://www.census.gov/prod/2005pubs/p60-
227.pdf.
    \14\ U.S. Census Bureau, Alternative Poverty Estimates Based on 
National Academy of Sciences Recommendations, by Geographic and 
Inflationary Adjustments: 2004 and 2005, available at http://
www.census.gov/hhes/www/povmeas/altmeas05/
nas_measures_2004_2005_comparison.xls.
    \15\ U.S. Census Bureau, Official and National Academy of Sciences 
(NAS) Based Poverty Rates: 1999 to 2005, available at http://
www.census.gov/hhes/www/povmeas/altmeas05/nas_measures_historical.xls.
---------------------------------------------------------------------------
    In addition to affecting the numbers in poverty, NAS measures also 
affect rates for particular groups: poverty rates for married couples 
go up, while they go down for female-headed households; they go down 
for children and up for the elderly; they go up for whites, down for 
African-Americans, and their effect for Hispanics depends on which 
measure is used.\16\
---------------------------------------------------------------------------
    \16\ U.S. Census Bureau, Alternative Poverty Estimates Based on 
National Academy of Sciences Recommendations, by Selected Demographic 
Characteristics and by Region: 2005, (2006), available at http://
www.census.gov/hhes/www/povmeas/altmeas05/nas_measures_2005_demog
_and_region.xls.
---------------------------------------------------------------------------
    In earlier years, the Census Bureau issued detailed reports 
presenting and analyzing the NAS tables. However, the last of these 
reports was issued June 2005. Most recently, the NAS tables for 2004 
and 2005 were simply posted without narrative or press release and in a 
manner such that only specialists were likely to be able to interpret 
them.
    Beginning in 2006, the Census Bureau has begun reporting a new 
series, in which the Census Bureau reports on the effects of various 
definitions of income: a ``money income,'' ``market income,'' ``post-
social insurance income,'' and ``disposable income'' definition.\17\ 
The broadest of the four, ``disposable income'' includes money income, 
imputed net realized capital gains, imputed rental income, noncash 
transfers, and subtracts imputed work expenses (but not child care) and 
taxes. It reports that using its disposal income measure, the poverty 
rate for 2005 is 10.3 percent--a level substantially below any of the 
NAS measures. Essentially, this happens because it is imputes income 
from home equity (even though a prior Census Bureau report had 
cautioned about taking such an approach without a corresponding 
adjustment to the poverty thresholds), and it does not follow other NAS 
recommendations to modify the poverty thresholds, count child care, or 
consider medical expenses.
---------------------------------------------------------------------------
    \17\ U.S. Census Bureau, The Effects of Government Taxes and 
Transfers on Income and Poverty: 2004 (February 14, 2006), available at 
http://www.census.gov/hhes/www/poverty/effect2004/
effectofgovtandt2004.pdf; The Effects of Taxes and Transfers on Income 
and Poverty in the United States: 2005, P60-232 (March 2007) available 
at http://www.census.gov/prod/2007pubs/p60-232.pdf.
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Recommendations for Next Steps
    For at least the past thirty years, there have been discussions 
about the need to develop an improved approach to poverty measurement. 
While an active research and development agenda should continue, it is 
past time to replace the current measure. In my view, the NAS 
recommendations offer a valuable starting point for a better measure.
    First, I recommend that Congress direct the Census Bureau to issue 
a report to Congress, within a specified time period, addressing the 
following issues:

      To what extent is it now feasible to replace the current 
measure of poverty with a measure drawn from the recommendations of the 
National Academy of Sciences panel?
      Are there data limitations that affect the ability to 
implement the NAS recommendations; if so, to what extent could those 
data limitations be addressed through improved data collection; and 
what would such improved data collection cost?
      In light of the research, experimentation and analysis of 
the twelve years since the NAS report was issued, are there particular 
recommendations that should be reconsidered or additional 
recommendations that should be considered in developing an improved 
poverty measure?

    The Census Bureau should be encouraged to consult with members of 
the original NAS Panel and other experts in poverty measurement in the 
development of its report.
    Second, it is unfortunate that the Census Bureau has seemingly 
relegated its NAS analysis to a set of web-only tables, and has 
departed from an NAS-based approach in its published narratives. I 
recommend that Congress encourage, and if necessary adopt legislation 
to direct the Census Bureau to resume fully reporting the NAS measures.
    Third, at the same time that the poverty measure is improved, it 
would also be valuable for the federal government to begin regularly 
reporting a set of additional measures:

      Making Ends Meet: It seems clear that the amount of 
income a family needs to ``make ends meet'' or have a reasonably decent 
standard of living is an amount well above the current poverty line. 
Family budget research, polling data, median income data, and other 
research all suggest a level roughly twice the current poverty line, 
though with substantial geographic variation. It would be valuable to 
establish an ongoing research program and methodology for measuring 
this concept.
      Outside the Mainstream: International comparisons 
routinely rely on measuring the share of people below some percentage 
of median income, e.g., 50 percent. It is often treated as a measure of 
``relative poverty.'' The virtue of such a measure is that it provides 
insight into the extent to which a share of the nation's residents is 
living with incomes far outside of the social mainstream. In a recent 
UNICEF report, the United States ranked 24th of 24 nations on a measure 
of the share of children living in families with incomes below 50 
percent of median income.\18\ The federal government should track such 
a measure, and promote research to better understand the consequences 
of being in and growing up in relative poverty.
---------------------------------------------------------------------------
    \18\ UNICEF Innocenti Research Centre, Child poverty in 
perspective: An overview of child well-being in rich countries, Report 
Card 7, (2007), available at http://www.unicef-icdc.org/publications/
pdf/rc7_eng.pdf. Note that in 2005, 50 percent of median income for a 
family of four in the United States would have been $35,166, as 
compared with the official poverty threshold of $19,157.
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      Asset Poverty: In recent years, we have begun to see 
steadily increasing awareness of the importance of assets and asset 
disparities. One study estimated that in 2001, about 37.5 percent of 
households were ``asset poor,'' meaning they did not have enough liquid 
assets to live above the poverty line for three months.\19\ We would 
benefit by developing good ongoing measures of assets and asset 
poverty.
---------------------------------------------------------------------------
    \19\ Robert Haveman and Edward N. Wolff, ``The Concept and 
Measurement of Asset Poverty: Levels, Trends and Composition for the 
U.S., 1983-2001,'' Journal of Economic Inequality 2 (2): August 2004.
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      Pre- and Post-Tax and Transfer: As the nation moves to a 
measure of poverty that includes the effects of tax and near-cash 
benefits, it will be important to clearly distinguish pre-tax, pre-
transfer poverty from post-tax, post-transfer. Drawing that distinction 
would make explicit the role that tax credits and liabilities and 
government benefits play in reducing pre-tax, pre-transfer poverty.

    Finally, I want to highlight and underscore one last NAS 
recommendation. At present, a large number of government programs 
affecting individuals, communities, and states, determine eligibility 
or allocate funds on the basis of federal poverty guidelines. For some 
purposes, applying the revised threshold and measurement rules may be 
appropriate, but in other cases it would not be. For example, with a 
new threshold, a program might wish to adjust eligibility accordingly, 
or change the percentage or multiple of the poverty line at which 
individuals are eligible. Income-counting rules that are appropriate 
and feasible for Census Bureau estimates may not be appropriate for 
program eligibility determinations. Moreover, if adopting a new measure 
of poverty had direct implications affecting program costs and the 
allocation of billions of dollars in federal funds, it would likely 
paralyze any effort to modify the poverty measure. The NAS panel 
expressly recommended that agencies consider the use of the new 
measures for purposes of programs they administer, but not that the new 
rules be applied automatically when they do not further program

objectives. Such an approach would be essential to efforts to advance a 
new and improved poverty measure.
    Again, thank you for addressing these important issues.

                                 

    Chairman MCDERMOTT. We are going to have to go and vote. We 
will be over there for about 5 minutes on this vote and then 
another 5-minute vote. I think we should be back about 5 
minutes after eleven, and I would hope that the panel can all 
stay.
    We will begin with the questions as soon as we come back. 
We thank you all for your participation and you have been a 
very good panel, and I think there are some things we want to 
get out of you before you get away. So, please wait. We'll see 
you then.
    Ms. BERKLEY. Mr. Chairman, if I cannot be here, can I 
submit my opening statement?
    Chairman MCDERMOTT. Sure.
    [The opening statement of Rep. Shelley Berkley follows:]

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    Thank you. We will be back in 20 minutes, or so.
    [Recess.]
    Chairman MCDERMOTT. If the speakers will take their chairs 
again, we have 10 minutes before we are going to have to leave 
again. We are in a North Carolina four corners stall in the 
Congress and so we are going to have to dodge between votes.
    My question, I guess, is this. If we do nothing, what is 
the problem, or is there a problem? If we are going to do 
something, what is the best way to go about doing it? Now, I 
listen to Mr. Besharov and others talk about the things that we 
add in. Or even Mr. Weller's idea of taking somebody with 
$18,000 income and adding in costs and that brings them up to 
$30,000; and, therefore, they are no longer in poverty. Then 
they would not qualify for the things that got them out of 
poverty.
    I mean, that's kind of a catch-22, so what I am interested 
in is hearing from you, what is the best way for us to proceed 
with this if you think there is some compelling reason why we 
should do something? I know you don't think we need to or can 
do it, but we are sort of megalomanics in the Congress, so I 
think we can do anything.
    Go ahead.
    Mr. BESHAROV. Well, no. I think you should do things. I 
think that what you cannot do successfully is change ``the 
official poverty line.'' We are not really talking about the 
poverty measure used for program eligibility. That is an 
entirely separate decision. I think those are key words: 
``entirely separate decision". The considerations that go into 
program eligibility, as you just pointed out, are very 
different from trying to keep track of economic or material 
well-being of low-income Americans.
    Quickly, and then I will get off the floor. Here is what I 
think you should do in three easy steps. I don't think you can 
affect the official poverty measure without having a broad 
congressional consensus about raising spending across the board 
for means tested programs. Otherwise, you have got to 
disconnect the official poverty measure from every program that 
exists.
    Chairman MCDERMOTT. Can I stop you there? Haven't we 
disconnected it now by using 200 percent of poverty all over 
the place?
    Mr. BESHAROV. Yes and no.
    Chairman MCDERMOTT. I mean, that is what I listened to you 
and I thought about my days in the State legislature and how 
Washington State was always pushing above the poverty line and 
no deed goes unpunished.
    Mr. BESHAROV. Here is what I would say about that, but you 
are the pros. Programs are currently at a multiple of the 
poverty lines. You mentioned it is at a few hundred percent of 
the poverty line.
    State and Federal grant programs that are formula driven, 
are often driven by the poverty measure. So, if the poverty 
measure is changed, then every Subcommittee, and then every 
Committee of the Congress has to disconnect, and redo it. Then, 
both houses of Congress have to agree.
    Chairman MCDERMOTT. I understand the problems of politics. 
Here are some others. How do you think we should do it, because 
he does not basically think we should?
    Now, you've got a minute.
    Mr. GREENBERG. I think the key in moving forward is to say 
in doing a revision of the poverty standard and measurements, 
it does not automatically lead to changes affecting program 
eligibility or allocation of Federal resources. Sever the link 
between them and say for each individual program, for each 
Federal benefit that is allocated on the basis of the poverty 
line, that it will now be appropriate to make a judgment of how 
to proceed, but do not do it automatically.
    Chairman MCDERMOTT. Yes?
    Dr. RUGGLES. I would say that the main thing you want a 
poverty line for in terms of Federal programs is figuring out 
who you need to serve. Who do you need to serve? Who is in 
need?
    Chairman MCDERMOTT. Okay, yes.
    Dr. RUGGLES. So what you need is the best measure for that 
purpose, and in the long run that is going to help you design 
better programs. Worrying about how it does or does not affect 
existing programs in the short run isn't the first priority. 
You really ought to be looking at what you are trying to get 
to, not what is the short run effect.
    In terms of the short run effect, we revise all of the 
other statistics we use for the government. The CPI has gone 
through a whole bunch of revisions done by Committee that have 
been at least as controversial as anything we are talking about 
for poverty, and it effects even more programs than the poverty 
line does.
    Chairman MCDERMOTT. Are you then suggesting something in 
the Census Bureau? I don't know where that function is, but 
someplace that would function continually as an annual update, 
much as we do with the trustees on Medicare and Social 
Security, that same sort of thing.
    Is that what you are talking about?
    Dr. RUGGLES. Yes, something like that could be done; or, 
you could do what the Bureau of Labor Statistics does to update 
the CPI where they have a Committee that meets on a periodic 
basis, comes up with recommendations and then implements them. 
That kind of an approach where you have a built in periodic 
review, come up with recommendations, they get implemented.
    Chairman MCDERMOTT. Does it require that in doing that you 
also say what their goal is? Do we have to set the goal or do 
we let the commissions do that?
    Dr. RUGGLES. I think you can, to some extent, let the 
commission do that, but over all, I think that for policy-
related purposes the goal ought to be hearing out who is in 
need.
    Chairman MCDERMOTT. So, if you are going to deal with 
children's poverty, talk about what that is and then adjust the 
poverty line for whatever.
    Dr. RUGGLES. Exactly.
    Chairman MCDERMOTT. Thank you.
    I want to go to my colleague.
    Mr. WELLER. Thank you, Mr. Chairman.
    First, I would just like to ask unanimous consent for the 
copy of H.R. 3243 along with the introduction statement in the 
record.
    Chairman MCDERMOTT. Without objection.
    [H.R. 3243 follows:]

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    Mr. WELLER. Thank you, Mr. Chairman, and thank you for this 
hearing.
    Chairman MCDERMOTT. I am glad you put it in, because I 
think we need to have some things on the table to start talking 
about.
    Mr. WELLER. Absolutely, you have got to have ideas to 
discuss them, right? I am sorry. I apologize to our witnesses 
today for the interruptions here. As a member of the minority 
party, all we are asking for is the opportunity to offer 
amendments, which is normally a part of the legislative 
process. But we are denied that opportunity on the floor today 
on the SCHIP legislation. In the Committee on Ways and Means, 
we did have that opportunity, but the Commerce Committee shut 
them down. So we would like just to have the opportunity that, 
when we were in the majority, we gave the minority at that 
time.
    Mr. Besharov, you are the contrarian today amongst the 
group. I've got a copy of a study that was put forward by the 
Center on Budget and Policy Priorities, a left of center group 
that usually advocates expansion of various government 
programs. They noted in 2003 that the earned income tax credit 
directly lifted 2.4 million children in working families above 
the poverty line. For children, before counting the EITC, 12.6 
million were in poverty and after counting the EITC that number 
dropped to 10.2 million. In that study their measure of poverty 
counted food, housing, and energy assistance benefits as income 
and subtracted income and payroll taxes.
    As a share of antipoverty benefits, is the portion of 
antipoverty benefits that are currently not included in income 
when we determine the poverty level rising or falling?
    Mr. BESHAROV. It has risen substantially in the last thirty 
years. It rose a great deal in the last six, and my guess is 
that it will continue to rise. That study, by the way, is 
typical of what many researchers do. They use the current 
poverty line, left and right, and count all these things that 
we don't otherwise count. This is not to say that material 
needs no longer exist, but we should see whether, against some 
objective benchmark, we've made progress over the last five, 
ten or forty years.
    What the Center on Budget Priorities report did with the 
Joint Economic Committees, Democrats, was show that these 
Federal programs reduced measured poverty. That is an important 
part of a political debate, and that is why I have taken a 
quick look at your bill. I think something like that is 
tremendously important. There are some Census Bureau people 
here, who have started making that distinction, by just showing 
the impact of Federal aid to low-income people. That is, I 
think, a central part of understanding how well the government 
is doing and what is left to be done.
    Chairman MCDERMOTT. You know, if we continue to count, not 
count means tested benefits, do you believe the official 
poverty rate would actually be more inaccurate over time?
    Mr. BESHAROV. There are many things that are making the 
official poverty rate an inaccurate measure of where we were in 
1968. I wanted to make the distinction. I agree with my 
colleagues here that you could do a lot of things to make this 
measure better.
    But there are many things that make the current measure 
inaccurate. I don't think it measures inflation well. It does 
not deal with many forms of income that low-income Americans 
receive. The problem, I think, will fester and get worse, if we 
do increase, for example, the EITC as has been proposed for 
single people. That would have a major impact on their poverty 
status and official measure would never capture it.
    Mr. WELLER. My Chairman slipped me a note that says we have 
5 minutes before the vote ends on the floor, so go as long as 
you want, he said. So, I guess that is a reminder that I need 
to wrap up.
    You know, the legislation that I have offered, I would 
note, does not determine the eligibility for benefits. It sets 
in place three formulas for determining the level of poverty 
that should be part of the discussion as we determine how can 
we be more accurate.
    Since we are out of time, I do want to ask each of the 
witnesses to take a look at the legislation introduced as part 
of this discussion. I welcome your ideas and my door is open to 
discuss them.
    So, thank you, Mr. Chairman.
    Chairman MCDERMOTT. Thank you, Mr. Weller.
    I want to thank all of the witnesses. My view of this is 
there is no perfect answer otherwise it would have been done a 
long time ago. So I appreciate that not all the good ideas in 
the world come from the position politically where I am, nor 
where Mr. Weller is. Ultimately, I think in order to have some 
consensus as described here, there has got to be consensus in 
the Congress and it has got to be reached by us working 
together on this issue.
    I appreciate all of you coming, giving your ideas. I 
suspect staff will be back from both sides to find out what you 
think of his bill and whatever we put out, and we thank you 
very much for coming.
    Thank you.
    [Whereupon, at 11:25 a.m., the hearing was adjourned.]
    [Submissions for the record follow:]

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