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Plenty of government statistics and programs are based on "the poverty level for a family of 4." In 2009, that number is $22,050 for the mainland US. (Alaska and Hawaii are higher.) There's no other regionalization in the numbers. It is the same for San Francisco, California, and Fargo, North Dakota.

So, how is the poverty level determined?

In the 1960s, an employee at the Social Security administration noted that food was roughly 1/3 of a family after-tax budget. So, she used USDA's Economy Food Plan guidelines to put together a shopping cart of groceries for various family sizes, multiplied that by three, and voila! A figure for a minimium income.

Mollie Orshansky had no intent for her calculations to be used in this fashion, of course:

http://www.ssa.gov/...

The poverty thresholds were developed in 1963-64 by Mollie Orshansky, an economist working for the Social Security Administration. As Orshansky later indicated, her original purpose was not to introduce a new general measure of poverty, but to develop a measure to assess the relative risks of low economic status (or, more broadly, the differentials in opportunity) among different demographic groups of families with children. She actually developed two sets of poverty thresholds - one derived from the Agriculture Department's economy food plan and one derived from its somewhat less stringent low cost food plan. She described an initial version of these thresholds for families with children only in the July 1963 article cited in footnote 6. She published an analysis using a refined version of the thresholds expanded to include thresholds for unrelated individuals and families without children in a January 1965 article.

The Johnson Administration announced its War on Poverty in January 1964, not long after the publication of Orshansky's initial poverty article. The 1964 Report of the Council of Economic Advisers (CEA) contained a chapter on poverty in America. The chapter set a poverty line of $3,000 (in 1962 dollars) for families of all sizes; for unrelated individuals, the chapter implicitly set a poverty line of $1,500 (a selection that was shortly made explicit). The $3,000 figure was specified as being on the basis of before tax annual money income. There was a brief discussion of the theoretical desirability of using estimates of "total" incomes including nonmoney elements such as the rental value of owner occupied dwellings and food raised and consumed on farms but it was not possible to obtain such estimates. The CEA chapter pointed out that the total of money plus nonmoney income that would correspond to the cash-­income only poverty line of $3,000 would be somewhat higher than $3,000.

The CEA chapter referred to Orshansky's July 1963 article and its $3,165 "economy plan" poverty line for a nonfarm family of four. "Other studies have used different market baskets, many of them costing more. On balance, they provide support for using as a boundary, a family whose annual money income from all sources was $3,000 . . . ." This passage has led some people to think that the CEA's $3,000 poverty line was derived to a greater or lesser degree from Orshansky's $3,165 poverty line. However, Robert Lampman (a member of the CEA staff) had been working on an analysis of poverty using the $3,000 figure as early as the spring of 1963 ­several months before Orshansky's initial article was published. Instead, the $3,000 figure was a consensus choice based on consideration of such factors as the minimum wage level, the income levels at which families began to have to pay Federal income taxes, and public assistance payment levels.

Orshansky was concerned by the CEA report's failure to adjust its poverty line for family size, which resulted in understating the number of children in poverty relative to aged persons. This prompted her to begin the work that resulted in her January 1965 Social Security Bulletin article, extending the two sets of poverty thresholds at the "economy level" and at the "low cost level" to the whole population. This article appeared just as the Office of Economic Opportunity (OEO) was being established. The OEO adopted the lower ("economy level") of Orshansky's two sets of poverty thresholds as a working or quasi official definition of poverty in May 1965. As noted below, the thresholds were designated as the Federal Government's official statistical definition of poverty in August 1969.

Orshansky did not develop the poverty thresholds as a standard budget that is, a list of goods and services that a family of a specified size and composition would need to live at a designated level of well being, together with their estimated monthly or annual costs. If generally accepted standards of minimum need had been available for all or most of the major essential consumption items of living (for example, housing, medical care, clothing, and transportation), the standard budget approach could have been used by costing out the standards and adding up the costs. However, except for the area of food, no definitive and accepted standards of minimum need for major consumption items existed either then or today.

The "generally accepted" standards of adequacy for food that Orshansky used in developing the thresholds were the food plans prepared by the Department of Agriculture. At the time there were four of these food plans, at the following cost levels: liberal, moderate, low cost, and economy. The first three plans had been introduced in 1933, and the economy food plan was developed and introduced in 1961. Data underlying the latter plan came from the Agriculture Department's 1955 Household Food Consumption Survey. In developing her two sets of poverty thresholds, Orshansky used the low cost and economy food plans:15

The low cost plan, adapted to the food patterns of families in the lowest third of the income range, has for many years been used by welfare agencies as a basis for food allotments for needy families and others who wished to keep food costs down. Often, however, the actual food allowance for families receiving public assistance was less than that in the low cost plan .... spending as much as this food plan recommends by no means guarantees that diets will be adequate . . . .Recently the Department of Agriculture began to issue an "economy" food plan, costing only 75­-80 percent as much as the basic low-­cost plan, for "temporary or emergency use when funds are low.". . .The food plan as such includes no additional allowance for meals eaten out or other food eaten away from home.

Of course, today, food is around 1/10 of a typical family's budget. Housing, health insurance, and transportation have all skyrocketed compared to the cost of food ... though food showed a dramatic uptick in 2007. Health insurance wasn't even on the radar in the 1960s, but today the cost of a median family health insurance policy is about 2/3 of the corresponding FPL.

The current poverty level is not calculated using a basket of food, but rather by using that 1963 basket of food and multiplying each year by the Consumer Price Index - which again, only lightly considers housing costs and does not include health insurance at all. The CPI has a strong representation of durable goods, such as cars and washing machines, goods that families at the poverty line rarely buy new if at all.

According to DHHS:

Programs using the guidelines (or percentage multiples of the guidelines — for instance, 125 percent or 185 percent of the guidelines) in determining eligibility include Head Start, the Food Stamp Program, the National School Lunch Program, the Low-Income Home Energy Assistance Program, and the Children's Health Insurance Program (SCHIP).

You can see some alternate poverty numbers proposed by the Census Bureau, that take region into account and that better reflect the increasing cost of housing.

- Frequently Asked Questions about Poverty Guidelines from the hhs.gov - History of Poverty Guidelines

Frankly, when I first came across this in 2007, I had no idea that the calculation was so, well, random, compared to today's typical expenditures.

There's an initiative by the California Budget Project to develop some more useful numbers. Their study suggested that a California family of four with two working adults needed a 2007 income of $72,000 to make ends meet without government assistance, more than three times the federal poverty level.

family budget tableTheir complete report, Making Ends Meet: How Much Does it Cost to Raise a Family in California? (PDF), builds a budget for a single adult, a single parent family with two children, a two-parent family with one worker and two children, and a two-parent family with two workers and two children from the ground up. It was meant to be a modest living, without any public assistance, consisting of rent, food, child care, health care, transportation, taxes, and incidentals. It does not include any savings for retirement or college, home ownership, or emergencies.

Jean Ross, executive director of the California Budget Project, in comparing the two, said:

"The poverty standard doesn't take into account the real cost of housing. It doesn't take into account that many more families today have two working full-time parents and need to purchase childcare for their children. It doesn't take into account the decline in job-based health insurance."

There's a fairly thorough methodology laid out, showing what expenses they included and what they didn't. This isn't poverty, but it's definitely living paycheck to paycheck. There's no allowance for savings, toys (aside from birthday presents), or entertainment. No dental care. Transportation is figured as the IRS' national per mile allowance, with no separate car payment for a newer vehicle, or for that matter, reflection for California's higher gas prices, which average 23 cents per gallon more than the national average.

It is important to note what is not included in the basic family budget. For example, these estimates assume that families rent, rather than own, their homes and live in housing that many would consider overcrowded for a three- or four-person household. For many families, homeownership remains a dream, particularly in many of California's urban communities, which are among the most costly housing markets in the country. The basic family budgets assume that families use home-based child care, rather than more expensive center-based care, and that health coverage is purchased privately with no assistance from an employer. Finally, these estimates allow very little to no room for savings toward retirement or a child’s college education.

Many Californians support their families on less than the standard estimated by this report. Some can live on less because they receive health coverage from their jobs, are able to leave their children with family or friends while at work, or because they cut costs to make ends meet. Others, including many working families, rely on public programs such as food stamps, Medi-Cal, or Healthy Families; others rely on private charities, or go into debt because their income is insufficient to pay for basic needs. Many of these families rely on Medi-Cal, child care assistance, and other public programs in order to make ends meet. The California Budget's (CBP) basic family budget wage provides an estimate of the income needed to meet basic needs without assistance.

This is an obscure, wonky, detail, but it colors so much of the debate for many social programs, including health care. It's reasonable to see a multiplier like 350% of the federal poverty level and think, "Hey, those families are doing just fine" and therefore don't need help with health insurance. What's missed is that the FPL number is completely unrelated to the true cost of living in the United States in 2009. It's time for some new, regional numbers.

Originally posted to elfling's Magical Mystery Tour on Fri Oct 30, 2009 at 07:17 AM PDT.

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