The technical half of the webinar was launched off by Shawn Fremstad, senior policy fellow at the CEPR, who presented the findings from the new paper “The Defining Down of Economic Deprivation: Why We Need to Reset the Poverty Line.”
Fremstad described how measurements, particularly means-tested programs, are utilized as indicators of social and economic well-being and for allocating social benefits. Fremstad discussed three types of poverty measures: the Official Poverty Measure, Supplementary Poverty Measure, and Conventional (or relative) Poverty Measure (CPM). The CPM is a poverty indicator used by several nations that relates their poverty line to wider trends like median income.
Fremstad looked at where each measure’s threshold is set, what resources it counts and doesn’t, and what expenses it subtracts. According to him, the OPM solely considers pre-tax “money” income and does not take into account in-kind revenue such as food stamps or eliminate any expenses. The poverty line is set by the Office of Personnel Management (OPM) at the low-cost food plan from 1962, multiplied by three and adjusted for inflation.
According to Fremstad, the SPM includes “money” income, tax credits, and some kinds of in-kind income like SNAP, but excludes employer-sponsored health insurance, Medicaid, and free/subsidized child care. It deducts tax requirements, work-related child care and health-care expenses, and work-related expenses like commuting. The SPM calculates poverty as the 33rd percentile of average housing, food, utility, and clothing spending multiplied by 1.2.
The CPM, according to Fremstad, is normally organized in the same way as the SPM in terms of what it counts and subtracts, but, like all relative poverty measures, its threshold is related to a percentage of median incomes, reflecting economic progress. According to Fremstad, the OPM was around 50% of median income when it was implemented, but that has substantially decreased because it has only been modified for inflation. According to Fremstad, the OPM has effectively defined poverty for the last fifty years, and the SPM has done the same. The OPM is now at 30% of median disposable household income, whereas the SPM is over 35%.
The first of Fremstad’s five advice is to stop using the OPM right away. He clarified that if the Office of Management and Budget discontinued the OPM for statistical purposes and did not immediately adopt a new measure as the official threshold, the OPM would have to be used for programmatic purposes until a new set was adopted, such as the Department of Health and Human Services establishing its poverty guidelines to determine SNAP eligibility.
The second suggestion is to use a relative poverty measure based on 5060 percent of median income, with the caveat that it should not be used as a stand-alone measure but rather as one of several.
The final suggestion is to update SPM’s thresholds to include a wider range of goods and services.
The fourth suggestion is that health care and child care be included in SPM thresholds. The cost of health insurance should be included in the threshold, and employer-sponsored health insurance and government health care benefits should be counted as income.
The fifth and last recommendation is to revisit the SPM and CPM’s treatment of lump-sum refundable tax credits. The SPM currently expects that these tax credits will be used 100 percent of the time, although this is not always the case.
Is the poverty level adjusted for inflation?
The Census Bureau employs a series of monetary income levels that vary by family size and composition to identify who is in poverty, in accordance with the Office of Management and Budget’s (OMB) Statistical Policy Directive 14. If a family’s total income falls below the poverty line, the entire family, including all members, is termed poor. The official poverty line does not differ by region, although it is adjusted for inflation using the Consumer Price Index (CPI-U). Money income before taxes is used in the official poverty definition, which excludes capital gains and non-cash benefits (such as public housing, Medicaid, and food stamps).
See the History of the Poverty Measure page in the Poverty subtopic site’s About section for further information.
Is the poverty line quizlet modified for inflation?
The federal standard is a measure of absolute poverty. It is adjusted for inflation every year, but not for changes in the standard of living.
How is the poverty line calculated?
Poverty thresholds, or the minimal income required to avoid poverty, are modified for family size, composition, and age of householders each year using the Consumer Price Index to account for inflation.
The OPM thresholds are consistent across the country. The OPM poverty line for a household of four was $24,339 in 2016.
Poverty thresholds are used for a variety of objectives, including tracking poverty over time, comparing poverty across demographic groups, and determining eligibility for a variety of federal aid programs.
(For additional information on how to determine program eligibility using poverty thresholds or its administrative counterpart, poverty criteria, see FAQ: What are poverty thresholds and poverty guidelines?)
* The Census Bureau warns that the thresholds should be viewed as a “statistical yardstick” rather than a comprehensive analysis of how much money people require to live. They were created with the goal of defining and quantifying poverty in America, as well as tracking changes in the number of people and families living in poverty, as well as their characteristics, through time.
What impact does inflation have on the working poor?
Inflation reduces the purchasing power of any individual who owns or spends money, but it is most destructive to the poor and middle classes in the United States. According to a global poll conducted by the World Bank and the International Monetary Fund, people who identify as extremely poor are 10.5 percent more likely than those who identify as rich to name inflation as a top national concern. Growing inflation is also linked to rising poverty rates, according to the study.
Similarly, research from the Federal Reserve Bank of Cleveland finds that inflation reduces poor people’s lifetime consumption opportunities more than their wealthier counterparts, and research from the Federal Reserve Bank of New York finds that gasoline prices are the primary reason for the disparity between urban and rural households’ inflation experiences. In other words, inflation lowers the quality of life for poor Americans, and rising gas costs raise the cost of living for poor Americans in rural areas far more than for affluent Americans.
Examining the primary drivers of current inflation in relation to lower-income Americans’ usual consumption patterns will assist identify how inflation is affecting low-income Americans now. The major drivers to the 6.2 percent annual increase in CPI in October were increases in housing, transportation, and food expenses. As demand for travel climbs, the cost of hotels, used cars, and gas are witnessing some of their highest annual hikes to date – up 25.5 percent, 26.4 percent, and 49.6 percent, respectively. Lower-income households, unsurprisingly, spend a bigger percentage of their income on all three of these categories, and the difference is significant.
Figure 1: Average Annual Expenditures as a Percentage of After-Tax Income, by Income Quintile, 2019
Figure 1 depicts the expenditure patterns of U.S. consumer units (i.e. households) on housing, transportation, and food at various income levels. Annual spending is expressed as a proportion of after-tax income, which includes government payments. It’s worth noting that during the year, the expenditure of the bottom 40% of households exceeded their after-tax income. Individuals, such as students and retirees, who rely on savings or borrowing to cover their needs, according to the BLS, are likely to be the driving force behind this. Additional data suggests, however, that it may be the result of low-income people underreporting government subsidies like food stamps and other welfare payments.
In 2019, the lowest-earning 20% of American households spent more than 4.5 times their income on housing and food, and over 3.5 times more on transportation than the highest-earning 20%. Families in the center of the income distributionthose earning an average of $56,000 per yearspent 64 percent more of their income on housing, 69 percent more on transportation, and 77 percent more on food than the highest-income households. The most noticeable discrepancies in spending habits were found in shelter (12 percent of money spent by high earners vs. 57 percent for poor earners), meals at home (4 percent vs. 23 percent), and gas (4 percent vs. 23 percent) (2 percent vs. 8 percent).
Lower-income households spend a bigger percentage of their income on necessities like housing and food, and they also consume more foreign-made goods than higher-income Americans (think of all of the low-cost imported consumer goods sold by Amazon, Wal-Mart, and Dollar General). These items are also seeing substantial price rises, which is impacting lower-income Americans disproportionately. Import prices rose 9.2% in September, far more than the general CPI, which rose 5.4 percent.
The post-COVID economic recovery is defined by inflation. While others claim that today’s growing prices are merely the result of a strong economic recovery, the data demonstrates that inflation is slowing economic development and disproportionately affecting the poor.
What does the poverty line quizlet entail?
The Poverty Line The federal government establishes an absolute level of income for each family size below which a household is considered poor. Transfers of goods in kind. Poor people receive assistance in the form of products and services rather than cash. The Cycle of Life.
In the US quizlet, which of these is used to define the poverty line?
What factors go into determining the Poverty Line? The official poverty measure determines income levels by tripling the inflation-adjusted cost of a basic food diet in 1963 and adjusting for family size, composition, and the householder’s age.
What will be the FPL in 2022?
- Americans under the age of 65 who earn up to 138 percent of the federal poverty level will be eligible for Medicaid in states that have expanded Medicaid. (Note that, while this is commonly reported as 133 percent, there is a 5% income disregard that effectively raises it to 138 percent.)
- In states that haven’t expanded Medicaid, the rules are tougher, with significantly lower income restrictions for parents and coverage generally unavailable to non-disabled childless individuals, regardless of their income. As of 2022, this results in a coverage gap in 11 states.
- Medicaid eligibility for persons who are disabled or over the age of 65 is also based on their assets (varies by state; click on a state on this map to see details).
- The federal poverty level is also used to determine CHIP eligibility, however the particular requirements differ by state.
- The current year’s federal poverty level data are used to determine Medicaid and CHIP eligibility (and are compared to the household’s current income). A chart illustrating federal poverty levels for 2022 can be found below.
Premium tax credits:
- The federal poverty level figures from the previous year are utilized to determine premium tax credit eligibility. So, for a plan that takes effect in 2022, the household’s estimated 2022 income is compared to the poverty level figures from 2021. (see charts at the bottom of this page with applicable income levels depending on household size).
- Premium tax credit (premium subsidy) eligibility in the marketplace/exchange begins at 138 percent of the federal poverty level if you live in a state that has expanded Medicaid eligibility (ie, where Medicaid ends). The premium tax credit generally terminates at 400 percent of poverty (or lower if the coverage is already considered affordable without a subsidy), however the American Rescue Plan has expanded eligibility for 2021 and 2022. Premium tax credits are available regardless of income for those two years and maybe longer if Congress extends these provisions if the cost of the benchmark plan would otherwise be higher than 8.5 percent of the household’s income.
- Premium tax credit eligibility begins at 100% of the federal poverty level if you live in a state that has not extended Medicaid (as of 2022, there are 12 states that have not expanded Medicaid). In 2021 and 2022, there is no upper income limit for premium subsidy eligibility, as there is in the rest of the states. In some states (i.e., states that have extended Medicaid), a person earning 120 percent of the poverty line would be eligible for Medicaid, but in others, they would be eligible for premium subsidies (ie, states that have not expanded Medicaid).
- It’s vital to remember that children are eligible for Medicaid or CHIP at far greater household income levels than adults are. As a result, it’s not uncommon to encounter families where the children are qualified for Medicaid or CHIP but the parents are only eligible for premium tax credits. If a family decides to enroll their children in a private plan through the exchange with their parents, they must pay full price for the children’s coverage, even though they could have enrolled in Medicaid or CHIP instead.
- If you’re a recent immigrant who isn’t eligible for Medicaid because of your immigration status, you may be eligible for federal premium tax credits if you earn less than 80% of the federal poverty line.
- To see how much you could save on ACA-compliant health insurance premiums, use our calculator.
Cost-sharing reductions:
- Marketplace/exchange enrollees who choose Silver plans and have a household income of less than 250 percent of the federal poverty threshold are eligible for cost-sharing reductions. However, cost-sharing reductions are most effective for households earning less than 200 percent of the poverty line (see the charts at the bottom of this page for applicable income levels depending on household size).
- To calculate eligibility for cost-sharing reductions, the household’s estimated income is compared to the prior year’s poverty level statistics, much as it is with premium tax credits.
- In states that have not expanded Medicaid, the lower eligibility criterion is 100 percent of the poverty level, while in states that have extended Medicaid, the lower eligibility threshold is over 138 percent.
- 250 percent of the federal poverty line in the continental United States for coverage beginning in 2022 is $32,200 for a single person, $54,900 for a family of three, and $88,950 for a family of six. (Because Alaska and Hawaii have greater federal poverty levels, these figures are higher.) A chart at the bottom of this page displays households of various sizes in the Continental United States at 150 percent, 200 percent, and 250 percent of the poverty threshold.
Medicare Savings Programs:
- Medicare beneficiaries with limited financial resources may be eligible for Medicare Savings Programs, which are based on a percentage of income below the federal poverty threshold as well as asset limits.