New Measure of Poverty Shows Benefits of Tax Credits

Last week, the Census Bureau released findings from the Supplemental Poverty Measure (SPM). Unlike the official federal poverty measure, covered in KYA’s earlier releases, the Supplemental Poverty Measure (SPM) is designed to act as a more comprehensive gauge of poverty.

The official federal poverty measure has been based on an old assumption about a family’s basic needs which no longer holds true in today’s society – that the average family spends one-third of its income on food. In reality, food costs are now a much smaller share of family expenses due to the proliferation of other needs such as medical care and child care. The formula has also failed to include non-cash government assistance as part of family income.

The SPM determines poverty status by comparing an expanded definition of family income with a more meaningful threshold of the costs of meeting basic needs. The SPM definition of income includes credits and non-cash benefits that help families meet their basic needs. In addition to the costs of food, clothing, and shelter, the SPM poverty threshold also includes important work-related expenses, like child care, and the out-of-pocket health expenses so many of us face. Because of the expanded definition and considerations, the SPM better reflects how key public programs have kept children and families out of poverty.

The results of the 2010 Supplemental Poverty Measure show that the Earned Income Tax Credit (EITC) and the Supplemental Nutrition Assistance Program (SNAP) have been instrumental in elevating children and families from poverty:

  • Counting EITC benefits as income, the percentage of children considered poor by the SPM was 18.2 percent. Not counting the EITC, child poverty would be 22.4 percent (more than 4 percentage points higher); and
  • SNAP benefits cut the percentage of children in poverty by 3 percentage points.

It is important to note that EITC and SNAP were both expanded as part of the American Recovery and Reinvestment Act. The EITC expansions will expire at the end of 2012 and the SNAP expansion will end in November 2013, unless Congress extends them.

The 2010 SPM also illustrates the impact that medical expenses, child care costs, and other necessary expenses have on child poverty:

  • When out-of-pocket medical expenses where factored in, the child poverty rate increased from 15.4 to 18.2 percent; and
  • Parental work expenses, including child care costs, raised the child poverty rate by 2 percentage points.

These findings demonstrate the critical importance of programs like Medicaid and KCHIP, and child care subsidies, which reduce out-of pocket expenses for families.

The SPM provides additional evidence that the federal EITC helps lift families out of poverty. Kentucky policymakers can provide additional help to Kentuckians by implementing a refundable, state-level EITC, which would allow low-income working families to keep more of their hard-earned dollars to provide for their families.

 

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