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Poverty by another definition

November 1, 2006

Author

Ron Wirtz Editor, fedgazette
Poverty by another definition

The official poverty rate is referred to as the "money-income" rate. It equals the annual amount of money from (among other things) work earnings, interest and dividends, workers' and unemployment compensation, Social Security, pension or other retirement income, survivor and disability benefits, alimony or child support, and financial assistance from outside the home.

Using the money income (MI) definition as a baseline, the Census Bureau has tabulated alternative poverty rates by adding and subtracting various other financial items. Here are four from a 2005 Census report:

MI - Tx is money-income plus realized capital gains (losses), less federal and state income taxes and less payroll taxes.

MI - Tx + EIC is money-income; plus capital gains or losses, less federal and state income taxes and payroll taxes; plus the Earned Income Credit.

MI - Tx + NC is money-income plus realized capital gains (losses), less federal and state income taxes, less payroll taxes, plus the value of employer-provided health benefits and noncash, means-tested government transfers including Medicare, Medicaid, food stamps, rent subsidies, and free and reduced-price school lunches.

MI - Tx + NC - MM is money-income plus realized capital gains (losses), less federal and state income taxes, less payroll taxes, plus the value of employer-provided health benefits and the value of noncash transfers except Medicare and Medicaid.

MI based on CPI-U-RS is money-income adjusted for the so-called Consumer Price Index Research Series, which includes all improvements made to the CPI since 1978. The official poverty rate, on the other hand, is tabulated using CPI for all urban consumers. Dollar figures in the RS index tend to be lower, and the Bureau of Labor Statistics has stated that the RS index is the most detailed and systematic index available.

Chart: Poverty Rates Using Alternative Income Definitions


Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.