Raising the Poverty Line in Divided Government

Once again, Congress appears deadlocked. Following the tight 2022 midterm elections, Democrats managed to maintain a slim majority in the U.S. Senate, but narrowly lost the House. More recently, the prolonged race for Speaker of the House revealed the instability of the Republican House majority. House Speaker Kevin McCarthy is simultaneously a moderate-conservative and a Trump-Republican, and though he faces fierce opposition from the Trump wing of his caucus, there is considerable uncertainty regarding his true policy priorities. These factors all add up to a low probability of any accomplishments and the prospect of large-scale legislative reforms seems very unlikely.

In such a tumultuous policy environment, the prospect for progress is not lost. Congress can still make technocratic adjustments to existing federal programs and marginal changes to formal policy definitions that could have a significant positive impact while avoiding politically untenable headlines.

Unfortunately, far too many Americans cannot wait for a more favorable political climate. With too many families barely making ends meet, updating the federal poverty line stands as both politically possible and a worthwhile policy that will help millions.

None of the aforementioned gridlock necessarily precludes progress on redefining this critical policy criteria. Various amendments and riders must pass legislation, like the Farm Bill and National Defense Authorization Act (NDAA), which often provide side avenues to address technical challenges in poverty.  Even beyond legislative gamesmanship, the Biden administration, more specifically the Office of Management and Budget (OMB), can make the necessary rule changes at the agency level to modernize the economics of poverty programs, without congressional approval.

The official poverty measure (OPM) is a federally set measurement of the minimum amount of annual income needed for individuals and families to pay for essentials. If an individual’s or family’s income falls below the poverty line, the federal government considers them ‘in poverty’ and eligible for certain additional federal assistance programs. Currently, the poverty line for an individual stands at $14,580 a year, and scales slightly with the size of a family; for instance, for a family of six the poverty line increases to $40,280, regardless of where a family lives.

The poverty threshold remains painfully low. Recently, members of Congress have introduced legislation to adjust the poverty line. Although similar previous bills gained little traction, reintroducing legislation in successive Congresses almost always results in more co-sponsors, ensuring that legislative persistence can yield progress on the topic. In previous legislative sessions, Democratic and Republican approaches to the topic have differed. Progressives introduced legislation to comprehensively increase the poverty threshold, though the bill has little support from moderates. At the same time, conservatives introduced competing legislation to count welfare benefits as income, which would potentially disqualify welfare recipients from future benefits, which also has no real support from centrist-Republicans or Democrats. Although both bills are self-described as updating the poverty definition, the legislative intent of the conservative bill is to reduce government spending on welfare programs, not meaningfully update the definition of poverty.

Noted poverty economist, the late Rebecca Blank, developed large portions of the Supplementary Poverty Measure (SPM), a more comprehensive measure, under the pretense that the OPM was inadequate. Currently, the metrics that the U.S. Census Bureau uses to officially calculate poverty are so low that various welfare programs already implement multiples of the official poverty line in their determinations of benefits. For example, Obamacare tax credits are available for people earning up to quadruple the poverty line. The OPM uses fairly unsophisticated adjustments, such as family size and a limited definition of inflation, and is not adjusted to include differences in cost of living. In addition to the OPM, the U.S. Census Bureau also calculates the Supplemental Poverty Measure in an attempt to encapsulate the true breadth of poverty, but this measure does not apply to federal programs. While practical changes to fix these measurement problems may seem like common sense, achieving progress on niche technocratic issues proves difficult in a political environment that focuses more on controversy and fanfare than policy-specifics.

Proponents of the measure to comprehensively increase the poverty line argue that the current OPM causes millions of people to fall through the ever-growing eligibility holes in social safety net programs, while opponents argue that adding cost of living adjustments would result in an undue amount of people qualifying for welfare programs. Opponents also contend that reducing the welfare rolls has fiscal benefits, a key priority of the new House Republican Majority. However, significant research has shown that ignoring poverty and eligibility issues, as Republicans have effectively proposed, costs more than it attempts to save, and these tested programs are cost ineffective.

A more serious criticism of adjusting the poverty threshold is that scaling benefits with regional costs of living adjustments entrenches secondary effects: since most of the differences in cost of living are in housing and rent costs, scaling benefits would remove incentives to ameliorate underlying housing affordability issues. If those in poverty receive enough benefits to afford skyrocketing housing costs, then politicians may feel little need to address local housing costs to begin with. Therefore, while updating the definition of poverty can be done relatively simply, policymakers must also address the asymmetries within the housing market before scaling benefits to avoid calcifying the housing affordability crisis.

There are multiple ways to update the poverty line. Most simply, one could multiply the existing poverty line by a similar factor that the government already uses to deal with the negligently poverty line. If every program already uses a multiplier anyway, then regulators should bite the bullet and renormalize all of the legislation to a new functional poverty line. This would not affect eligibility for many programs and therefore would likely be budget-neutral. Budget neutrality is crucial for garnering political support as well as opening the path for budget reconciliation. However, this change would increase the number of Americans considered to be experiencing poverty, a controversial prospect for many rural lawmakers, who contend that their constituents are not in poverty but rather simply live in areas with lower costs of living. Benchmarking the poverty line to that scaled factor and reducing the eligibility requirements accordingly, the poverty line can be shifted without increasing the number of eligible people.

Alternatively, the OPM could be adjusted to be more comprehensive and take into account cost of living, like the SPM. This would avoid inaccurately over-counting rural American as living with poverty and would provide a better understanding of true poverty levels. This change would result in many more urban Americans who live in areas with high costs of living qualifying for aid, thus requiring increased spending on assistance programs. Such fiscal implications may make such changes harder to pass in Congress, and rural lawmakers in particular may be unlikely to support such a measure that sends more aid to cities.

The OPM was designed over half a century ago and was largely based on backwards-looking data from the 1950’s. The guiding principle centered on the cost of food not exceeding 30% of a family’s income. The SPM attempted to make poverty more regionally specific, considering a variety of factors, most notably cost of living. However, a better measure of poverty would evolve over time, not just relative to food but to a whole host of changing goods and services that are relevant factors in the modern economy. When the OPM was originally constructed neither the internet nor cell phones were invented, however they are absolutely essential in the 21^st century economy.

Metrics need to remain relevant, apolitical, and reflective of the facts on the ground. At a minimum, poverty metrics should be flexible enough to recognize the basic reality that metropolitan areas are more expensive than rural parts of the country. Poverty doesn’t look the same everywhere, and the tools the federal government uses to measure it must reflect that. Comprehensively scaling the poverty line relative to cost of living is plainly better policy, but the current Congress is likely not interested in brokering ideal policy. Simply multiplying the current metric at the agency level is much more politically feasible.