Poverty isn’t as high as the U.S. government says it is. The reason is that federal programs, supported by Democrats and Republicans alike, have dramatically reduced poverty and, by extension, income inequality.Meyer and Sullivan in their paper state:
To understand why, let’s look at what the numbers don’t show. The Census Bureau doesn’t count safety-net benefits, including food stamps, housing aid, school lunches and other noncash transfers. Adding the cash value of food stamps alone would lower the poverty population by 3.9 million people. Census data also overcompensate for inflation by ignoring discount prices at big-box outlets such as Wal-Mart Stores Inc., where many low-income families shop. The figures don’t even factor in Medicare and Medicaid benefits.
But tax credits are the most overlooked numbers of all. One, the Earned Income Tax Credit, is refundable, meaning that some low-income breadwinners get a check from the Internal Revenue Service even if their earnings are so small that they owe no income tax. Counting that tax credit would decrease the number of people living in poverty by another 5.7 million.
The Census Bureau defines a family of four with income less than $23,021 as impoverished. But a better portrait of poverty in America would count all government benefits and tax credits, raising many households’ income considerably. An even truer picture of deprivation would measure consumption (how much a household spends on rent, autos, food and other items) rather than income (how much a household admits to bringing home in earnings). Incomes are unreliable because people are reluctant to reveal how much they make. They are less reticent when asked if they have television sets, cars and air conditioning, or if they eat out and go to movies.
When adjusted for these flaws, the level of poverty is much lower, says a new paper by economists Bruce D. Meyer at the University of Chicago and James X. Sullivan at the University of Notre Dame. Instead of 15 percent, it is only 4 percent to 5 percent. And instead of being higher than it was in 1980, poverty has declined by two-thirds.[Emphasis added.
Official poverty statistics suggest that poverty has increased over the past forty years. This claim is inconsistent with our results which show substantial improvements in income based poverty over the past forty years and even larger improvements in consumption based poverty, especially in the last decade. These poverty results are corroborated by other indicators of well-being for those with low income such as increases in car ownership and evidence of improved living conditions including larger living units that are more likely to have air conditioning and other features. While the deficiencies in the official poverty measure have been the subject of much previous research, most poverty scholars still rely on the official measure as the definitive measure of trends in poverty and draw important conclusions based upon it.Also, see the Brookings article, "Poverty Has Fallen Much More than Previously Thought: Consumption a Better Measure than Income; We are Winning the War on Poverty, New Research Asserts."