Limitations of Official Measure

There is widespread acknowledgment of the drawbacks of the official measure because

• It does not account for the taxes people pay, the tax credits they receive or the in-kind benefits like food stamps and housing assistance that act like income, allowing recipients to spend on other goods and services. These omissions make the official poverty rate a poor metric for assessing the effects of recent antipoverty initiatives—these tax credits and in-kind transfers have expanded more rapidly than other income sources in recent decades.
• It does not recognize that people can be well-off because they have savings they can draw down, and may already own a house and a car so they do not need to spend as much on housing and transportation. This issue is particularly important for the elderly.
• It relies on income that is under-reported in household surveys.
• The real value of the thresholds has increased over time due to bias in the CPI-U.
• It accounts for family size in an odd way, so that, for example, the second child in a two parent family raises the thresholds much more than either the first child or the third.
• It does not count the income of cohabitors.
• It does not account for geographic differences in living costs.
   

For additional information see:

• The 1995 NAS report on measuring poverty
• Five Decades of Consumption and Income Poverty (pdf)
  Bruce D. Meyer, The Harris School of Public Policy Studies, The University of Chicago, and and James X. Sullivan, University of Notre Dame
• The Poverty of "The Poverty Rate:" Measure and Mismeasure of Want in Modern America, Nicholas Eberstadt (October 2008)