How the Census Bureau Measures Poverty: the Poverty Threshold
The U.S. Census Bureau uses a complex equation to measure "official poverty." It begins by computing poverty status based on income, including all money income before taxes, such as earnings, unemployment compensation, workers' compensation, Social Security, public assistance, veterans payments, etc. Noncash benefits such as food stamps and housing do not count, nor do capital gains or losses.
If a person lives with a family, the income of all related family members is added up. That income amount is matched against what is called the "measure of need," or the poverty threshold. These thresholds vary according to the size of the family and the ages of the members.
Originally derived in the early 1960s using U.S. Department of Agriculture food budgets designed for families under economic stress, the thresholds are not intended to be complete descriptions of what people and families need to live. Although in some sense they reflect families' needs, the thresholds are intended for use as a statistical yardstick. What's more, many government programs use a different poverty measure, such as the Department of Health and Human Services (HHS) poverty guidelines or multiples thereof.
The official measure of poverty used by the Census Bureau was established by the Office of Management and Budget; however, government aid programs do not have to use the official poverty measure as eligibility criteria. The U.S. Census Bureau officially designates a family as "in poverty" if the total family income is less than the threshold appropriate for that family.
For example, if a family has five members - two children, a mother and father and a great-aunt - their poverty threshold in 2004 was set at $22,831. If the mother's income was $10,000 for that year, the father's $5,000 and the great-aunt's $10,000, the total income of $25,000 would mean the family was not "in poverty" according to the official definition.
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