(Archived document, may contain errors)

December 23,1993

THE FACTS ABOUT AMERICA'S POOR

Robert Rector Senior Policy Analyst

Each year, the U.S. Census Bureau reports the number of Americans who are "living in pov- erty." According to the Bureau, in 1992 there were 37 million poor Americans. But a close look at the actual material living standards of persons defined as "pooe' demonstrates that the Census Bu- reau's official poverty report is highly misleading. For most Americans the word "poverty" means destitution, an inability to provide a family with nutritious food, clothing, and reasonable shelter. Only a small number of the 37 million persons classified as "poor" by the Census Bureau fit such a description. In fact, numerous government reports indicate that most "pooe' Americans today are better housed, better fed, and own more personal property than average Americans throughout most of the century. As Chart I shows, in 199 1, the per capita expenditures of the lowest income one-fifth of the U.S. population exceeded the per capita income of the average American household in 1960, af- ter adjusting for inflation. 1

Actual Living Standards The following are facts about persons defined as "poor" by the Census Bureau. Data are taken from various government reports: In 1991 nearly 40 percent of all "poor" households actually owned their own homes. The average home owned by persons classified as -pooe' by the Census Bureau is a thr-ee-bedroom house with a garage and porch or patio.2 Over three-quarters of a million "poor"persons own homes worth over $100,000; 7 1,000 "poor" persons own homes worth over $300,000.3

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1 U.S. Department of Labor, Bureau of Labor Statistics, Consumer Expenditures in 1991, Report 835, December 1992, p. 4. U.S. Department of Commerce, Bureau of the Census, Historical Statistics of the United States, Part I (Washington, D.C.: U.S. Bureau of the Census), 1975, pp. 297 and 301. 2 U.S. Department of Housing and Urban Development, and U.S. Department of Commerce, Bureau of the Census, American Housing Surveyfor the United States in 1991, Current Housing Reports H150/91 (Washington D.C.: U.S. Government Printing Office, April 1993), pp. 38,90,94,102. 3 Ibid., p. 120.

Only 8 percent of "poor" households are overcrowded. Nearly 60 percent have more than two rooms per person. 4 As Chan 2 shows, the average ,pooe' American has twice as much living space as the average Japanese and four times as much living space as the average Russian. (Note: These comparisons are to the average citizens in Russia and Japan, not to those classified as poor.) 5 6 Nearly 60 percent of "poor" households have air conditioning. By contrast, just twenty years ago only 36 percent of the entire U.S. population enjoyed air condition- ing. Sixty-four percent of '@pwe' households own a car; 14 percent own two or more cars. I Fifty-six percent own microwave ovens. 8 Close to a quarter have an automatic dishwasher; 9 nearly one-third own a separate, stand-alone freezer in addition to their refrigerator. 10 Ninety-one percent have a color television. Twenty-nine percent own two or more color televisions. I I

"Poor" Americans live in larger houses or apartments, eat more meat, and are more likely to own cars and dishwashers than is the general population in Western Europe. 12 The "poor" are far from being chronically hungry and malnourished. In fact,-voor persons are more likely to be overweight than are the middle-class persons. 13' Poor children actually consume more meat than do higher-income children and have average protein intakes 100 percent above recommended levels. 14

4 Only 7.5 percent of poor households have one room per person or less. Ibid., p. 42. 5 Robert Rector, "How the Poor Really Live: Lessons forWelfare Reform"Heritage Foundation Backgrounder No. 875, January 311992, pp. 12,13. 6 American Housing Surveyfor the United States in 1991, p. 50. 7 Ibid., p. 50. 8 U.S. Department of Energy, Energy Information Administration, Housing Characteristics 1990 (Washington, D.C., Department of Energy, May 1992). Ibid., p. 112. 9 American Housing Survey, op. cit., p. 44. 10 Housing Characteristics, opcit., p. 114. 11 U.S. Department of Energy, Energy Information Administration, Housing Characteristics 1990 (Washington D.C., Department of Energy, May 1992), p. 115. 12 Robert Rector, Kate Walsh O'Beirne, Michael McLaughlin, "How Poor Are America's PoorT'Heritage Foundation Backgrounder No. 791, September 21, 1990. 13 Robert Rector, "Food Fight: How Hungry Are America's ChildrenT' Policy Review, Fall 199 1. 14 U.S. Department of Agriculture, Human Nutrition Information Service, Nutrition Monitoring Division, Low Income Women 19-50 Years and Their Children 1-5 Years, 4 Days, Nationwide Food Consumption Survey of Food Intakes by Individuals, NFCS CSFU Report No. 85-5 (Washington, D.C.: U.S.Department of Agriculture, March 1988). pp. 14, 72-73. U.S. Department of Agriculture, Human Nutrition Information Service, Nutrition Monitoring Division, Women 19-50 Years and 7heir Children 1-5 Years, 4 Days, Nationwide Food Consumption Survey of Food Intakes by Individuals, NFCS CSFII Report No. 85-4 (Washington, D.C.: U.S. Department of Agriculture, August 1987), pp. 16,64-65.

As Table I shows, the average consumption of pro- Tabb I tein, vitamins, and minerals is virtually the same Average Per,,Capita Consumption for poor and middle-class children, and in most of Nutriments as a Percentage of cases is well above recommended norms. 15 Poor Recommended Daily Allowances children today are in fact super-nourished, grow- for Children Under Age 6 in 1985 ing up to be on average one inch taller and ten Family Income Family Income Below 75% Above 300% pounds heavier that the GIs who stormed the of Poverty of Poverty beaches of Normandy in World War H. 16 Threshold Threshold Protein 211 213 Comparing Spending with Income Vitamin B-12 211 164 The Census Bureau counts as poor any household with a Thiamin 192 152 cash income less than the official poverty threshold, which Vitamin A 186 230 Vitamin C 179 164 was $14,343 for a family of four in 1992. But the simple Riboflavin 181 182 fact is that the Census Bureau dramatically undercounts Folacin 149 158 the incomes of less affluent Americans. Other government Niacin 138 145 surveys consistently show that spending by low-income Phosphorous 120 127 U.S. households greatly exceeds the income which Census Vitamin " 113 133 claims these households have. Vitamin E 113 102 Magnesium 105 126 As Chart 3 shows, in 1991 Census claimed that the low- Calcium 94 99 est income fifth (or quintile) of U.S. households had an av- Zinc 76 73 erage "income" of $7,263. In the same year, the Consumer s"MW. s" boti ou Ira. Expenditure Survey of the Department of Labor showed that the average household in the same lowest income quin- tile spent $13,464. The Labor Department and the Census Bureau data directly contradict each other. The Labor Department survey shows $1.85 in spending for every $ 1.00 of income Census claims these same households possess. This is no fluke; a similar wide gap between spending and alleged "income" occurred throughout the 1980s. But the picture is still incomplete. When counting household expenditures, the Labor Depart- ment's Consumer Expenditure Survey excludes public housing subsidies and health care subsidies provided through Medicaid, Medicare, and other government medical programs. If housing and medical subsidies are included the total expenditures of the average household in the bottom in- come quintile rise to $17,804. This means less-affluent households spend $2.45 for every $ 1.00 of "income" reported by Census.

15 Low Income Women 19-50 Years and Their Children 1-5 Years, 4 Days, op.cit., pp. 72-73. Women 19-50 Years and Their Children 1-5 Years, 4 Days, opcit., pp.64-65. 16 Based on a comparison of males in their late teens. Bernard D. Karpinos, Height and Weight ofMilitary Youths (Medical Statistics Division, Office of the Surgeon General, Department of the Army, 1960), pp. 336-35 1. Information on the current height and weight of youths provided by the National Center for Health Statistics of the U.S. Department of Health and Human Services based on the National Health and Nutrition Examination survey. 17 This calculation assumes that the bottom income quintile received the following share of government outlays: 75 percent of means-tested housing subsidies; 60 percent of means-tested medical subsidies to non-institutionalized persons, and 30 percent of Medicare outlays. The share of outlays going to the bottom quintile was estimated using data provided in the American Housing Survey, the Current Population Survey, and the Survey of Income and Program Participation.

Errors in the Census Bureau's Poverty Measurement The above facts make it clear that something is radically wrong with the annual Census Bureau poverty report. In reality, the Census report dramatically underestimates the economic resources available to less affluent American households and dramatically overstates the number of poor Americans. There are three sources of error in the annual Census poverty report.

1) The Census Bureau falls to count most welfare benerits as income. As noted, the Census Bu- reau counts as poor any household whose "income" falls below specified thresholds. However, in determining fanfily's income, the Census Bureau deliberately ignores all non-cash welfare benefits receiva b@ the family' .'For example, if a family received $4,000 in Food Stamps and $5,000 in housing aid over a year, these benefits would be treated as having zero income value by Census. In 1992, federal, state, and local governments spent $305 billion on welfare programs provid- ing cash, food, housing, medical aid and social services to low-income Americans. This was roughly three times the amount of money needed to raise the incomes of all poor Americans, as identified by the Census Bureau, above the poverty income thresholds. But the Census Bureau, in counting incomes, ignores most of this welfare aid. According to the official government fig- ures, Medicaid, Food Stamps, the Women, Infants and Children (WIC) food program, public housing, and most other welfare programs, have no effect on the living standards of the poor. In 1992, welfare benefits and services which were provided to low-income Americans, but not counted as income by the Census Bureau, equalled $183 billion, or 3.1 percent of the total U.S. economy. Overall, the missing or non-counted funds amounted to $11,470 for every "poor" household. While not every poor household received that level of non-cash aid, it clear that Census vastly undercounts the level of government assistance provided to most low income households. 2) The Census poverty report also undercounts household income because it fails to count the enormous "underground economy" in the U.S. The underground economy consists primarily of persons who perform legitimate work "off the books" in order to avoid government taxes and regulation. Most of the individuals with "off the books" earnings are low-income persons, par- ticularly those who are self-employed or work in small businesses. Estimates put the total value of the unreported earnings at around $300 billion or 5 percent of the gross national product. 18 While Americans do report more income to the Census Bureau than to the Internal Revenue Service, much of the informal economy is still not re included in the Census count of household income. rrted to the Census Bureau and thus not

3) The Census Bureau ignores household assets. In determining whether a household is "poor" the Census Bureau counts only the household's income in the current year. It ignores all assets accumulated in prior years. Thus a businessman, who has suffered losses and, as a result, has a zero or negative income for the current year, will be officially counted as "pooe' even if he owns a home and has several million dollars in the bank.

18 These figures include only unreported wages and self-employment earnings from lawful activities. U.S. Department of Labor, The Underground Economy in the United States, Occasional Paper No. 2, September 1992, p. 24. See also Carol S. Carson, "Ibe Underground Economy: An Introduction," Survey of Current Business, May 1984, pp. 21-37. 19 U.S. Department of the Treasury, Internal Revenue Service, Estimates of Income Unreported on Individual Income Tax Returns, Publication 1104 (9-79), pp. 118-132.

War on PoverW Not a Success If poverty is defined as: an individual who lacks adequate nutritious food for his family, lacks clothing, lacks a reasonably warm, dry apartment to live in, or who needs a car to get to work and does not have one-then there are very few poor persons remaining in the U.S. Certainly, only a small fraction of the 37 million persons classified as "poor" by Census would be poor by the preced- ing criteria. But the low level of actual material poverty in the U.S. should not be regarded as victory for the War on Poverty. Studies reveal that the biggest effect of current welfare spending is not to raise in- come, but merely to replace self-sufficiency with dependence. A second consequ6nc'e of welfare has been the destruction of families. In 1959, 28 percent of poor families with children were headed by women. By 1991, 61 percent of poor families with children were headed by single mothers. In the 1960s when the War on Poverty was beginning, the black illegitimate birth rate was about 25 per- cent; today more than two out of three black children are born out of wedlock. Similar increases in illegitimacy are occurring among low-income whites; the illegitimate birth rate among white high school dropouts is now 48 percent. The Census Bureau poverty figures lack even a tenuous link to social and economic realities in the U.S. Even worse, the Census Bureau, by creating a false picture of widespread chronic material poverty, distracts attention from the real problems crippling low-income communities: crime, pro- longed welfare dependence, illegitimacy and family breakup, eroded work ethic, and moribund, fail- ing public school systems. It thus makes solving these real problems all the more difficult.

Source: U.S. Department of Energy, Energy Information Administration, Housing Characteristics 1987, A.S. Zaychenko, "United States-USSR: Individual on Consumpti (Some Comparisons)," World Affairs, Summer 1990;'rThe Affluent Japanese Household," Business America, March 23, 198 1. Heritage DataChart