Alternative Measures of Income Poverty and the Anti-poverty Effects of Taxes and Transfers...
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Transcript of Alternative Measures of Income Poverty and the Anti-poverty Effects of Taxes and Transfers...
Alternative Measures of Income Poverty and the Anti-poverty
Effects of Taxes and Transfers
Presentation to
University of Maryland-AEI
Seminar on Poverty Measurement
Daniel H. Weinberg, Chief Economist
May 10, 2005
2
Request from Seminar Planning Group
Besharov and Green (AEI) worked with seminar planning group to develop alternative measures of income poverty and methods to gauge the impact of taxes and transfers
They asked the Census Bureau about which measures were feasible to compute with existing resources before the next seminar
3
Five Decisions Must be Made for Any Poverty Measure
• Income concept
• Unit of analysis
• Equivalence scale
• Inflation adjustment
• Data source
4
1. Five Income Variants• Money income (used in official measure)
• Pre-tax pre-transfer: money income excluding means-tested cash transfers
• Pre-tax pre-transfer plus return to home equity
• Post-tax, post-transfer: money income plus realized capital gains, plus non-cash transfers, plus EITC, minus income and payroll taxes
• Post-tax, post-transfer plus return to home equity minus property taxes
5
Income: Additional information
Non-means tested transfers like Social Security included in all measures.
Work expenses are not subtracted from income, nor are medical out-of-pocket costs.
John Coder (Sentier Research) computed other measures that include some unreported transfer income; these will be discussed at the end of the presentation.
6
2. Two Units of 3. Two Thresholds Analysis (Equivalence
Scales)
•Family•Household
Tabulations presented here do not include unrelated children under 15 in families or in households
•Official•Experimental three-parameter
3-parameter scale
1 adult: 1.00;
2 adults: 1.41;
Single parents: [1.8+0.5*(children-1)]0.7
Other families: [Adults+0.5*children]0.7
7
4. Two Ways to 5. Data SourceAdjust Thresholds for Inflation
•Published CPI-U: 1963-1982 CPI-U
1983-1999 CPI-U-X1
2000-2002 CPI-U-RS•CPI-U-RS:
1963-1977 CPI-U, 1978-2002 CPI-U-RS
2003 Current Population Survey Annual Social and Economic Supplement (CPS ASEC)
8
Measurement Issues
Unable to partition all income sources into means-tested and non-means tested parts.
Improved methods for valuing noncash benefits like housing have not yet been implemented.
9
Warnings
This is a work in progress.
No significance tests have been performed. Because all these estimates are from the same dataset, conventional measures of sampling error do not apply.
The Office of Management and Budget is responsible for any changes to the official measure of poverty.
10
Poverty Thresholds, 2002: Examples
Single non-elderly
2-adult 2-child
3-adult 3-child
Official-CPI $9,359 $18,244 $24,797
3 parameter-CPI $8,455 $18,244 $24,232
3 parameter-RS $7,460 $16,095 $21,378Note: The 3-parameter (CPI) threshold for a 2-adult 2-child family is equal to the official threshold for that family by design; others are lower.
11
Percent in Poverty : 2002Family Measures using Official Thresholds and CPI
Threshold and
Inflation Adjustment
Money income
Pre-transfer
Pre-transfer +HE*
Family Measures
Official-CPI 12.1 12.8 11.63 parameter-CPI
3 parameter-RS
Household Measures
Official-CPI
3 parameter-CPI
3 parameter-RS
HE*=imputed return to home equity
12
Percent in Poverty : 2002Money Income Measures for Families & Households
Threshold and
Inflation Adjustment
Money income
Pre-transfer, pre-tax
Pre-transfer, pre-tax +HE*
Family Measures
Official-CPI 12.13 parameter-CPI 12.03 parameter-RS 10.0Household Measures
Official-CPI 10.53 parameter-CPI 10.63 parameter-RS 8.6
HE*=imputed return to home equity
13
Percent in Poverty : 2002 Money Income and Pre-Transfer Measures
Threshold and
Inflation Adjustment
Money income
Pre-transfer, pre-tax
Pre-transfer, pre-tax +HE*
Family Measures
Official-CPI 12.1 12.8 11.63 parameter-CPI 12.0 12.8 11.63 parameter-RS 10.0 10.9 9.9Household Measures
Official-CPI 10.5 11.2 10.13 parameter-CPI 10.6 11.4 10.23 parameter-RS 8.6 9.5 8.6
HE*=imputed return to home equity
14
Measuring the Distributional Effect:The “Poverty Shares Change Index”
Example: People in poverty in California
Official measure: 4.605 of 34.570 million (13.32%)Pre-transfer pre-tax income including imputed return to
home equity, for people in households, using the 3-parameter thresholds adjusted for inflation using the CPI-U-RS [PreT+HE*-H-3p-RS] measure: 3.305 of 24.418 million (13.54%)
Ratio=13.54/13.32=poverty shares change index of 101.6
Interpretation: People in poverty in California are a larger percentage of all those in poverty when the PreT+HE*-H-3p-RS measure is used than when the official poverty measure is used (their share is 1.6% larger)
15
Pre-Transfer Poverty Shares by Measure for Four Largest States: 2002
80.0
90.0
100.0
110.0
120.0
F-O-CPI F-3p-CPI F-3p-RS H-O-CPI H-3p-CPI H-3p-RS
California
Texas
New York
Florida
[Official=100]
16
Pre-Transfer Poverty Shares incl home equity by Measure for Four Largest States: 2002
80.0
90.0
100.0
110.0
120.0
F-O-CPI F-3p-CPI F-3p-RS H-O-CPI H-3p-CPI H-3p-RS
California
Texas
New York
Florida
[Official=100]
17
Pre-transfer Poverty Shares by State: Largest Changes (versus share of official poverty)
Families-3 parameter-RS• share increased 10% or more:
– DC, Connecticut, Hawaii (115.4)
• share decreased 10% or more:– Missouri, Idaho (88.6)
Households-3 parameter-RS• share increased 10% or more:
– South Carolina, Alabama, Connecticut, Louisiana, Mississippi, DC, West Virginia (118.8)
• share decreased 10% or more:– Wisconsin, Nevada, Colorado, Delaware, Alaska, Idaho,
Minnesota (75.7)
18
Pre-Transfer Poverty Shares by Age and Measure: 2002
60.070.080.090.0
100.0110.0120.0130.0140.0
fmly-offl-CPI
fmly-3prm-CPI
fmly-3prm-RS
hh-offl-CPI
hh-3prm-CPI
hh-3prm-RS
pre-transfer <18pre-transfer 65+pre-transfer+HE* <18pre-transfer+HE* 65+
HE*=imputed return to home equity
[Official=100]
19
Percent in Poverty : 2002Addition of Post-transfer, Post-tax Measures
Threshold &
Inflation Adj
Money income
Pre-tsfr pre-tax
Pre-transfer pre-tax +HE*
Post-tsfr post-tax
Post-transfer post-tax +HE
Familes
Official-CPI 12.1 12.8 11.6 10.2 9.43 parameter-CPI
3 parameter-RS
Households
Official-CPI
3 parameter-CPI
3 parameter-RS
HE*=imputed return to home equityHE=imputed return to home equity minus property taxes
20
Percent in Poverty : 2002Official and 29 alternative measures
Threshold &
Inflation Adj
Money income
Pre-tsfr pre-tax
Pre-transfer pre-tax +HE*
Post-tsfr post-tax
Post-transfer post-tax +HE
Families
Official-CPI 12.1 12.8 11.6 10.2 9.43 parameter-CPI 12.0 12.8 11.6 9.9 9.13 parameter-RS 10.0 10.9 9.9 7.9 7.3Households
Official-CPI 10.5 11.2 10.1 8.7 7.93 parameter-CPI 10.6 11.4 10.2 8.6 7.83 parameter-RS 8.6 9.5 8.6 6.6 6.0
HE*=imputed return to home equityHE=imputed return to home equity minus property taxes
(PostT and PostT+HE household estimates from Sentier Research.)
21HE*=imputed return to home equity
HE=imputed return to home equity minus property taxes
Poverty Rates Under Alternative Definitions: 2002
0.0
5.0
10.0
15.0
fmly-offl-CPI
fmly-3prm-CPI
fmly-3prm-RS
hh-offl-CPI
hh-3prm-CPI
hh-3prm-RS
moneyincome
pre-transfer
pre-transfer+HE*
post-transfer
post-transfer+HE
22HE*=imputed return to home equity
HE=imputed return to home equity minus property taxes
Anti-poverty Effects of Means-Tested Transfers, Taxes, and Home Equity on Poverty Rates of Children: 2002
0.02.04.06.08.0
10.012.014.016.018.0
fmly-offl-CPI
fmly-3prm-CPI
fmly-3prm-
RS
hh-offl-CPI
hh-3prm-CPI
hh-3prm-
RS
pre-transfer
pre-transfer+HE*
post-transfer
post-transfer+HE
23HE*=imputed return to home equity
HE=imputed return to home equity minus property taxes
Anti-poverty Effects of Means-Tested Transfers, Taxes, and Home Equity on Poverty Rates of Seniors: 2002
0.02.04.06.08.0
10.012.014.016.018.0
fmly-offl-CPI
fmly-3prm-CPI
fmly-3prm-
RS
hh-offl-CPI
hh-3prm-CPI
hh-3prm-
RS
pre-transfer
pre-transfer+HE*
post-transfer
post-transfer+HE
24
Post-transfer Poverty Shares by State:
Largest Changes (versus share of official poverty)Families-3 parameter-RS• share increased 10% or more:
– Nebraska,Indiana,Illinois,Ohio,New Mexico (113.2)
• share decreased 10% or more:– Nevada,Mass.,Maine,Alaska,Kansas,Connecticut (83.1)
Households-3 parameter-RS• share increased 10% or more:
– Ohio, N Carolina, Indiana, Tennessee, S Carolina, Illinois, New Mexico, Louisiana (122.6)
• share decreased 10% or more:– Kansas, Hawaii, Utah, Wash., Nevada, Idaho, Mass., Maine, Vermont,
Delaware, Conn., Minnesota (70.1)
25
Extent of CPS Unreported Income(from October seminar)
Ruser, Pilot, and Nelson (2004) study compared BEA State Personal Income (SPI) with CPS ASEC money income for 2001
BEA: $8.670 trillionCPS: $6.446 trillion
Difference: $2.233 trillion
However, adjustments to BEA SPI are needed to derive a concept consistent with CPS ASEC.
Remaining gap is $806 billion.
26
Key Areas of CPS Response Error
Wages and Salaries: 3 percent underreporting accounts for $158 billion of the gap
Self-Employment income: 48 percent underreporting accounts for $302 billion of the gap
Interest and Dividends: 32 percent underreporting accounts for $132 billion of the gap
Transfer Programs: 23 percent underreporting accounts for $199 billion of the gap
27
Transfer Income Imputation
Census Bureau analysts are unfamiliar with the adjustment methods used in the Urban Institute’s TRIM model so these adjustments were implemented by Sentier Research using the CPS ASEC public use file.
Imputations were done for underreported Temporary Assistance for Needy Families, Food Stamps, Supplemental Security Income only.
We also have a concern that undercoverage of the low-income population by the survey might affect the reliability of such an imputation.
28
Effects of Adjusting for Unreported TANF, SSI, FS Income on Household Poverty Rate Measures: 2002[Official poverty rate= 12.1 percent]
All estimates from Sentier Research.TANF=Temporary Assistance for Needy Families; FS=Food Stamps, SSI=Supplemental Security Income
Money Income
Post-transfer, post-tax
Post-transfer, post-tax, +imp'd ret to home equity
Official-CPI 10.5 8.7 7.93param-CPI 10.5 8.6 7.83param-RS 8.6 6.6 6.0Official-CPI-adj 10.2 7.9 7.13param-CPI-adj 10.2 7.8 6.93param-RS-adj 8.3 5.6 5.0
29All estimates from Sentier Research.
Household Poverty Rates under Alternate Definitions: The Effect of Including Unreported TANF, SSI, FS Income:
2002
0.02.04.06.08.0
10.012.014.0
money income post-transfer post-transfer+HE
Official-CPI
3param-RS
Official-CPI-adj
3param-RS-adj
30All estimates from Sentier Research.
Poverty Shares for Children by Household Measure, adjusted for unreported income: 2002
80.0
90.0
100.0
110.0
120.0
official-CPI 3parameter-CPI 3parameter-RS
money income
post- transfer
post- transfer+HE
money income adj
post- transfer adj
post- transfer+HE adj