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1 Bilal Habib & Ellen Steele, Reconciling the Official Poverty Measure and CBO's Distributional Analysis of Household Income 1 (January 8, 2025)

handle is hein.congrec/rcngtofcl0001 and id is 1 raw text is: Summary For over 30 years, the Congressional Budget Office has regularly published reports on the distribution of house- hold income, means-tested transfers, and federal taxes. (Means-tested transfers are cash payments or in-kind services provided primarily on the basis of income.) And for over 60 years, the Census Bureau has regularly updated its measure of poverty rates, known as the official poverty measure (OPM). CBO's distributional analysis of household income shows that from 1979 to 2021, income after transfers and taxes among households in the lowest quintile (or fifth) of the income distribu- tion increased significantly, after adjusting for inflation. However, the OPM has not decreased significantly over that same period. What accounts for that seeming disparity? In this report, CBO answers that question by examining how its method for analyzing the distribution of house- hold income differs from the Census Bureau's method for calculating the OPM. The examination involves a step-by-step reconciliation of the two methods. (For a summary of the steps and their effects on the percentage of people with income below the poverty threshold from 1979 to 2021, see Figure 1.) Measures of Income The largest effects stem from differences in what counts as income. The income measure in CBO's distribu- tional analysis of income includes benefits from in-kind transfers (that is, transfers in the form of goods or services rather than cash), whereas the income measure (called money income) used to calculate the OPM does not. Including those benefits-particularly benefits from health-related in-kind transfers-increases income among low-income households and therefore reduces the number of people whose income falls below the poverty threshold. (Throughout this report, results that include those transfers should be interpreted with caution because the income thresholds that the Census Bureau uses to calculate the OPM are not designed to include such transfers.) Data and Units of Analysis Other significant effects stem from differences in the data and the units of analysis that CBO and the Census Bureau use. CBO's income measure matches data from tax records with data from the Annual Social and Economic Supplement of the Current Population Survey (CPS) and uses households as the unit of analysis. To develop the OPM, the Census Bureau relies solely on survey data from the CPS and uses families as the unit of analysis. Incorporating data from tax records and using households as the unit of analysis leads to a lower percentage of people with income below the poverty threshold, on average. Before- and After-Tax Income CBO uses after-tax income in its distributional analysis, whereas the Census Bureau uses before-tax income to calculate the OPM. Including federal taxes in the income measure increases the percentage of people with income below the poverty threshold before the mid-1990s. In more recent years, refundable tax credits decrease that percentage-especially in 2020 and 2021. In most other years, though, incorporating taxes in the income measure used to calculate the percentage of people with income below the poverty threshold has only a small effect. Notes: Numbers in the text and figures may not add up to totals because of rounding. All years referred to in this report are calendar years. All dollar amounts are expressed in 2021 dollars; values in the thousands are rounded to the nearest hundred. To convert dollar amounts to 2021 dollars, the Congressional Budget Office used the price index for personal consumption expenditures from the Bureau of Economic Analysis.

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