1. If a person doesn’t feel poor, are they still poor? Who gets to decide? 2. If somebody can afford a flat screen TV or loan payments on a new car, are they really living in poverty?3. Can poverty be eliminated through Federal Programs and via cash transfers to the poor? 4. The poverty experienced by the poor in America is primarily psychological. Agree or disagree?5. According to the Federal Definition, approximately 12.3% of adults currently living in America are poor. If only 12.3% of adults are poor, is that really a problem? 6. Why are the poor less likely to vote than their middle class and upper class peers?7. Are anti-poverty programs corrupting? Do anti-poverty programs (i.e. Food Stamps, Cash Welfare, Unemployment Insurance) stifle initiative and create dependence on government aid?8. Suggesting that some poor people are just lazy…Why is that a politically incorrect thing to say?9. Providing people with adequate funds to purchase necessities such as food, education, healthcare, and education… is that socialism? 10. Why does poverty seem to cripple some people and inspire others? In other words, why is that some people who grow up in poverty achieve tremendous economic success and others stay in poverty throughout their lifetimes?11. People living in poverty should not have to pay income taxes. Agree or disagree? 12. Will poverty ever be eliminated? Should it be?For each of the above-mentioned questions, please write a 40-50 word response. You must answer each question. All told, your overall word count will be 480-600 words (not including bibliography/works cited page).

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The Council of Economic Advisers
January 2014
Executive Summary
“Unfortunately, many Americans live on the outskirts of hope—some because of their poverty,
and some because of their color, and all too many because of both. Our task is to help replace
their despair with opportunity. This administration today, here and now, declares unconditional
war on poverty in America. I urge this Congress and all Americans to join with me in that effort.”

President Lyndon B. Johnson, January 8, 1964
Fifty years ago, in January of 1964, President Lyndon B. Johnson declared a “War on Poverty”
and introduced initiatives designed to improve the education, health, skills, jobs, and access to
economic resources of those struggling to make ends meet. While there is more work to do, in
the ensuing decades we have strengthened and reformed many of these programs and had
significant success in reducing poverty. In this report, the Council of Economic Advisers presents
evidence of the progress made possible by decades of bipartisan efforts to fight poverty by
expanding economic opportunity and rewarding hard work. We also document some of the
key steps the Obama Administration has taken to further increase opportunity and economic
security by improving key programs while ensuring greater efficiency and integrity. These steps
prevented millions of hardworking Americans from slipping into poverty during the worst
economic crisis since the Great Depression.
 Poverty has declined by more than one-third since 1967.
 The percent of the population in poverty when measured to include tax credits and
other benefits has declined from 25.8 percent in 1967 to 16.0 percent in 2012.
 These figures use new historical estimates of the Census Bureau’s Supplemental Poverty
Measure (SPM) anchored to today’s poverty thresholds. The SPM is widely
acknowledged to measure poverty more accurately than the official poverty measure,
which excludes the value of refundable tax credits and benefits like nutrition assistance
and has other limitations.
 By anchoring the measure to today’s poverty standards we are able to ask how many
people in each year since 1967 would have had inflation-adjusted family resources
below the 2012 SPM poverty thresholds.
 Despite real progress in the War on Poverty, there is more work to do.
 In 2012, there were 49.7 million Americans grappling with the economic and social
hardships of living below the poverty line, including 13.4 million children.
 While the United States is often seen as the land of economic opportunity, only about
half of low-income Americans make it out of the lowest income distribution quintile
over a 20-year period. About 40 percent of the differences in parents’ income are
reflected in children’s income as they become adults, pointing to strong lingering effects
from growing up in poverty.
 This significant decline in poverty is largely due to programs that have historically
enjoyed bipartisan support and increase economic security and opportunity.
 A measure of “market poverty,” that reflects what the poverty rate would be without
any tax credits or other benefits, rose from 27.0 percent to 28.7 percent between 1967
and 2012. Countervailing forces of increasing levels of education on the one hand, and
inequality, wage stagnation, and a declining minimum wage on the other resulted in
“market poverty” increasing slightly over this period. However, poverty measured taking
antipoverty and social insurance programs into account fell by more than a third,
highlighting the essential role that these programs have played in fighting poverty.
 Programs designed to increase economic security and opportunity lifted over 45 million
people from poverty in 2012, and led to an average of 27 million people lifted out of
poverty per year for 45 years between 1968 and 2012. Cumulatively these efforts
prevented 1.2 billion “person years” of poverty over this period.
 Social Security has played a crucial role in lowering poverty among the elderly. Poverty
among those aged 65 and older was 35 percent in 1960. Following rapid expansions in
Social Security in the 1960s and 1970s, poverty among the elderly fell to 14.8 percent in
 These programs are especially important in mitigating poverty during recessions.
Despite an increase in “market poverty” of 4.5 percentage points between 2007 and
2010, the poverty rate, appropriately measured, rose only 0.5 percentage points due to
both existing programs and immediate actions taken by President Obama when he took
office in response to the worst financial crisis since the Great Depression.
“Deep poverty”—defined as the fraction of individuals living below 50 percent of the
poverty line has declined as a result of these programs. Without government tax credits
or other benefits, 19.2 percent of the U.S. population would have been in deep poverty
in 2012, but only 5.3 percent were in deep poverty when these benefits are included.
 Programs that strengthen economic security and increase opportunity continue to
be essential in keeping millions of Americans out of poverty and helping them work
their way into the middle class.
 Social Security benefits reduced the 2012 poverty rate by 8.5 percentage points among
all individuals, and by 39.9 percentage points among those aged 65 or older.
 Tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)
reduced the 2012 poverty rate by 3.0 percentage points among all individuals, and by
6.7 percentage points among children.
 The Supplemental Nutrition Assistance Program (SNAP)—formerly known as the Food
Stamp Program—reduced poverty in 2012 by 1.6 percentage points among all
individuals, and by 3.0 percentage points among children.
 Unemployment Insurance (UI) reduced poverty by 0.8 percentage points in 2012.
 Antipoverty programs have been increasingly oriented around rewarding and
encouraging work and are an important source of opportunity for low-income
working families.
 Both the EITC and the partially refundable component of the CTC increase the reward to
work, offsetting payroll taxes and providing a supplement to labor market earnings.
Research has shown this increases work and earnings, and increases participation in the
workforce, particularly for single parents.
 Some traditional antipoverty programs have been redesigned to encourage and
promote work. The vast majority of Americans receiving nutrition assistance have a job
or are either too young to work, are over age 65 or are disabled. Meanwhile, bipartisan
welfare reform signed by President Clinton in 1996 strengthened work requirements
and put a greater emphasis on employment.
 Despite concerns that antipoverty programs may discourage employment, the best
research suggests that work disincentive effects are small or nonexistent for most
 Programs that help fight poverty and provide economic security touch a wide swath
of Americans at some point in their lives.
 Programs that fight poverty help a broad range of Americans get back on their feet after
economic misfortune. For example, about half of taxpayers with children used the EITC
at some point between 1979 and 2006, and over two-thirds of Americans aged 14 to 22
in 1979 received income from SNAP, AFDC/TANF, Supplemental Security Income (SSI) or
UI at some point between 1978 and 2010.
 Social Security Old Age and Survivors’ Insurance, Social Security Disability Insurance, and
UI are available to all Americans with a steady work history. These social insurance
programs play an important role in keeping out of poverty those who retire, experience
a work-limiting disability, lose a parent or spouse, or lose a job through no fault of their
 The economic and social benefits from these programs go beyond just helping
reduce poverty in the current generation.
 Increased access to SNAP for children has been found to lead to better health and
greater economic self-sufficiency in adulthood.
 Increased family income in childhood from the EITC and CTC leads to higher student
 The long-term effects of Head Start and other high-quality preschool programs include
higher educational attainment, employment, and earnings, and lower rates of teen
pregnancy and crime, as beneficiary children become teenagers and young adults.
 President Obama’s policies to restore economic security and increase opportunity
have helped reduce poverty.
 The Affordable Care Act ensures all Americans have access to quality, affordable health
insurance, by providing the resources and flexibility states need to expand their
Medicaid programs to all people who are in or near poverty as well as financial help so
hardworking families can find a health plan that fits their needs and their budgets.
 The President significantly expanded the refundability of the Child Tax Credit, making it
available to millions of working parents who were previously ineligible. He also
expanded the EITC for larger families, who face disproportionately high poverty rates,
and for low-income married couples. Together these expansions benefit approximately
15 million families by an average of $800 per year. The President is proposing to make
these tax credit improvements permanent and also to raise the minimum wage.
 The Administration has advanced investments in early learning and development
programs and reforms for coordinated State early learning systems. President Obama
has proposed the expansion of voluntary home visiting programs for pregnant women
and families with young children; Early Head Start-Child Care Partnerships to improve
the quality of care for infants and toddlers; and high-quality preschool for every child.
 President Obama has advanced reforms of the nation’s K-12 education system to
support higher standards that will prepare students to succeed in college and the
workplace; pushed efforts to recruit, prepare, develop, and advance effective teachers
and principals; and encouraged a national effort to turn around our lowest-achieving
schools. The Administration has also put forward proposals to redesign the Nation’s high
schools to better engage students and to connect 99 percent of students to high-speed
broadband and digital learning tools within the next five years.
 President Obama has proposed Promise Zones where businesses partner with local
communities hit hard by the recession to put people back to work and communities can
develop and implement their own sustainable plans for a continuum of family and
community services and comprehensive education reforms.
 President Obama has proposed increased employment and training opportunities for
adults who are low-income or long-term unemployed, and summer and year-round
opportunities for youth along with reforms to our unemployment system to make it
more of a re-employment system, and community college initiatives to reform our
higher education system and support training partnerships with business in highdemand industries.
 Other achievements include making college more affordable by reforming student loan
programs, raising the maximum Pell Grant, and establishing the American Opportunity
Tax Credit which is the first partially refundable tax credit for college; placing 372,000
low-income youth into summer and year-round employment in 2009 and 2010;
improving access to school meal programs that help children learn and thrive; and
extending minimum wage and overtime protections to nearly all home care workers to
help make their jobs more financially rewarding.
The fundamental lesson of the past 50 years is that we have made progress in the War on
Poverty largely through bipartisan efforts to strengthen economic security and increase
opportunity. As our economy moves forward, rather than cut these programs and risk leaving
hardworking Americans behind, we need to build on the progress we have made to strengthen
and reform them. Going forward, we can’t lose sight of the positive part government can
continue to play in reducing economic hardship and ensuring access to economic opportunity
for all citizens. At the same time, sustainable improvements are only possible if we create jobs
and speed the economic recovery in the short run, raise economic growth in the long run, and
work to ensure that the benefits of a growing economy reach all Americans.
Measuring Poverty: Who is Poor in America?
“We must open our eyes and minds to the poverty in our midst .”
1964 Economic Report of the President.
Michael Harrington’s influential 1962 book The Other America depicted the poor as inhabiting
an “invisible land,” a world described in the 1964 Economic Report of the President as “scarcely
recognizable, and rarely recognized, by the majority of their fellow Americans.” One early
achievement of Johnson’s War on Poverty was to cast light on the problem of poverty by
developing an official poverty measure that has been released by the government in each year
since August 1969.1 While reasonable at the time, this measure has turned out to be ill-suited
to capturing the progress subsequently made in the War. As a result, modern poverty measures
tell a different story of who is poor, and especially how this has changed over time.
Measuring Poverty
Measuring poverty is not a simple task; even defining it is controversial. Just starting with a
commonsense definition of the poor—“those whose basic needs exceed their means to satisfy
them”—requires difficult conceptual choices regarding what constitutes basic needs and what
resources should be counted in figuring a family’s means. There are no generally accepted
standards of minimum needs for most necessary consumption items such as housing, clothing,
transportation, etc. Moreover, our ideas about minimum needs may change over time. For
example, in 1963 even some middle-income households did not have hot and cold running
water indoors. Today, over 99 percent of households of all income levels have complete indoor
The Official Poverty Measure
Mollie Orshansky, an economist in the Social Security Administration, developed the official
poverty thresholds between 1963 and 1964 (Fisher 1992). At the time, the Department of
Agriculture had a set of food plans derived using data from the 1955 Household Food
Consumption Survey, the lowest cost of which was deemed adequate for “temporary or
emergency use when funds are low.” Because families in this survey spent about one-third of
their incomes, on average, on food, Orshansky set the poverty threshold at three times the
dollar cost of this “economy food plan,” with adjustments for family size, composition, and
whether the family lived on a farm.
A similar poverty measure was adopted internally by the Office of Economic Opportunity in 1965.
These income thresholds that were first used as the poverty thresholds for the 1963 calendar
year have served as the basis for the official poverty thresholds ever since. These dollar
amounts have been adjusted for inflation to hold the real value of the income needed to be
above poverty the same over time. There have been minor tweaks to the methodology
involving which price index is used to adjust for inflation, and how adjustments are made for
family structure and farm status.
The official poverty measure (OPM) has several flaws that distort our understanding of both the
level of poverty and how it has changed over time. Perhaps the most significant problem with
the OPM is its measure of family resources, based on pre-tax income plus cash transfers (like
cash welfare, social security, or UI payments), but not taxes, tax credits, or non-cash transfers. As
such it inhabits a measurement limbo between “market poverty” (based on pre-tax, pre-transfer
resources) and “post-tax, post transfer poverty” reflecting well-being after taking into account
the impact of policies directed at the poor.
Several other shortcomings are more technical. First, the dollar value defining the cost of basic
needs, or the poverty threshold, was set in the 1960s and has been updated each year since
using an index of food prices at first, but then the Consumer Price Index (CPI) after 1969. The use
of the CPI is one source of the problems with the official measure that limits its usefulness for
historical comparison. Methodological advances in measuring prices (e.g., rental equivalence
treatment of housing costs, quality adjustments for some large purchases, and geometric
averaging for similar goods) have shown that the CPI overstated inflation substantially prior to
the early 1980s, leading to an inflated estimate of the cost of basic needs and thus higher
measured poverty over time. Revising the OPM measure using the CPI-U-RS (a historical series
estimated consistently using modern methods) results in a fall in poverty from 1966 to 2012 that
is 3 percentage points greater than that depicted by the official measure. Another flaw with the
OPM thresholds is that they do not accurately reflect geographic variation in costs of living or
economies associated with family size and structure.
All current income-based poverty measures, including both the OPM and the SPM, suffer from
large underreporting of both incomes and benefits. For example, Meyer, Mok, and Sullivan
(2009) show that in 1984, March CPS respondents reported only 75 percent of AFDC/TANF
dollars, and this fell to 49 percent in 2004. For SNAP benefits, which are accounted for in the
SPM but not the OPM, 71 percent of the value was reported in 1984 compared to 57 percent in
2004. Underreporting will tend to increase measured poverty, so increases in underreporting
over time understate the decline in the poverty rate during this period. The underreporting also
means that the estimated effects of government programs on poverty, as described in section III,
are likely to be conservative lower-bound estimates of the true effects.
In defining the family resources to be compared to the poverty line, Orshansky created the
thresholds to be applied to after-tax money income—the income concept used in the 1955
Household Food Consumption Survey. However, she was forced to use pre-tax money income
(including cash transfer payments) due to limitations in the Current Population Survey (CPS)
data, the only source of nationally representative information on income. At the time, this was
an adequate approximation of disposable income, as few low-income families had any federal
income tax liability or credits owed, and in-kind transfers were not a quantitatively important
feature of the safety net.
The Supplemental Poverty Measure
While Orshansky’s measure provided a reasonable depiction of poverty in the 1960s, it has not
aged well.2 Today, for example, the value of the two largest non-health programs directing aid
to the poor—the EITC and SNAP—are entirely ignored by the official measure, making it
impossible to assess the success of these tools in fighting poverty. Over the past five decades,
researchers have pointed to many flaws in the official measure (see box), leading to the
development of alternative measures of poverty with more comprehensive measures of both
family needs and resources. The Census Bureau created a Supplemental Poverty Measure
(SPM), which departs dramatically from the official measure in its methodology for calculating
both the poverty thresholds and family resources.3 This measure, first published in 2011,
calculates poverty thresholds using recent expenditures by families at the 33 rd percentile of the
expenditure distribution on an array of necessary items, including food, shelter, clothing, and
utilities.4 The dollar amount is calculated separately fo …
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