The poverty line is now… $140,000?

Not personalized financial advice - your money, your choice

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$136,500.

That’s the income amount at which a household (family of 4) is considered to no longer be in poverty. 

At least, that's what Michael Green argues in his article titled “Part 1: My Life is a Lie, How a Broken Benchmark Quietly Broke America.”

In the article, Green claims that the U.S. measure of poverty is dated. Particularly, multiplying the cost of food by three is no longer an adequate poverty line.

This method was devised in the 1960s. At the time, food was the largest part of a household’s budget. 

However, today, the top expenses for most households are first, housing, and second, transport, which is then followed by food.

The category now makes up 12.9% of a household’s budget, according to the Bureau of Labor Statistics. This means that food dropped from the #1 largest expense to #3 since the poverty line measure was devised in the 60s. 

For the last 60 years, the poverty line has seemed apolitical and was treated as a simple statistic.

Mollie Orshansky created the formula. She observed that the average American family was spending a whopping third of their income on food. 

In 1965, she published an article. It outlined her methods for creating the poverty line formula and explained why it made sense.

To get to this formula, she used the cost of the USDA’s cheapest of four food plans that were designed to be for “temporary or emergency use when funds are low,”.

The multiplier (of three) was derived from the 1955 Household Food Consumption Survey. This showed that an average family of three spends about one-third of their after-tax income on food. 

She reasoned that if people spent a third of their budget on food, then multiplying by 3 would cover all other necessities, giving us a formula to calculate the poverty line:

Poverty Threshold = Cost of the USDA Economy Food Plan × 3

Green, on the other hand, observed that housing today costs are 35-45% of the average American household’s income (the numbers I found from the BLS were closer to a third). 

In his SubStack article, he gets to a gross household income of $136,500 to be above the poverty line by assuming these spending criteria: 

Childcare: $32,773

Housing: $23,267

Food: $14,717

Transport: $14,828

Personal insurance: $10,567

Other: $21,857

Federal, state, and FICA taxes:  $18,500

Required gross household income: $136,500.

By taking the median spend across these different categories, the gross household income to support a family is higher than our current statistic.

If we were to use the simplest way to calculate the poverty line, however, the result would be quite different from Green’s number. It would be something like…

$32,100 for a family of 4.

Using Mollie’s method combined with the new area of highest spend according to the BLS, we would take the median annual housing cost ($23,267) and multiply it by 3. 

This would give us a poverty line of ~$70,000 - far more than the officially reported number and much simpler than Green’s method. 

This estimate changes if we use Green’s data and assume that childcare is the biggest expense for a household. 

If that were the case, we’d end up with a poverty line much closer to ~$100,000.

The problem with doing this, and with Green’s reasoning in general, is that the number of 2-child households is in decline. 

Not only that, but the number of households with any children was ~40% as of 2023, making up a shrinking minority.

In other words, I don’t think he’s right about the required gross household income being $136,500. 

But, I do think that he’s right about the current number of $31,200 being way off.

What do you think?

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