U-M economist, Collaborative of Poverty Centers respond to Trump administration’s poverty line proposal

June 27, 2019

ANN ARBOR —  University of Michigan experts have weighed in on the Trump administration’s proposal to change how the federal poverty line is calculated and lower income eligibility cutoffs for federal assistance.

Currently, the poverty line is adjusted each year based on the Consumer Price Index. The federal Office of Management and Budget has proposed using an alternative index that calculates a lower rate of inflation than the CPI. 

David Johnson

University of Michigan economist David Johnson, director of the Panel Study of Income Dynamics at the Institute for Social Research, responded to the Office of Management and Budget’s request for comment on the potential impact of the proposed change to the federal poverty line.

Noting that the current Official Poverty Measure (OPM) is out of date, Johnson recommended adjusting the poverty threshold each year according to a measure of standard of living, rather than a cost-of-living index like the Consumer Price Index. 

He pointed to reports from the National Academy of Sciences and the Interagency Technical Working Group that offered alternative indexes to update the poverty threshold based on spending on food, clothing, shelter, and utilities. 

“Both of these reports recommended that inflation should not be used to update poverty thresholds since poverty should reflect the standard of living defined for the period,” Johnson wrote in response to the proposed change to the federal poverty line. 

He also cited research that shows inflation can vary by demographic group, noting that inflation rises faster for the elderly and poor households don’t have as many options to substitute a less expensive product when the price of their preferred item increases.

“This suggests that a higher inflation rate for certain groups may be appropriate,” Johnson said.  

The Collaborative of Poverty Centers, which includes U-M’s Poverty Solutions initiative and eight other university-based poverty research centers, calculated the impact over time of changing the inflation adjuster for the Official Poverty Measure.

“Changing the inflation adjuster used to calculate the OPM has significant implications for who is considered poor,” reads a joint statement from the collaborative. “Moreover, given compounding over time, the specific inflation measure chosen is likely to have substantial long-term effects on eligibility for a wide variety of Federal, state, and local programs. Finally, it is important to recognize that changing the inflation measure alone will not address the range of current shortcomings of the OPM that are unrelated to inflation.”

David Johnson’s comments

Statement from Collaborative of Poverty Centers

Poverty in the U.S.