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Below the line: Poverty in America

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Robert Rector, a senior research fellow at the Heritage Foundation, sees the poverty problem differently, through the lens of government spending rather than workers' wages. In 2011, he says, the federal government spent more than $700 billion on assistance programs to help get people out of poverty. Yet the number of poor Americans did not change that year. His conclusion is that "you can't have any impact on poverty at all with the welfare state. That's kind of amazing, and it's kind of silly."

Mr. Rector connects the poverty numbers with welfare spending because the Census Bureau's analysis is used to determine eligibility for government assistance, from food stamps to housing vouchers to child care, paid for by the federal government, the states, or some combination of the two. Put simply, the Census Bureau decides how poor is "poor."

One poverty formula doesn't fit all

In this case, the benchmark of poverty is the ability to afford food. When a government economist named Mollie Orshansky sat down to write the poverty formula in 1965, she needed to understand how people spent their money. She knew, from a 1955 report called the Food Consumption Survey, that families spend about a third of their income on food. So she multiplied that by three to create the "poverty threshold," the least amount of money a household can bring in and get by.

In turn, the government uses those thresholds to set maximum incomes for everything from food stamps and prescription assistance to subsidized housing and day care.

The only change the government makes to Orshansky's formula is to update it annually for inflation. But so much else has changed since then – especially how Americans spend their money. Today, 13 percent of household income is spent on food, far less than the 33 percent in Orshansky's formula. Meanwhile, nearly 35 percent goes to housing, and 17 percent goes to transportation, according to the Bureau of Labor Statistics. But those costs are ignored by Orshansky's formula – which means that when the government decides which families make too little money to survive on their own, it's ignoring the things that eat up the majority of the American family's budget.

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