Don’t Adjust Poverty Levels with Chained CPI
These comments were filed by Kathleen Gmeiner on June 21, 2019 with the federal Office of Management and Budget. Thanks to the Georgetown Center for Children and Families (CCF) and Center on Budget and Policy Priorities (CBPP) who provided much of the material on which these comments were based. The CCF comments can be found here http://bit.ly/2NKdjaa
June 21, 2019
Re: Comments to OMB-2019-0002-0001
Request for Comment on the Consumer Inflation Measures Produced by Federal Statistical Agencies
Dear Ms. Potok:
I appreciate the opportunity to comment on the OMB proposal to consider replacing the Consumer Price Index for All Urban Consumers (CPI-U) with another measure of inflation such as the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) for purposes of calculating the Census Bureau’s Official Poverty Measure (OPM). I believe that changing to these other poverty measures would be ill-advised. In making these comments I draw on a 40+ year history of work for non-profits that advocate for people living in poverty or near poverty. I also draw on my personal experience of living in and attending church in areas of concentrated poverty.
The Alternative Measures Are Not More Accurate, Particularly for Households with Low Incomes
The OPM, which is used to measure poverty for statistical purposes, is annually adjusted by CPI-U. The Request for Comment discusses other measures of inflation that could be used to adjust the OPM including C-CPI-U (known as “chained CPI). I oppose use of the “chained CPI” because (1) I do not believe it will more accurately adjust the measure of poverty than the current CPI-U measure, and (2) because it will result in more people who are poor being counted as though they are not poor.
Many people who have worked within the community of persons serving low income households believe that the poverty levels no longer represent a real demarcation between living in poverty and not living in poverty. This goes back to their basis in the thrifty food plan, carried forward to a time when food costs have been outpaced by housing, medical and childcare costs. To then begin adjusting the levels which are too low to begin with in a way that results in the levels growing more slowly than under the current method, simply worsens an already flawed measure.
Theoretically, “chained CPI” is supposed to not only measure purchasing changes based on evolving technologies and preferences, but also based on substitution of lower priced goods for high-priced goods. However very low-income households pay disproportionately high portions of their income for housing and childcare. This will impact people living in Ohio. According to the National Low-Income Housing Coalition (NLIHC), 67% of extremely low-income renter households in Ohio have a severe cost burden. By extremely low income, the NLIHC means families whose incomes are at or below the poverty guideline or 30% of their area median income (AMI). A severe cost burden is defined as spending more than half of their income on housing. These are fixed costs for which there are not simple or ready substitutions. Chained CPI doesn’t take such restrictions into account, and thus is not an appropriate tool to adjust the poverty levels. http://bit.ly/31NbWdD Also see the work of Kaplan/Schulhofer-Wohl and Argent/Lee, suggesting that in recent years inflation has risen faster for low-income households than for households overall.[1]
Analysis of the Impact of an Alternative Poverty Measure Adjustment Is Required
If OMB plans to make a change in adjusting poverty levels that will result in fewer people being considered poor, and therefore fewer people qualifying for the many benefits and subsidies that are tied to federal poverty levels, it is imperative that it perform an analysis of the impact of the change, and that it look at whether the poverty levels themselves are constructed in a way that truly measures poverty when looking at the disproportionate share of income taken by housing and childcare costs. The Center on Budget and Policy Priorities found that after ten years using chained CPI to adjust the OPM there would be a loss of benefits to hundreds of thousands of Americans:[2]
- More than 300,000 children would lose Medicaid/CHIP coverage;
- More than 250,000 seniors and people with disabilities would lose or get less help paying prescription drug costs;
- More than 250,000 adults would lose coverage through Medicaid expansion;
- More than 150,000 marketplace consumers would lose cost-sharing assistance and see higher deductibles; tens of thousands would lose premium tax credits.
OBM should look at the Census Bureau’s Supplemental Poverty Measure, which researchers developed based on a National Academy of Sciences study, which better measures the cost of current basic living expenses and produces a poverty threshold that is higher than the OPM for most household types.[3] Notably, the Request for Comment includes no analysis from the Census Bureau itself on these key questions such as how using another measure of inflation would likely affect the accuracy of the OPM or what a review of the relevant research literature finds.
Conclusion
The “chained CPI” is a particularly poor measure for adjusting poverty levels because of the different purchasing patterns of households with very low income, due to the disproportionate share of income spent on housing and childcare. While the OBM notice was not a request for comments on the poverty levels themselves, it would behoove OBM to undertake an evaluation of the ways in which current poverty measures exclude very poor people, before implementing a new formula for poverty measure adjustment that will result in excluding hundreds of thousands of persons from critical benefit programs.
Sincerely,
Kathleen Gmeiner, JD, MHSA
[1] See, for example, Greg Kaplan and Sam Schulhofer-Wohl, “Inflation at the Household Level,” Journal of Monetary Economics, August 2017, https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/kaplan_schulhoferwohl_jme_2017.pdf and David Argent and Munseob Lee, “Cost of Living Inequality during the Great Recession,” Kilts Center for Marketing at Chicago Booth — Nielsen Dataset Paper Series 1-032, March 1, 2017, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2567357.
[2] Aviva Aron-Dine and Matt Broaddus, “Poverty Line Proposal Would Cut Medicaid, Medicare, and Premium Tax Credits, Causing Millions to Lose or See Reduced Benefits Over Time,” Center on Budget and Policy Priorities, May 22, 2019, https://www.cbpp.org/research/poverty-and-inequality/poverty-line-proposal-would-cut-medicaid-medicare-and-premium-tax.
[3] Parrott, op cit and National Research Council, Measuring Poverty: A New Approach, National Academies Press, 1995.