Few things are more frustrating than when the government releases statistics that require an explanation from technical experts for anyone to make sense of them. But flaws and unduly complicated formulas leave us in exactly that situation when it comes to poverty in the US. This year’s release of poverty data for the US is even more challenging to explain than usual because the Official Poverty Measure (OPM) suggests an increase in poverty from 2019 to 2020, while poverty rates according to the Supplemental Poverty Measure (SPM) decreased.

If the question is: Did people in the US experience less poverty in 2020 compared to 2019? The answer is certainly yes. The poverty rate for all individuals according to the SPM declined 2.7 percentage points from 2019 to 2020, which is very large in historic terms (Figure 1). The decline was even larger for children. Child poverty rates fell from 12.6 percent in 2019 to 9.7 percent in 2020. The US Census Bureau reported poverty declines for every demographic group, with particularly large declines for female-headed households, Blacks, Hispanics, people without a high school degree, and people who did not work or worked less than full-time in 2020. Larger declines in poverty among these groups are somewhat unsurprising, because these individuals start with disproportionately higher poverty rates. Nonetheless, it reflects a significant improvement in the poverty situation for these vulnerable groups.

So, why do the SPM an OPM show conflicting trends? The SPM differs from the OPM in that it counts most government benefits as income, while the OPM only considers a few, which explains why the SPM shows a large poverty reduction in 2020. Government relief efforts transferred significant amounts of income (cash and otherwise) to US households to address pandemic-related economic disruptions. Trends in the SPM tell us that economic impact payments, expansions to unemployment insurance, and increases in SNAP (or food stamp benefits) in 2020, among other things, more than offset pandemic-related income losses for US households.

It is important to note that the SPM is also flawed, as I recently summarized in a report with several of my AEI colleagues. For example, if the Census Bureau used administrative data (rather than self-reported information) to measure people’s access to unemployment insurance and SNAP benefits, the SPM would show even lower poverty rates.

While the SPM numbers this year demonstrate the effects of unprecedented government transfers, the OPM tells a different story because it is based primarily on market income, which includes earned income and some government benefits such as unemployment insurance and social security. The OPM does not offer an accurate picture of material hardship because it ignores too many government benefits, such as the earned income tax credit and SNAP benefits. We also know that the few government benefits the OPM counts as income, such as unemployment compensation, are measured using surveys that consistently underestimate receipt of these benefits.

The OPM is useful, though, in estimating what might have happened without such a robust response to the pandemic from the federal government. The increase in the poverty rate using the OPM was particularly sharp for children, almost 2 percentage points (Figure 2). Unsurprisingly, the OPM was relatively unchanged for elderly Americans because they primarily rely on social security or other retirement benefits, which were relatively untouched by the pandemic.

The implications of these trends are important for current policy debates. The poverty rates for 2020 do not account for the Child Tax Credit expansion included in the American Rescue Plan Act, because those payments did not start until July 2021. The 2020 poverty rates also do not account for the 15 percent increase in SNAP benefits passed in the December 2020 COVID-19 relief package. But they do include direct cash payments to households through the economic impact payments, demonstrating that direct cash transfers from the government to US households will, in fact, reduce poverty, at least in the short term. The question that remains, however, is to what extent direct cash payments reduce poverty without undermining incentives to work and without negative effects on the broader economy.

Looking forward, policymakers should seek to craft policies (and ways to pay for them) that maintain relatively consistent poverty rates according to the OPM (that is, market-based income), while also reducing the SPM. This requires policies that tie government assistance to work and incorporate workforce development into safety net programs that target non-working households.

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