From Poverty to Prosperity: Understanding the Impact of Income Supports in the Data

By Emily Wildau, MPP

Download this report (Nov. 2024; 16 pages; pdf)

Note: This is the first in a series of reports on how public benefits programs and tax credits impact poverty in New Mexico. While this report tackles the various ways in which poverty is measured, future reports will look at how income supports such as SNAP (Supplemental Nutrition Assistance Program), child care assistance, and refundable tax credits – such as the Working Families Tax Credit and the Child Tax Credit – are improving child and family well-being in New Mexico.

Every family deserves support and opportunities to meet their children’s basic needs. However, we know one of the toughest challenges children and families in New Mexico face is breaking free from the cycle of generational poverty. Living in poverty means families are uncertain about their next meal, their ability to pay their rent or mortgage, and access to health care, while limited access to affordable child care complicates employment opportunities. Additionally, the inability to save increases financial strain. These struggles force families into difficult decisions, hindering their ability to meet basic needs and negatively impacting health and education over time. Poverty, while present in all communities, also disproportionately impacts people of color, women, and the LGBTQ+ community.

We also know that these disparities – as well as poverty in general – are driven by policy choices. The first step to understanding poverty is to measure it. But often, it’s not clear what is being counted in common poverty measures and what those measures mean for the families they describe. For example, under one poverty measurement, New Mexico ranks 50th in the nation for child poverty. But by a different poverty measurement – put out by the same government agency – we rank 17th in the nation for child poverty. Since both of those measurements and rankings are accurate, it’s important to understand why they tell such different stories. This brief provides information regarding well-known poverty measures, their strengths and shortcomings, what they do and do not measure, and the policies we should advocate for to improve economic security for families and children in New Mexico.

The History of Measuring Poverty

There are two standardly used measures of poverty in the United States – the Official Poverty Measure (OPM) and the Supplemental Poverty Measure (SPM). Both measures are derived from data collected by the U.S. Census Bureau. The OPM has been used for much longer and is derived from data collected annually by the American Community Survey, whereas the SPM is much newer and derived from a smaller annual survey, the Current Population Survey.

About the Official Poverty Measure

Poverty thresholds – that is, the minimum level of income deemed adequate for a person or family to meet their basic needs – were originally developed in 1964 by Mollie Orshansky, an employee of the Social Security Administration.^[I] These thresholds, created a year before the Johnson Administration launched a War on Poverty, aimed to look at a family by size and determine the minimum amount of income that would cover basic costs. Poverty was then measured by accounting for those who did not reach the minimum income level.

The original poverty thresholds were based on the total cost of an economy food plan designed for temporary or emergency use and a multiplier derived from the Household Food Consumption Survey, which found that a family of three or more spent one-third of their after-tax money income on food. Thus, the poverty threshold was calculated by multiplying the dollar cost of the economy food plan and multiplying that cost by a factor of three.^[II]

Embedded assumptions and other challenges quickly raised concerns and inconsistencies. Orshansky’s calculation assumed that families without adequate income would cut back on food and non-food expenses at the same rate – despite the fact that some expenses, like housing, tend to be more difficult to decrease. The poverty threshold calculation also did not include any budget categories besides food, making the assumption that other spending would be minimal but adequate. Today, the Official Poverty Measure (OPM) calculates poverty using these thresholds based on food consumption patterns and the cost of a diet that society found acceptable in the 1950s and ‘60s that was then multiplied by three, and this same calculation is adjusted annually for inflation.^[III] The number of people found living below the poverty threshold and calculated at various levels relative to poverty are reported annually in the Census’ American Community Survey (ACS) for the nation, states, counties, and other geographical areas as available due to the large sample size of the ACS. The OPM thresholds determine the federal poverty level (FPL), which is the measurement used to determine eligibility for various anti-poverty programs and benefits.

About the Supplemental Poverty Measure

As far back as the 1980s, there were extensive debates about proposals to count non-cash government benefits as income in the poverty measure.^[IV] However, it wasn’t until 2011 that the Census published the Supplemental Poverty Measure (SPM) to provide a more nuanced view of poverty in the nation.^[V] While the OPM has remained relatively unchanged since its creation in the 1960s, the SPM is intended to keep pace with societal changes, measure the impact of benefit programs and some necessary expenses, and account for regional costs of living.^[VI]

Development of the SPM began with an Interagency Technical Working Group in 2009, which included members from the Census, the Bureau of Labor Statistics (BLS), the Council of Economic Advisors, the Department of Commerce, the Department of Health and Human Services, and the Office of Management and Budget. By 2010, the Obama Administration had adopted the SPM, which followed recommendations made by a panel appointed by the National Academy of Sciences in the early 1990s.^[VII]

The SPM is produced by the Census with support from the BLS, and it is based on data collected in the Current Population Survey (CPS). The SPM sets a different poverty threshold than the OPM and measures the impact of a variety of household resources and expenses to determine who falls below that threshold. Because the sample size for the CPS is much lower than that of the ACS, the SPM is released annually but only with disaggregation by race/ethnicity and several other factors at the national level. The Census provides a state SPM for total population, but it is based on a three-year average to create a more statistically reliable estimate. In 2024, the state SPM was disaggregated by age, providing separate state-level SPM poverty rates for children. The state SPM is neither disaggregated by race/ethnicity nor provided for smaller geographic areas. Although the Census has only released the SPM since 2011, the Center on Poverty and Social Policy at Columbia University has developed a historical SPM dataset back to 1967 to compare the national SPM and OPM over a much longer timeframe.^[VIII]

How Poverty Changed During the COVID-19 Pandemic

Historically, the OPM has underestimated poverty rates in the nation, and advocates have long suggested that a family needs to earn at least 200% of the FPL in order to cover all necessary expenses. The SPM, however, estimates a higher – and more realistic – rate of people who are struggling to make ends meet. In other words, the SPM generally shows that a larger share of the population lives in poverty than is shown by the OPM. During the COVID-19 pandemic, however, the largest public investments on record were made to specifically address the economic crisis that came as people were forced out of work for personal and public health reasons, as well as a sudden lack of available child care. The federal government passed legislation to provide temporary stimulus payments to all families, to temporarily expand Supplemental Nutrition Assistance Program (SNAP) benefits, and to temporarily increase the federal Child Tax Credit (CTC). These dramatic investments led to a national total SPM rate that was lower than the OPM for the first time in history. These investments led to even more dramatic changes in poverty for children. Child poverty as measured by the SPM dropped from 9.7% to 5.2% in 2021.^[IX] When temporary support programs ended, the national SPM for children rose significantly to 12.4% in 2022,^[X] meaning five million children were pushed back into poverty.^[XI] We know that the temporary programs were highly effective in reducing poverty. Given that, as a result of the pandemic, costs are still elevated for food, there are greater challenges in accessing affordable child care, and housing costs are still higher nationally, it is clear that the poverty families face today is a policy choice. Fortunately in New Mexico, our state SPM consistently is below our OPM, meaning the benefit programs that our lawmakers invest in move us from having the worst OPM poverty rate in the nation to sitting below the national average based on the SPM (see Figure IV).

Why (and When) Each Measure Matters

Both the OPM and the SPM serve a specific purpose for understanding poverty in our communities, but it’s important to consider why and when to use each measure.

The OPM, while providing much less nuance than the SPM, does provide a useful measure of pre-tax earned income (i.e., wages and salaries, unemployment insurance payments, Social Security benefits, interest, dividends, pensions, and other retirement income^[XII]) and creates annual income thresholds for families experiencing poverty. The resulting thresholds are widely recognized and used to determine eligibility for income support programs like Medicaid, SNAP, Child Care Assistance (CCA), and Temporary Assistance for Needy Families (TANF). Figure I shows the current poverty threshold, or the federal poverty level (FPL) in the second column, with eligibility for each program determined by income level at a specified percentage of the FPL. For example, New Mexico families qualify for CCA up to 400% of the FPL, and as of October 1, 2024, families are eligible for SNAP benefits up to 200% of the FPL.

One significant strength of the OPM is that it is provided nationally, by state, and by smaller geographic areas every year. Much of the poverty data from the OPM is also available by age, gender, race/ethnicity, and other factors.

However, the OPM does not provide the whole picture of poverty, since the FPL is a threshold based solely on earned income and is derived from a model of consumer spending from the 1960s that only accounts for food costs. The OPM cannot, therefore, consider rising costs of health care, child care, housing, and other categories in which families typically find it difficult or impossible to cut spending. The OPM also fails to account for common expenses and the impact of government benefits on a family’s experience of poverty, and it stays the same regardless of regional cost of living differences.

The SPM was created to provide a more complete understanding of poverty. The SPM calculates poverty starting with the same cash income as the OPM, but it also includes the value of non-cash government benefits (i.e., housing subsidies, SNAP, utility assistance, the National School Lunch Program, and WIC), refundable tax credits, and some cash benefits, as well as necessary expenses like income taxes, out-of-pocket medical expenses, commuting, and child care^[XIII] (see Figure II). The SPM thresholds also account for geographic differences in housing costs and differences in housing tenure (i.e., whether the household is renting or owns the home^[XIV]).

To assess the impact of benefit programs and refundable tax credits on alleviating poverty or to understand how the interplay of income, expenses, and benefits changes the rate of people and families below the poverty threshold, the SPM is the appropriate measure to use.

Because the SPM was designed specifically to keep pace with changes in data, methods, and new research, its strength is that it allows for a more nuanced view of poverty in the U.S. and tells us which programs are working to significantly decrease poverty rates – as well as where policies are falling short. Although the SPM is produced annually for the nation, and national SPM rates can be disaggregated by race/ethnicity and age, one shortcoming of this measure is that state-level data are only available for the total population and by age based on a three-year average.^[XV]

Poverty in New Mexico

Historically, national SPM poverty rates have been higher than the poverty rates reflected in the OPM – meaning that when measuring income, expenses, and benefit programs, the available resources are not sufficient to alleviate poverty. But the inverse has historically been true for New Mexico – robust benefit programs and low costs of living dramatically decrease the lived experience of poverty in our state when comparing poverty rates from the OPM and SPM. Additionally, with a high population of immigrant families, New Mexico has expanded many benefits to cover people in mixed-status or undocumented households.

A three-year average of both OPM and SPM rates for the total population in New Mexico and in the U.S. reveals how successful anti-poverty policies and programs have been so far. The most recent three-year average OPM for New Mexico tells us that, based on income alone, 18.5% of our population lives in poverty, and this is the second highest rate in the nation. But looking at the SPM rate for the same period, only 10.9% of people in New Mexico are living in poverty. This is compared to a national SPM of 11%.^[XVI] For child poverty, the difference is even more striking, as seen in Figure III: New Mexico’s three-year average OPM for children is 27.5%, the worst in the nation, while our state’s SPM child poverty rate sits at 8.9% compared to a national SPM of 10.4% for children.^[XVII] Our SPM ranks us as 17th in the nation for child poverty, or well above the national average.

When we account for anti-poverty policies and programs, New Mexico’s poverty rate is no longer the worst in the nation, but instead on par with the national rate of poverty. In Figure IV, you can see that this has always been the case for New Mexico, and that our SPM has actually dropped below the national OPM over the last few years. Despite this positive trend, there is no question that poverty is an all too common experience for our communities. We can still do much more to improve the economic security and health of families and children in New Mexico, but it is important to recognize that New Mexico’s SPM reflects the positive impact of many policies, like tax credits and income support programs, that are helping us make huge strides toward ensuring that every child and family has what they need to thrive.

Measuring the Impact of Anti-Poverty Policies

There are numerous policies designed to combat poverty at different levels, ranging from non-cash benefit programs to cash assistance, tax credits, and wealth building. We will provide a more detailed analysis of some of these programs in later editions of this series.

Nationally, Social Security lifts the largest number of people out of poverty each year, primarily impacting older adults. However, as Figure V shows, the best policy tools to alleviate child poverty are refundable tax credits for working families, SNAP benefits, school lunch programs, and the Child Tax Credit (CTC).^[XVIII]

Other programs that are designed to reduce poverty include child care assistance, paid family and medical leave, and no-cost health insurance such as Medicaid or insurance assistance in the form of tax credits.^[XIX] More broadly, creating a strong, accessible, and affordable cradle-to-career education system and ensuring quality, high-wage job opportunities also reduce poverty.^[XX]

Which Measure Includes Medicaid?

Medicaid and Medicare are two of the most effective anti-poverty programs, providing public health insurance coverage to people earning low incomes and seniors. By providing access to affordable health care and lowering out-of-pocket medical expenses, Medicaid and Medicare help pull families out of poverty.^[XXI] Families who are uninsured are known to delay or forgo needed care.^[XXII] However, the impact of health insurance on poverty is not included in either the OPM or the SPM. The OPM does not include the impact of resources or expenses on poverty levels; therefore, it is not surprising that Medicaid is not included in this measure. The SPM does account for the expense side of health care and insurance, subtracting these out-of-pocket medical expenses in its calculation; however, it does not count the value of health insurance like Medicaid and Medicare as a resource in the way it does many other benefit programs.^[XXIII]

The best way to understand how the SPM misses the full economic effect of health care and insurance is to consider an example. Two families may have the same out-of-pocket medical expenses, but different health insurance and different health care needs. This would mean the SPM measures these families identically in terms of poverty, even though one family may be less well off due to keeping their medical expenses down by forgoing insurance, purchasing a less comprehensive insurance plan than the other family, and deciding to forgo some of the health care, including prescriptions, they might need.^[XXIV]

Although health care and insurance, including Medicaid and Medicare, is not measured by the SPM, another measure exists to capture their impact – the Health Inclusive Poverty Measure, which was created in 2016.^[XXV] It is not widely known, but it is currently used to provide a measure of the impact of health care and insurance on poverty.

Addressing Racial Equity and the Wealth Gap

One aspect of poverty that is not counted in either the OPM or SPM is the lack of wealth – or assets such as owning a home and having savings, minus debt – that is experienced by most families living in poverty. Having wealth helps families weather tough economic times, allows families to make investments in their futures, and helps break the generational cycle of poverty. While the anti-poverty policies that move the needle for the SPM and the OPM are critical, they are insufficient on their own to move families out of poverty. While it is essential to continue funding and supporting anti-poverty policies, we must also prioritize policies that give families and communities the opportunity to build generational wealth. This will be covered in more detail in a later brief.

Racial and LGBTQ+ Data Disparities

Inequitable policies have perpetuated generational poverty, most commonly for people of color and the LGBTQ+ community. And along with policies that have often been designed to uphold systemic racism, data collection systems have also built-in inequities that erase these communities from the available statistics used to solve societal challenges like poverty. If we can’t see the disparate outcomes experienced by various groups within communities, we can’t remove barriers and create solutions that improve conditions for every person in our communities.

The ACS and CPS do not ask questions that capture sexual orientation and gender identity (SOGI). The Census is currently testing SOGI questions to include in the American Community Survey in future years.^[XXVI] This data will ideally help us to quantify some of the ways discrimination against LGBTQ+ people creates social and economic disparities.

Undercounts have persistently occurred for Black, Native American, and Hispanic communities, as well as people who identify as a race other than those categories offered by the Census.^[XXVII] These undercounts have often translated to loss of funding and loss of representation in Congress for many groups of people who already lack resources and support as a result of systemic racism.^[XXVIII]

Another issue is data suppression – a practice of withholding or suppressing data estimates for a group if the number of people surveyed is too small to ensure privacy of respondents and to meet a statistical threshold for reliability.^[XXIX] In New Mexico data are suppressed for our smaller Asian and Black communities, which perpetuates the tricultural myth that only Hispanic, white, and Native American communities make up our population and falsely implies that these racial and ethnic groups have lived in relative harmony with one another,^[XXX] supporting harmful narratives that gloss over historical and systemic racism, and erase the lived experience of smaller communities.

These are not the only data disparities that exist, as clear data is often missing for immigrant and rural communities, people who speak languages other than English, those who have disabilities, or who lack internet access, and young children.

Recommendations to Address Poverty

Policies to Lower Poverty in the Official Poverty Measure

To reduce the poverty rates recorded by the OPM, the solution is straightforward. The OPM only measures earned money income before taxes, primarily wages and salaries. To address New Mexico’s OPM, which was 11.4% of the total population and 27.4% of the child population in 2021-2023, we must focus on significantly increasing wages. By raising wages enough to lift the total pre-tax income of a significant number of workers above the federal poverty level, we can move the needle on the OPM in New Mexico. The most straightforward approach to do this in the near term is to increase the minimum wage. New Mexico last raised its state-wide minimum wage to $12 an hour in 2023. Reversing the cuts to unemployment insurance (UI) that were made in 2011 would also help. New Mexico also passed paid sick leave in 2021, which protects workers’ wages when they are sick and prevents small losses of income. Passing paid family and medical leave would also impact the OPM because families would not have to forgo wages in order to care for themselves or a family member in case of more serious illness or to bond with a new child. Investing in job training and education provide greater opportunities to earn higher wages as well, and this type of investment can also impact the OPM in the long term. New Mexico has made significant strides in making college more affordable by providing scholarships that cover tuition costs, and there is more to be accomplished. We need to expand access to adult basic education and training programs, expand and create programs that support opportunities for workers to re-skill to obtain higher paying jobs, and create additional financial aid programs to help cover the costs of college attendance beyond tuition like food, housing, and other basic needs. It is also critical that New Mexico’s policies continue to become more inclusive of immigrant families, regardless of status. Changes like improving job training and educational opportunities are crucial and will take time to be reflected in the OPM due to the complexities of intergenerational poverty.

Policies to Lower Poverty in the Supplemental Poverty Measure

Many programs and policies designed to reduce poverty are measured by the SPM. Since it starts with total pre-tax earned money income, subtracts income taxes paid, out-of-pocket medical expenses, and several others, adjusts for regional costs of living, and counts non-cash and some cash government benefits, the SPM measures the effectiveness of many policies that are proven to lift kids and families out of poverty.

New Mexico has already enacted several policies to lower poverty rates as measured by the SPM, such as enacting and then increasing the state CTC and other tax credits for working families, expanding SNAP benefits, and providing robust Child Care Assistance (CCA) to lower child care expenses. These programs are working and need to be continued. But more could be done, such as increasing housing subsidies and providing more cash assistance through programs like Temporary Assistance for Needy Families (TANF) and guaranteed income (GI) programs. These will all help families achieve greater economic security and provide more of the resources necessary for their children to thrive.

These benefit programs do not negatively impact workforce participation in New Mexico, as shown in Figure VI.

A combination of policies should be pursued to continue alleviating poverty in the near term, while bolder options should also be developed and implemented to decrease poverty and grow wealth for future generations. These include:

Continuing and increasing investments in New Mexico’s income support programs and targeted tax credits for working families and families with children as measured in the SPM. This could include increasing the state CTC for families with young children and increasing the matching percentage of the state EITC, the Working Families Tax Credit, to an amount greater than 25% of the federal credit;
Funding and supporting improvements in implementing programs and removing barriers to enrollment to more effectively reduce poverty as measured in the SPM;
Pass legislation to ensure that all workers have access to paid family and medical leave;
Raising the minimum wage significantly to reduce poverty as measured by the OPM;
Creating and funding baby bonds and guaranteed income programs to build wealth and improve economic security; and,
Expand unemployment insurance (UI) benefits to include workers in industries that are currently ineligible, including many industries that have high numbers of employees who are immigrants.

Conclusion

We know that poverty is a deeply complex problem in our society, but we also know that many policy choices can improve economic security and well-being for children and families. As we collectively work for solutions to one of the most significant root causes of poor outcomes for New Mexico children, it is critical to understand how and by which data indicators our policies are measured. The SPM shows us how impactful anti-poverty policies are in the lives of many New Mexico children. Lawmakers can look to the SPM to guide the continuing work of investing in benefit programs and tax credits that provide greater opportunity to our kids, families, and communities, and create a pathway for everyone in New Mexico to thrive.

Endnotes