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Adjust federal relief or assistance to account for disproportionate burdens on the urban poor and other high-cost area dwellers

Photo of Delegate Alfonso López

Del. Alfonso López (VA), sponsor

Sponsored by Del. Alfonso López (VA)

Reported to the Caucus by the NHCSL Government, Social Justice and Taxation Task Force
Del. Alfonso López (VA), Chair

Unanimously adopted on behalf of the Caucus on September 18, 2020

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I. COVID-19 relief rebate amounts and income thresholds in the CARES Act, along with those of other ongoing federal cash or near-cash benefits, disproportionately shortchange high-cost area residents

WHEREAS, the recent approval of the CARES Act, which mandated, among other provisions to help Americans deal with the COVID-19 pandemic, special 2020 income tax rebates of $1,200 for individuals making $75,000 or less, along with decreasing payment amounts until an annual income cap of $99,000,[1] without adjusting either the threshold income caps or payment amounts for geographical cost-of-living differences, unleashed a wave of viral complaints on social media from Americans living in high-cost areas for whom the amount either could not cover or could barely cover one month’s rent, or who were unfairly denied the relief payments despite their income barely covering their reasonable monthly expenses, or both; and,

WHEREAS, those complaining consistently brought up the disparity that the same $1,200 payment could cover two months of rent in many other areas of the country; and,

WHEREAS, for example, according to the Economic Policy Institute, a single parent with two children in the New York City metro area, the epicenter of the US pandemic, needs to make $115,295 annually “to secure a modest yet adequate standard of living,”[2] and yet, that family was denied any relief by the CARES Act as if they were living in a situation of plenty; and,

WHEREAS, in contrast, a similarly situated single parent with two children with the same modest yet adequate standard of living but living in the Louisville, Kentucky metro area, would have had an income of $66,160 and been fully covered by a CARES Act relief payment of $2,200, counting the $500 per child bonus;[3] and,

WHEREAS, had the New York parent benefited from a cost-of-living adjusted income cap and received the rebate, the $2,200 would not have covered the family’s modest rent and food expenses of $2,467 for one month, while the Louisville family could have paid their monthly rent and food costs of $1,363 and had enough left over to cover the next month’s $821 rent with a few dollars to spare;[4] and,

WHEREAS, while the example cited above is an extreme disparity, even more extreme or somewhat smaller unequal treatment harmed millions of Americans; and,

WHEREAS, those affected Americans living in high-cost areas are more likely to be people of color than Americans living in low-cost areas; and,

WHEREAS, these harmful disparities in CARES Act relief payments are not an anomaly for federal cash or near-cash benefits; and,

WHEREAS, in fact, “with the exception [of public housing allowances, which are implicitly tied to the cost of rentals and which vary widely across the nation and] of SNAP, none of the cash or near-cash benefits paid to low-income people, including the EITC and the CTC, contains any set of regional COLAs. The benefits are the same nominal amount across the entire nation;”[5] and,

II. Official poverty calculations and funding formulas have historically failed to fully capture the disproportionate burdens faced by the urban poor

WHEREAS, the same sort of disparity affects not only individual payments but numerous “cash grants … provided to states, cities, and school districts, and the allocation of those grants [which] is often based on the area’s poverty rate”[1] and which are meant to help the same populations; and,

WHEREAS, the U.S. official poverty measure (OPM) has been basically calculated the same way since the 1960’s;[2] and,

WHEREAS, the OPM is determined on a nationwide level[3] and is calculated based on income adjusted by inflation, although its anchor income was determined by consumption, specifically research showing that, in the 1950’s, the average family spent about one third of its after-tax income on food, which led to multiplying the “U.S. Department of Agriculture’s ‘basic’ [minimally nutritious and palatable] food plan by three to calculate poverty thresholds for families of different compositions and sizes;”[4] and,

WHEREAS, according to a consensus study by the National Academies of Sciences, Engineering, and Medicine, this “approach to measuring poverty has numerous shortcomings: It is based on the now outdated assumption that families spend one-third of their post-tax income on food (today they spend less than one-half that amount); it fails to adjust for geographic differences in living costs; …it counts neither in-kind benefits nor refunded tax credits as income [and, though it is updated for inflation, it fails to account] for changes in the country’s standard of living;”[5] and,

WHEREAS, Congress started expressing concern regarding this problem in 1988, mandating a study on alternatives by the National Research Council;[6] and,

WHEREAS, while that study was ongoing, the “Improving America’s Schools Act, passed in 1994, called for the use of updated Census Bureau estimates of poor school-age children to allocate Title I funds, provided the estimates were found to be sufficiently reliable by a panel of the National Research Council (NRC). In response to the 1994 act, the Census Bureau established a small-area income and poverty estimates (SAIPE) program to develop estimates by state, county, and ultimately by school district, using a model-based approach that combined data from the decennial census, the CPS, and administrative records;”[7] and,

WHEREAS, in 1995, the National Research Council panel of poverty experts finally produced the report, Measuring Poverty—A New Approach which “recommended what it termed a ‘quasi-relative’ updating procedure, based on changes in consumption of basic necessities [or FSCU] (food, clothing, shelter, and utilities) in the lower part of the distribution of consumer expenditures” because, among other reasons “what is regarded as a basic need by society generally increases along with living standards;”[8] and,

WHEREAS, for example, the United Way already currently considers smartphone costs to be a basic need in a Household Survival Budget;[9] and,

WHEREAS, as a result of all these experiences and recommendations, and after more than a decade of study by the Bureau of Labor Statistics and the U.S. Census Bureau, in 2011, the Census Bureau started publishing the Supplemental Poverty Measures (SPM) which account for FSCU cost using a five-year moving average and expand income to include “noncash benefits that resource units can use to meet their FCSU needs, minus taxes (or plus tax credits), minus work expenses, medical expenses, and child support paid to another household”[10] but only “partially [adjust] to reflect geographic differences in families’ living costs” by taking into account median rent and utilities outlays;[11] and,

WHEREAS, although they are an improvement over the OPM,[12] the SPM still fail to account for other non-housing geographical cost-of-living variations on other goods and services like food, apparel, transportation, education, recreation, and medical expenses;[13] and,

WHEREAS, the Economic Policy Institute’s Family Budget Calculator accounts for some of those additional differences and claims to therefore “provide a more accurate and complete measure of economic security in America” than the SPM;[14] and,

WHEREAS, despite the limitations of the SPM, they start to correct the record about poverty, showing higher levels of poverty than the OPM shows in most of the urban states of the Northeast and Mid-Atlantic,[15] and in California, Colorado, Florida, Hawaii, Illinois, and Nevada;[16] and,

WHEREAS, the SPM increases the national poverty rate s of 2018 from 11.8% in the OPM to 12.8%;[17] and,

WHEREAS, for Hispanics, SPM increase poverty rates from the OPM’s 17.6% to 20.3%, and increase it for Asians from 10.1% to 13.9%, precisely because Hispanics and Asians are overrepresented in high-cost areas;[18] and,

WHEREAS, the most recent National Academies resport admits that the “impact on poverty threshold levels of including regional COLAs—whether based only on housing costs or on consumption items more broadly—turns out to be quite significant in terms of the resulting distribution of the population on either side of the line. It follows that incorporating geographic variation into poverty guidelines used in determining eligibility for public-benefits programs would have a considerable impact on the number of families eligible in different parts of the country (the overall number eligible nationwide might not vary much, if at all);”[19] and,

WHEREAS, in 2018, the President’s Council of Economic Advisers (CEA), citing with approval a consumption-based (instead of income-based) study that concluded that, as of 2016 and without accounting for geographic differences, only 3 percent of the population was living in poverty, came to the grossly absurd conclusion that, “our War on Poverty is largely over and a success;”[20] and,

WHEREAS, the updated version of the underlying report cited by the CES goes further to conclude that poverty fell even more, from 3% to 2.8%, between 2016 and 2018,[21] less than a quarter the rate that SPM reveal for the same year; and,

WHEREAS, the consensus report of the National Academies of Sciences, Engineering, and Medicine severely criticized the study cited with approval by the CEA for failing to assess basic consumption needs “to see if the thresholds made sense relative to living standards,” for lacking “any direct assessment of whether needs are changing, unlike what is done in the SPM,” for using a “bias correction, which is applied at the same rate every year, [but] does not have a direct basis in any particular prior study,” for making the poverty rate an “arbitrary function of the anchoring year chosen,” and for “produc[ing] contemporary thresholds and poverty rates that seem unrealistically low compared with other thresholds and rates;”[22] and,

III. Fair income taxation brackets and deductions require realistic estimates of marginal income use and utility

WHEREAS, progressive marginal income tax brackets assume that, beyond the point at which all income stops being used to cover basic necessities, the impact of income taxation on quality of life is inversely proportional to personal income increases because the proportion of income used to cover necessities, fixed costs and a reasonable standard of living decreases; and,

WHEREAS, thus, determining the income needed to cover basic necessities and a reasonable standard of living in the city or small-area in which a person or family lives is essential to fairly define marginal income brackets; and,

WHEREAS, despite this, marginal tax rates and deductions have been unfairly defined by law in absolute nationwide numeric terms, without adjusting for small-area geographic differences in cost-of-living.

IV. Conclusion

THEREFORE, BE IT RESOLVED, that the National Hispanic Caucus of State Legislators calls on the United States Congress and the President to legislate as soon as possible to enact and implement permanent small-area cost-of-living adjustments to personal income tax brackets, cash or near-cash benefits, including COVID-19 relief payments, and the official poverty measure (or switch the OPM to an improved version of the SPM) to fairly account for disproportionate burdens on the urban poor and other city and high-cost area dwellers.


[1] The payment amounts and income caps doubled for couples filing jointly, plus an extra $500 per dependent child.

[2] Economic Policy Institute, Family Budget Calculator. Available at https://www.epi.org/resources/budget/

[3] Ibid.

[4] Ibid.

[5] National Academies of Sciences, Engineering, and Medicine. A Roadmap to Reducing Child Poverty, p. 320. Washington, DC: The National Academies Press (2019). Available at: https://doi.org/10.17226/25246 (“SNAP contains a modest adjustment for differences in housing costs across areas by allowing for deductions (against earned income) for shelter cost.”).

[6] Ibid., at 292.

[7] Ibid., at 291.

[8] Except for Alaska and Hawaii which get a somewhat different number.

[9] Ibid. (’Basic diet’ was defined as one “minimally nutritious and palatable” based on what was known about nutritional science in 1963, including lowering the costs for those 65 or older, single or without children. See p. 303).

[10] Ibid. at pp. 291-92.

[11] Ibid. at p. 292.

[12] National Research Council. Statistical Issues in Allocating Funds by Formula, p. 51. Washington, DC: The National Academies Press (2003). Available at: https://doi.org/10.17226/10580

[14] National Academies of Sciences, Engineering, and Medicine. A Roadmap to Reducing Child Poverty, pp. 305-306. Washington, DC: The National Academies Press (2019). Available at: https://doi.org/10.17226/25246 (See also p. 311 explaining that although the 1995 report called for using the measurements of the Consumer Expenditure Surveys (CE) to determine consumer expenditures, a further 2013 assessment determined that “expenditures in the CE are underreported and are subject to important measurement error, attrition bias, and nonresponse bias” and that “in its current form, the CE is not well suited to generate subnational estimates for poverty; in fact, the public-use version of the CE does not even identify state of residence.”)

[15] Ibid., at at p. 306 n. 5.

[16] US Cansus Bureau, What Is the Supplemental Poverty Measure and How Does It Differ From the Official Measure? (2018). Available at: https://www.census.gov/newsroom/blogs/random-samplings/2018/09/what_is_the_suppleme.html

[17] National Academies of Sciences, Engineering, and Medicine. A Roadmap to Reducing Child Poverty, pp. 320-22. Washington, DC: The National Academies Press (2019). Available at: https://doi.org/10.17226/25246

[18] The superiority of the SPM is demonstrated by the similarity in its findings to basic family budgets calculated by independent non-partisan NGO’s like the United Way ALICE Project on the working poor; see https://www.unitedwayalice.org/overview. The National Academies report explains that “alternative basic budgets typically need to have several components subtracted for comparability with the SPM thresholds—e.g., child care, work-related transportation, medical care, and taxes must be subtracted from the ALICE Household Survival Budget because these items are subtracted from SPM resources and are therefore not included in SPM thresholds.” (National Academies, supra, note 16 at p. 306, n. 5).

[19] The Census Bureau continues to work on accounting for some or all of these disparities in the SPM. See https://www.census.gov/topics/income-poverty/supplemental-poverty-measure/library/working-papers/topics/potential-changes.html


[21] Specifically, the SPM show higher levels of poverty than the OPM in Connecticut, Massachusetts, New York, New Jersey, Delaware, Maryland, Virginia, New Hampshire and Washington, DC. In that region, SPM only show a lower poverty level in Rhode Island. For a map, see: https://www.census.gov/content/dam/Census/library/visualizations/2019/demo/p60-268/figure7.pdf

[22] Across the country, the SPM shows statistically equivalent levels of poverty than the OPM in Georgia, North Carolina, Pennsylvania, Vermont, Indiana, North Dakota, Utah, Arizona, Washington, Oregon and Alaska.

[23] US Census Bureau, Percentage of People in Poverty by Di­fferent Poverty Measures: 2018. Available at https://www.census.gov/content/dam/Census/library/visualizations/2019/demo/p60-268/figure3.pdf

[24] Ibid. (The differences for non-Hispanic whites and blacks are roughly one half of one percent and therefore statistically equivalent).

[25] Ibid., at 322.

[26] Council of Economic Advisers, Expanding Work Requirements in Cash Welfare Programs, p. 29. Washington, DC: The White House (2018). Available: https://www.whitehouse.gov/wp-content/uploads/2018/07/Expanding-Work-Requirements-in-Non-Cash-Welfare-Programs.pdf (citing Meyer, B. D., and Sullivan, J. X. Annual report on U.S. consumption poverty: 2016. American Enterprise Institute (2017)).

[27] Meyer, B. D., and Sullivan, J. X. Annual report on U.S. consumption poverty: 2016. American Enterprise Institute. (2019). Available at: https://www.aei.org/research-products/report/annual-report-on-us-consumption-poverty-2018/

[28] National Academies of Sciences, Engineering, and Medicine. A Roadmap to Reducing Child Poverty, pp. 312-16. Washington, DC: The National Academies Press (2019). Available at: https://doi.org/10.17226/25246