🌊 The $140,000 Poverty Line

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By Max Frost

In 1965, Mollie Orshansky, an economist at the Social Security Administration, sought to establish how much an American needed to survive. After going through various techniques, she realized that it may not be “possible to state unequivocally ‘how much is enough.’”

But, she noted, “It should be possible to assert with confidence how much, on average, is too little.”

So she dove into the numbers.

Many figures, including about prices and expenditures on housing or health, were difficult to come by. Yet she observed one particularly solid stat: Around one-third of Americans’ spending on necessities went to groceries. So, she reasoned, triple that and you have the minimal amount needed to survive – the poverty level. 

As she wrote, “The US poverty line is calculated as three times the cost of a minimum food diet in 1963, adjusted for inflation.” 

Thus was born the Federal Poverty Level.

60 years later, this calculation is still used to determine the federal poverty line. The government triples the amount a household needs to spend on groceries, then adjusts it for inflation. This fact was little appreciated or discussed until last week, when the investor and writer Michael Green broke down the calculation.

He asked: “[Why were] Americans feeling poorer every year, despite economic growth and low unemployment”?

Well, he wrote, because the poverty line is now $140,000. 

Today, we examine Green’s argument, the counterarguments, and whether $140,000 is the amount a family needs to prosper in today’s America. 

The federal government uses the poverty level to determine eligibility for government benefits. For the 48 contiguous states (Alaska and Hawaii are a bit higher), the Federal Poverty Level (FPL) is $15,650 for a one-person household, increasing by $5,500 for each additional person. A family of four earning less than $32,150 is defined as living in poverty. 

This calculation makes no adjustment for regional cost of living and reflects only money income – not benefits, tax credits, debts, assets, savings, or taxes. This can either overstate the poverty level (a retiree living well off their assets and savings could be classified as impoverished) or understate it (poverty is defined the same in a place with $3,000-a-month rents and $500-a-month rents). 

And, perhaps most notably, it still relies on the 1960s food calculator: The poverty level is calculated by tripling a household’s food budget and updating it each year for inflation.

As the Census Bureau notes in its “History of the Official Poverty Measure” webpage: 

But today, households spend closer to 10% of their income on food and 5% on groceries, which have largely tracked the rate of inflation. Yet the costs of other major expenditures – particularly housing, healthcare, and education – have exploded. They now take up a much higher share of household spending, yet are not factored into the poverty level. 

So what should the poverty level really be?

To calculate that, Green looked at the spending for a family in New Jersey. As he wrote in his viral Substack article:

The figures were as follows: 

That totals a “required net income” of $118,009. Add roughly $18,500 in taxes to that and you reach a “required gross income” of $136,500. 

“This is Orshansky’s ‘too little’ threshold, updated honestly. This is the floor,” Green writes. 

He continues:

And then:

Green’s post sparked an uproar online. Among the many to respond to it was the influential libertarian economist Tyler Cowen, who called the $140,000 poverty line a “myth” that relies on “a series of methodological errors.” 

Green’s most important failure, writes Cowen, is to pretend that the inflation index hasn’t captured price increases in major expenses. He writes, “Current measures of poverty are already picking up the additional factors that Green pretends to introduce as some kind of revisionist treatment.”

Cowen also noted that “the percentage of Americans making less than $140,000 a year, adjusted for inflation, has declined precipitously since 1970.”

Scott Winship, another writer, called the article “the worst poverty analysis I have ever seen.” Among various points, he claims that the share of income that goes to food has gone down “because we can afford what we could in the past plus a lot more non-food spending.”

He notes that Green’s hypothetical poverty level relies on the most expensive period of someone’s life, paying for rent or a mortgage with multiple kids in childcare. Most Americans aren’t in that phase.

Our conversations with people around the country would have us believe that the poverty level is generally well below $140,000. Green’s calculation may make sense on paper, yet for most people, earning $140,000 gives them options that people in poverty lack. After all, when Orshansky calculated the poverty level, she wasn’t giving a number needed to live a nice middle-class life – just the amount needed to survive. A lot of people are poor but not in poverty.

That being said, we have encountered poverty in all corners of this country, including among people who earn more than the federal poverty line. The government would consider many people we know not to be in “poverty,” yet, because of high costs, debt, health issues, or other burdens, they are effectively living in it. So the truth seems somewhere between the government’s level and Green’s. 

But what do you think? 

Editor’s Note

Please send us your thoughts on this. What level of income would your household need to feel comfortable? What amount just to survive? We’re very curious. Let us know by replying to this email.

And thanks to everyone who wrote in yesterday about our piece on whether the US is abandoning Ukraine. Below are a few of those emails.

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—Max and Max