The argument that America’s poverty problem is overstated begins with a sharp observation made by former Senator Phil Gramm. He points out that the U.S. government, through its flawed measurement system, dramatically exaggerates how many Americans are living in poverty. This overstatement doesn’t just misrepresent economic hardship — it also drives enormous spending on welfare programs, regardless of actual need. Understanding the difference between government-defined poverty and real poverty is essential to rethinking the way America helps its poorest citizens.
How the Government Measures Poverty
The U.S. Census Bureau defines the “official” poverty rate by comparing a household’s pre-tax cash income to a poverty threshold that varies by family size. In 2023, that rate was 11.1%, meaning roughly 36.8 million Americans were considered poor. The threshold for a family of four was about $32,150.
However, this measurement leaves out a crucial part of the equation: government assistance. The official measure does not count the value of programs like food stamps (SNAP), housing assistance, Medicaid, or refundable tax credits. As a result, it significantly underreports the resources available to low-income families.
The Supplemental Poverty Measure (SPM), introduced in 2011, attempts to correct this by including non-cash government benefits and accounting for necessary expenses like taxes and medical costs. Yet even this adjusted measure showed a poverty rate of 12.9% in 2023, higher than the official number due to rising expenses and expiring pandemic-related aid.
What Poverty Really Looks Like After Aid
A more revealing analysis came from the Congressional Budget Office in 2023. By fully accounting for the $2 trillion in annual government transfers to low-income families, the CBO estimated that the real poverty rate in 2021 was just 0.8%. This estimate shows that only a small fraction of Americans are truly living without enough to meet their basic needs.
In contrast, the Census Bureau continues to undercount income, maintaining an inflated poverty figure that justifies continued—and expanding—welfare eligibility. For example, based on Census data, the average income of households in the bottom fifth of earners is reported as $17,650. But when government transfers are included, that figure jumps to more than $65,000.
The Programs That Aren’t Counted
The list of excluded programs is extensive. It includes Medicaid, SNAP, housing vouchers, refundable tax credits like the Earned Income Tax Credit (EITC), school lunch programs, utility assistance, and dozens of other local and federal services. Medicaid, in particular, provides health coverage to millions, even extending to families making well over 300% of the poverty level depending on the state.
Food stamps generally serve those earning less than 130% of the poverty line, but states like California raise the cap to 200%. To determine eligibility, applicants can subtract portions of their income based on child care costs and rent, reducing the amount of counted income further. In some states, eligibility for one program means automatic enrollment in others.
IRS-administered refundable credits don’t consider welfare payments in determining eligibility either, meaning many people with substantial government assistance still qualify for more aid.
The Real Picture of Poverty
When we talk about poverty in the U.S., it’s important to recognize that we are not discussing deprivation as it exists in many parts of the world. In many countries, poverty means a lack of food, shelter, and medical care. In America, the number of people who experience that level of need is exceptionally small—less than 1% according to the CBO.
The reality is that government assistance has been effective in lifting people above the line of true material hardship. Social Security alone moved 27.6 million people out of poverty in 2023, and other programs have similar effects. However, because these benefits are not counted in the official poverty statistics, the system continues to show a level of need that doesn’t match reality.
Why This Matters
The federal government currently spends over $1.5 trillion a year on welfare, with $257 billion going to families who, even without aid, would not be poor. The difference between real and measured poverty isn’t just an academic debate—it has massive consequences for the federal budget and public policy. With the national debt now exceeding 120% of GDP, reform is more urgent than ever.
By failing to use a realistic measure of income, the government ends up overpaying benefits to households that aren’t actually poor, while encouraging program expansion without clear justification. A more accurate system would allow us to target help to the people who genuinely need it.
The American system of defining poverty is deeply flawed. The official numbers fail to account for the vast network of welfare programs that already provide substantial support. As a result, the government appears to fight a poverty rate that hasn’t budged in decades, even though the actual number of Americans lacking basic necessities is tiny.
If the goal is to help people in real need, then the country must adopt a more honest accounting of income and resources. Only by doing so can we ensure that assistance goes to those who truly need it—and avoid bankrupting the nation in the process.
