Reconciling the Official Poverty Measure and CBO’s Distributional Analysis of Household Income

For over 30 years, the Congressional Budget Office has regularly published reports on the distribution of house¬hold income, means-tested transfers, and federal taxes. (Means-tested transfers are cash payments or in-kind services provided primarily on the basis of income.) And for over 60 years, the Census Bureau has regularly updated its measure of poverty rates, known as the official poverty measure (OPM). CBO's distributional analysis of household income shows that from 1979 to 2021, income after transfers and taxes among households in the lowest quintile (or fifth) of the income distribu¬tion increased significantly, after adjusting for inflation. However, the OPM has not decreased significantly over that same period.

What accounts for that seeming disparity? In this report, CBO answers that question by examining how its method for analyzing the distribution of house¬hold income differs from the Census Bureau's method for calculating the OPM. The examination involves a step-by-step reconciliation of the two methods.