At the heart of President BidenJoe Biden White House: US has donated 200 million COVID-19 vaccines around the world Police recommend charges against four over Sinema bathroom protest K Street revenues boom MORE’s plan to create the biggest welfare state in American history is the idea that many families are struggling financially. The way the story goes, everything from a minimum wage hike to a much larger child tax credit to free child care and community college will help the tens of millions of families who are falling behind.
But the premise is somewhat false. Although poverty is a real and serious problem, there is little evidence behind the claim that huge numbers of families are financially unstable. Yet this myth is supported in part by faulty research by one of America’s most beloved nonprofits: United Way.
Every two years, United Way publishes the ALICE Report, and the latest version, released in December, declared that “42 percent of U.S. households could not afford the cost of household basics.” United Way also routinely releases many state-level analyses with similar assertions, including a 2021 report on our home state of Michigan. The reports are widely touted by the news media: There have been nearly 1,000 newspaper citations alone in the past decade, including coverage from CNN to The Associated Press to National Public Radio. But a close examination of the report reveals some failings.
A new study by the Mackinac Center for Public Policy scrutinizes the report’s methodology, starting with its definition of a “Household Survival Budget” — a key feature of the ALICE Report. It creates a hypothetical minimum budget that all families must afford in order to survive, which includes costs such as housing, child care, food, transportation, health care and other items. The report declares that all households with income below this threshold — 42 percent of U.S. households in the latest version — are at risk of homelessness, starvation, or more.
But the United Way report does not calculate what it costs to afford household necessities. Instead, it presents the average spending on these items and uses this as an estimate for the bare minimum costs needed for a household to survive. According to this methodology, a family that maintains the same income and spending year-over-year is worse off if their neighbor splurges on a big-screen television or new vehicle. That’s not how poverty works, nor is it any indication of survivability.
An accurate assessment of household survivability would require identifying the lowest prices of certain goods and services, not just the average amount that people pay for them. The use of the average says more about who can “keep up with the Joneses” than it does a family’s ability to survive. And it ensures that the poor will always be among us, since a sizable portion of the population will always spend less than the average.
United Way’s analysis has other basic problems. For example, it doesn’t even measure the number of people who earn less than the hypothetical budgets it creates. It simply slaps the ALICE label on all households — no matter their size or situation — that earn less than a certain amount. The amount depends on the county, and in Michigan it ranges from $35,000 to $60,000. This leads to bizarre outcomes, such as a single adult earning $59,000 getting labeled ALICE, while a family of six with income of $61,000 does not, despite its much larger financial needs. The report also fails to recognize that different households have different financial needs, so the end result is an inflated number that doesn’t accurately say how many families are struggling financially.
Even the name of the ALICE Report is misleading. While the acronym stands for “Asset Limited, Income Constrained, Employed,” United Way does not measure households’ assets, constraints on income, or even employment. Every letter in the acronym is a false flag. While there are certainly many families that are asset-limited, income-constrained and employed, the ALICE Report does not attempt to measure who they are or what needs they may have.
High-quality research and data are essential to crafting good public policy. Weak and misleading research and data can lead to bad policy. Politicians and advocates for more government spending may use the United Way’s ALICE Report to exaggerate the number of people who need significant government help. It plays right into the Biden administration’s attempts to create an expensive welfare state.
Most importantly, misleading analyses distract from the effort to discover the real needs of impoverished families and the best way to address them. America will struggle to lift up the least fortunate and the most vulnerable as long as there’s no clear picture of who they are — and who they aren’t.
James M. Hohman is the director of fiscal policy and Jarrett Skorup is director of marketing and communications at the Mackinac Center for Public Policy.