How the Self Sufficiency Standard is Calculated
The goal of making the Standard as consistent and accurate as possible, yet varied by geography and age, requires meeting several different criteria. To the extent possible, the data used in the Self-Sufficiency Standard are:
• collected or calculated using standardized or equivalent methodology;
• from scholarly or credible sources such as the U.S. Census Bureau;
• updated annually (or as soon as updates are available); and
• geographically and/or age-specific (where appropriate).
Thus, costs that rarely have regional variation are usually standardized, while costs that vary substantially, such as housing and child care, are calculated at the most geographically specific level available. In addition, as improved or standardized data sources become available, the methodology used by the Standard is refined to incorporate these improvements. This results in an improved Standard that is comparable across place as well as time.
The Self-Sufficiency Standard is calculated for 70 different family
types in each of
The components
of the Self-Sufficiency Standard for
Housing:
The Standard uses the Fiscal Year 2005 Fair Market Rents, which are calculated
annually by the U.S. Department of Housing and Urban Development (HUD) for every
Metropolitan Statistical Area (MSA) and non-metropolitan county (totaling over
400 housing market areas). Fair Market Rents (FMRs) are based on data from the
decennial census, the annual American Housing Survey, and telephone surveys.2
FMRs, which include utilities except telephone and cable, are intended to reflect
the cost of housing that meets minimum standards of decency, but is not luxurious.
In most cases, including
The Self-Sufficiency Standard assumes that parents and children do not share the same bedroom and that there are not more than two children per bedroom. Therefore, the Standard assumes that single persons and couples without children have one-bedroom units,3 families with one or two children require two bedrooms, and families with three children have three bedrooms.
Child Care: The Standard uses the most accurate information
available that is recent and specific to geography, age and setting. The Family
Support Act (in effect from 1988 until welfare reform in 1996) required states
to provide child care at "market rate" for those needing it for employment
and/or education and training. States were also required to conduct cost surveys
to determine the "market rate" (defined as the 75th percentile) by
setting, age, and geographical location (or use a statewide rate). Many states,
including
The Standard defines "infants" as children under 3 years old, "preschoolers" as children 3-5 years old, "school-age children" as 6-12 years old, and "teenagers" as 13 years old and older. Because it is more common for very young children to be in family day care homes rather than centers,5 the Standard assumes that infants receive full-time care in day care homes. Preschoolers, in contrast, are assumed to go to day care centers fulltime. School-age children are assumed to receive part-time care in before- and after-school programs. Teenagers are not assumed to require child care; therefore, there are no child care costs.
Food: Although the Thrifty Food Plan and its successor have been used as the basis of both the poverty threshold and the Food Stamp Program, the Standard uses the Low-Cost Food Plan for food costs.6 Although both of these U.S. Department of Agriculture (USDA) diets meet minimum nutritional standards, the Thrifty Food Plan was meant for emergency use only, while the Low-Cost Food Plan is based on more realistic assumptions about food preparation time and consumption patterns. While it is about 25% higher than the Thrifty Food Plan, the Low-Cost Food Plan is a conservative estimate as it does not allow for any takeout, fast-food, or restaurant meals (although according to the Consumer Expenditure Survey, the average American family spends about 42% of its food budget on food prepared away from home7). Both the Low-Cost Food Plan and the Standard's budget calculations computed from the National Household Travel assume a single person household is one adult male, Survey 2001.26 while the single parent household is one adult female.8 A two-parent household is assumed to include one adult male and one adult female.
The food costs in the Standard
are varied by the number and age of children and the number and gender of adults.
Geographic differences in food costs are varied by using
Transportation: If there is an adequate public transportation system in a given area, it is assumed that workers use public transportation to get to and from work. A public transportation system is considered "adequate" if it is used by a substantial percentage of the working population. According to one study, if about 7% of the total public uses public transportation, that "translates" to about 30% of the low- and moderate income population.10 In West Virginia, 1 % of all workers use public transportation;11 therefore, we assume workers living in West Virginia use private transportation. If there are two adults in the family, we assume the family needs two cars, since it is unlikely that two adults with two jobs would be traveling to and from the same place of work at exactly the same time.
Private transportation costs are based on the costs of owning and operating an average car (or two cars if there are two adults). The fixed costs of owning a car include fire, theft, property damage and liability insurance, license, registration, taxes, repairs, monthly payments, and finance charges. The monthly variable costs (e.g., gas, oil, tires, and maintenance) are also included, but the initial cost of purchasing a car is not.
To estimate fixed costs we use the Consumer Expenditure Survey amounts
for families in the second quintile of income (those whose incomes are between
the 20th, and 40th percentile), by region. The auto insurance premium is the
average premium cost for
For per-mile costs, we use driving cost data from the American Automobile Association.14 The Standard assumes that the car(s) will be used to commute to and from work five days per week, plus one trip per week for shopping and errands. The commuting distance is computed from the National Household Travel Survey 2001.15 In addition, one parent in each household with young children is assumed to have a slightly longer weekday trip to allow for "linking" trips to a day care site.
Health Care:
Families cannot be truly self-sufficient without health insurance. Employer
sponsored health insurance coverage is assumed in the Self-Sufficiency Standard
as the norm for full-time workers. In fact, nationally, the majority (71 %)
of non-elderly individuals in households with at least one full-time worker
have employer-sponsored health insurance coverage. In
We also assume that the full-time worker's employer pays 81% of the insurance premium for families (also 81% for the employee only), the current percent of coverage in West Virginia.17 Yet as the cost of health insurance rises, employers shift more of that cost onto workers by paying a lower percentage of premiums and offering plans that provide less coverage. Thus, many workers do not have access to affordable health insurance coverage through their employers, and those who do not often must "do without."
Health care costs in the Standard include both the employee's share of insurance premiums plus additional out-of-pocket expenses, such as the co-payment, uncovered expenses (e.g., dental care and prescriptions), and the insurance deductible.
The cost of the health insurance premium is based on the average
premium paid by
Miscellaneous: This expense category includes all other essentials including clothing, shoes, paper products, diapers, nonprescription medicines, cleaning products, household items, personal hygiene items, and telephone service. It does not allow for recreation, entertainment, savings, or debt repayment. Miscellaneous expenses are calculated by taking 10% of all other costs. This percentage is a conservative estimate in comparison to estimates in other basic needs budgets, which commonly use 15%.18
Taxes: Taxes include state sales tax, federal and state income taxes, and payroll taxes where applicable. West Virginia has a statewide sales tax of 6%.19 In West Virginia, sales tax is also applied to groceries.20 For the Self-Sufficiency Standard, sales taxes are calculated only on "miscellaneous" items, as one does not ordinarily pay tax on rent, child care, and so forth. Indirect taxes, e.g., property taxes paid by the landlord on housing, are assumed to be included in the price of housing passed on by the landlord to the tenant. Also, taxes on gasoline and automobiles are included as a cost of owning and running a car.
Although the federal income tax rate (15% on most income for the majority of family types) is higher than the payroll tax rate, federal exemptions and deductions are substantial. As a result, while the payroll tax is paid on every dollar earned, families do not pay federal income tax on the first $10,000 to $15,000 or more, thus lowering the effective federal tax rate to about 7% for most family types. Payroll taxes for Social Security and Medicare are calculated at 7.65% of each dollar earned.
Earned Income Tax Credit (EITC): The EITC, or as it is sometimes called, the Earned Income Credit, is a federal tax refund intended to offset the loss of income from payroll taxes owed by low-income working families. The EITC is a "refundable" tax credit; that is, working adults may receive the tax credit whether or not they owe any federal taxes.
Child Care Tax Credit (CCTC): The federal CCTC is a tax credit that allows working parents to deduct a percentage of their child care costs from the federal income taxes they owe. Like the EITC, the CCTC is deducted from the total amount of money a family needs to be self-sufficient. Unlike the EITC, the federal CCTC is not a "refundable" tax credit. A family may only receive the CCTC as a credit against federal income taxes owed. Therefore, families who owe very little or nothing to the federal government in income taxes receive little or no CCTC.
Child Tax Credit (CTC): The CTC is a "refundable" federal tax credit, like the EITC, that provides parents a deduction of up to $1,000 for each child under 17 years old or 15% of earned income over $10,750, whichever is less.