The U.S. poverty rate in 2025 dropped to its lowest level in history, according to the latest U.S. Census Bureau report. Poverty is now at 10.5%, down slightly from last year. Child poverty also hit its lowest level ever, dropping to 13.4%.

The Census Bureau also reported that inflation-adjusted median household income grew by 2.6% and hit an all-time high.

This is good news.

But the poverty rate is even lower than what the official poverty measure shows.

This is because a substantial amount of earnings among low-income households goes unaccounted for. The Census Bureau measures poverty by adding up household income and measuring it against a poverty threshold that varies by household size. About 40% of earnings among the lowest income thresholds, though, is unreported.

Instead of measuring poverty by using household income, some scholars have examined poverty using household spending. This helps get around the problem of unreported earnings. Government data consistently show that low-income households spend about two dollars for every dollar of money income they report.

Bruce Meyer of the University of Chicago finds that when poverty is measured by household expenditures rather than income though, the poverty rate declines substantially. For example, the official poverty rate in 2022 was 11.5%, but Meyer calculated consumption poverty at 6%.

Some of the income that goes unreported to Census is earnings from work, but some of it comes from government assistance that households receive, like cash assistance and SNAP benefits (Supplemental Nutrition Assistance Program benefits). The official poverty measure excludes most of these benefits.

Even a consumption poverty measure doesn’t capture all means-tested welfare assistance though. That’s because some welfare benefits don’t come into the house to begin with, like school meals, or benefits that get paid directly to a provider, like in the case of Medicaid.

Excluding government welfare benefits in the official poverty measure is a lot of income to overlook, because the welfare system is massive. In FY 2024, government means-tested welfare spending totaled nearly $1.7 trillion. The official poverty measure acts like nearly all of that money doesn’t exist.

Even though the U.S. poverty rate is much lower than the government’s official numbers indicate though, this doesn’t mean all of the problems of poverty are solved, of course. Reducing material want is not the same thing as increasing self-sufficiency and upward mobility. Pouring increasing amounts of taxpayer dollars into government programs isn’t sustainable either, and these programs create a barrier to upward mobility.

Although the official poverty measure is a poor measure of material living conditions because of all the income it overlooks, it does capture something important: the share of households that rely on government welfare assistance to get by.

And it shows that despite tens of trillions in spending since Lyndon B. Johnson’s “War on Poverty” began in the 1960s, self-sufficiency has been largely stagnant. This is because the U.S. welfare system penalizes marriage and undermines work, harming upward mobility. This is why despite massive spending the U.S. hasn’t seen a meaningful rise in self-sufficiency.

Welfare reforms that require work for able-bodied adults strengthen upward mobility. The recent SNAP reforms of last year’s “One Big Beautiful Bill Act” that expanded work requirements in SNAP for able-bodied adults should help increase work participation among low-income households.

The Trump administration has also proposed a rule to allow public housing authorities to implement work requirements in public housing programs. These types of reforms make work more attractive, while maintaining welfare benefits for those who truly need them.

The recent decline in poverty is good news. America has largely succeeded in reducing material need. But the goal should not be merely to prop up living standards through an ever-growing welfare system. It should be to promote self-sufficiency and upward mobility. A welfare system that rewards work rather than undermines it is crucial to achieving that goal.

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Rachel Sheffield is a Research Fellow in Welfare and Family Policy at The Heritage Foundation.

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