In 1964, President Lyndon B. Johnson declared a national War on Poverty. To set the parameters for the battle, the administration adopted a federal poverty threshold, developed by Mollie Orshansky, an economist for the Social Security Administration.
Working with census data from 1955, she found that families of three or more spent roughly a third of their income on food. She then took the U.S. Department of Agriculture's “economy” food plan, thought to be the lowest amount a family could spend on food and still be nourished, and multiplied this number by three, to account for other expenses. The resulting figure was the poverty threshold.
Families with income below that line are officially poor. There have been some minor changes over the years, yet the formula has never been changed - simply updated each year according to the consumer price index.
This leads to some controversial numbers. For example, the U.S. poverty guidelines for 2008 put the poverty line for a single person at $10,400 a year. For a family of three, the line is $17,600. These numbers don't account for the modern realities of expensive health care, housing, and energy.
Accordingly, a great many social service organizations have set their own poverty thresholds, at about twice the federal numbers. By the federal standards, over 12 percent of the country lives in poverty, some 37 million people, or about 1 in every 8 of us. More liberal estimates yield numbers as high as 25 percent nationally.