Improvements in 2001 Living Income Standard
In an effort to provide the best and most accurate estimate of the cost for families to live in North Carolina, Justice Center staff reviewed and revised the methodologies used to determine the Living Income Standard (LIS). Since the release of the original 1999 LIS, the Economic Policy Institute (EPI), a national economic policy think tank, examined the living income standard, or equivalent, of each of the states that had one and prepared an analysis of best practices and options when calculating a state living income standard.(1) Based on a review of this extensive work, we have chosen to alter our methodologies to adopt some of the best practices identified by EPI in order to improve the accuracy of the North Carolina Living Income Standard.

These changes, however, mean that the 1999 LIS is not comparable to the 2001 LIS contained in this report. Health care, transportation and miscellaneous costs cannot be directly compared because of improvements in the methodologies used to calculate them. Housing and food costs continue to be based on the same data sources, but we have used a different designation for which counties are urban and which are rural, so that all of the data is consistent with federal designations. As a result, the statewide urban and rural weighted averages for housing and food costs cannot be compared to our earlier 1999 numbers.

State law and policy changes also make it impossible to compare certain line items. For example, since 1999, laws and regulations have changed regarding the state’s child care rating system. In 1999, child care centers and homes were rated either A or AA. Centers rated AA, the better rating, had a higher fair market cost. Today, child care is rated under a five star system, with one star being the lowest rating and lowest cost, and five the highest rating and cost. We have chosen to assume our family budget will use three star care, but this cannot be compared directly to the old system. Similarly, methodologies used to calculate the 1999 tax line items were no longer appropriate due to changes in tax laws and therefore, this line item is not comparable from 1999 to 2001.

The bottom line is that both the 1999 and the 2001 Living Income Standards use the best data and methodologies available at the time they are calculated. They both are conservative and opt for the lower cost estimate or methodology where choices must be made. While they are different enough that they cannot be compared to each other, they still offer North Carolina’s best estimate of what it takes for a family to really get by. Below is more information about the specific methodologies and data sources used for each line item of the 2001 LIS.

The cost of other necessities was calculated as 31% of the total costs for food and housing, as recommended by EPI’s research. This amount includes the expense associated with clothing, personal care, telephone, household supplies, reading materials, school supplies, bank fees, union dues, music, television, and toys. The costs of these items are derived from the Federal Communications Commission and the Consumer Expenditure Survey.

Tax costs were computed for each family type using standard federal tax forms. These costs include federal personal income tax, federal Social Security and Medicare payroll taxes (direct worker payments only) equal to 7.65% of pretax wages. This method also produced the amounts a given family would receive in tax credits – the Earned Income Tax Credit and the Childcare Credit. In order to calculate these specific tax amounts, the family budget necessary to meet basic needs was identified as the after-tax income. We then calculated the pre-tax income necessary for families to achieve the after-tax income, with the difference being the federal tax liability. State income taxes were calculated using the personal income tax rate schedule set forth by the Institute on Taxation and Economic Policy.