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Introductory Notes

* Income is “a flow of purchasing power” that comes from work, investments, and other sources, like government benefits.[1] [2]

* Per the Organization for Economic Cooperation and Development:

Income allows people to satisfy their needs and pursue many other goals that they deem important to their lives, while wealth makes it possible to sustain these choices over time. Both income and wealth enhance individuals’ freedom to choose the lives that they want to live.[3]

* Some common measures of income in the U.S. are reported by federal agencies, including the Census Bureau, the Congressional Budget Office, the Bureau of Labor Statistics, the Bureau of Economic Analysis, the Internal Revenue Service, and the Federal Reserve.[4] [5] [6] [7] [8] [9]

* Different methods of income measurement can lead to conflicting conclusions about people’s economic conditions.[10] [11] [12] [13]

* The Census Bureau has 17 definitions of income, and other agencies use differing measures.[14] [15] [16] [17] Each has strengths and weaknesses, such as the following:

  • Widely used statistics from the Census Bureau and the Bureau of Labor Statistics provide timely details about the incomes of different groups (like white, black, young, old, etc.),[18] [19] [20] but:
    • they exclude capital gains and “noncash benefits, such as food stamps, health benefits, and subsidized housing.”[21]
    • the data are collected via government surveys, and low-income households substantially underreport their income on such surveys.[22] [23] [24]
    • according to the Census Bureau, its income estimates consistently “fall short” of objective “benchmarks—across surveys, across time, and across income categories.”[25]
  • The Congressional Budget Office publishes a more comprehensive measure of household income than the Census Bureau, but it takes significant time to prepare. Hence, the data is often several years old.[26] [27]
  • IRS data excludes non-taxable income like employee and government benefits, and it does not account for taxable income that is not reported to the IRS, which is a significant portion of all income.[28] [29] [30] [31]
  • The Bureau of Economic Analysis publishes a comprehensive measure of material resources called “consumption,” but with limited exceptions, the agency publishes overall figures for the entire nation and doesn’t break down the data to show how people at different levels fare.[32] [33]
  • Various government agencies use slightly different indexes to adjust for inflation. This affects income comparisons over long periods of time.[34] [35] [36]

* To gain a broader understanding of people’s economic status, it is sometimes helpful to examine multiple measures, such as income, wealth, and consumption.[37]

* Analysts often group people into brackets according to their income, such as the lowest 20%, the middle 20%, and the highest 20%. The middle group is considered to be “middle class.” Median income—“the amount which divides the income distribution into two equal groups, one having incomes above the median, and the other having incomes below the median”—is another common way to define the middle class.[38] [39] [40]

* Comparisons of income groups over time often do not represent the experiences of specific people. This is because people typically move through life stages in which their income varies significantly, causing them to move in and out of different income groups.[41] [42]

* Unless otherwise stated, all international comparisons of income in this research are provided in “purchasing power parities,” or PPPs. Purchasing power parities allow for accurate measures of economic data across countries because they account for the prices of goods and services in different nations. Thus, an apple in one nation is counted the same as an apple in another.[43] [44] [45]

* In keeping with Just Facts’ Standards of Credibility, all charts in this research show the full range of available data, and all facts are cited based upon availability and relevance, not to slant results by singling out specific years that are different from others.

Income

* According to data from the Congressional Budget Office, U.S. households had an average income of $125,500 in 2019 prior to the Covid-19 pandemic.[46] This includes income sources like wages, salaries, capital gains, rental income, and untaxed government and employer-provided benefits like food stamps and health insurance. This varied by income group as follows:

Average Household Incomes by Income Group

[47] [48]

* According to data from the Congressional Budget Office, U.S. households had an average income of $133,000 in 2020 amid Covid-19 government lockdowns and intensified social spending:[49] [50] [51]

Average Household Incomes by Income Group

[52] [53]

* From 1979 to 2019 (prior to the Covid-19 pandemic,[54]) the inflation-adjusted average income of U.S. households increased by $54,300 or 76%. This varied by income group as follows:

Inflation-Adjusted Household Income

Income Group

1979

2019

Increase From 1979 to 2019

Dollars

Percent

Lowest 20%

$21,500

$39,100

$17,600

82%

Second 20%

$40,200

$59,600

$19,400

48%

Middle 20%

$60,600

$85,500

$24,900

41%

Fourth 20%

$82,000

$124,900

$42,900

52%

Highest 20%

$155,100

$333,100

$178,000

115%

Top 1%

$595,300

$1,998,700

$1,403,400

236%

All Groups

$71,200

$125,500

$54,300

76%

[55] [56]

* From 1979 to 2020 (amid Covid-19 government lockdowns and intensified social spending,[57] [58] [59]) the inflation-adjusted average income of U.S. households increased by $61,000 or 85%. This varied by income group as follows:

Inflation-Adjusted Household Income

Income Group

1979

2020

Increase From 1979 to 2020

Dollars

Percent

Lowest 20%

$21,800

$42,200

$20,400

94%

Second 20%

$40,700

$63,600

$22,900

56%

Middle 20%

$61,300

$90,500

$29,200

48%

Fourth 20%

$82,900

$131,800

$48,900

59%

Highest 20%

$156,800

$360,900

$204,100

130%

Top 1%

$602,000

$2,291,800

$1,689,800

281%

All Groups

$72,000

$133,000

$61,000

85%

[60] [61]

* After federal taxes, the inflation-adjusted average income of U.S. middle-income households rose from $49,700 in 1979 to $84,300 in 2020, or by $34,600 or 70%:

Average Inflation-Adjusted Middle-Class Household Income

[62] [63] [64] [65] [66] [67] [68]

* After federal taxes, the inflation-adjusted average income of U.S. households rose by $46,800 or 84% during 1979 to 2019 (prior to the Covid-19 pandemic.[69]) This varied by income group as follows:

Inflation-Adjusted Household Income After Federal Taxes

Income Group

1979

2019

Increase From 1979 to 2019

Dollars

Percent

Lowest 20%

$20,100

$38,900

$18,800

94%

Second 20%

$34,300

$54,900

$20,600

60%

Middle 20%

$49,100

$74,800

$25,700

52%

Fourth 20%

$64,300

$104,400

$40,100

62%

Highest 20%

$113,100

$252,100

$139,000

123%

Top 1%

$386,700

$1,398,500

$1,011,800

262%

All Groups

$55,600

$102,400

$46,800

84%

[70] [71] [72]

* After federal taxes, the inflation-adjusted average income of U.S. households rose by $56,500 or 101% during 1979 to 2020 (amid Covid-19 government lockdowns and intensified social spending.[73] [74] [75]) This varied by income group as follows:

Inflation-Adjusted Household Income After Federal Taxes

Income Group

1979

2020

Increase From 1979–2020

Dollars

Percent

Lowest 20%

$20,300

$45,800

$25,500

126%

Second 20%

$34,700

$63,200

$28,500

82%

Middle 20%

$49,700

$84,300

$34,600

70%

Fourth 20%

$65,000

$115,100

$50,100

77%

Highest 20%

$114,300

$275,700

$161,400

141%

Top 1%

$391,000

$1,605,400

$1,214,400

311%

All Groups

$56,200

$112,700

$56,500

101%

[76] [77] [78]

Sources of Income

Overview & Trends

* The two main categories of income are:

  1. market income, which includes cash and non-cash income from sources such as wages, employer-paid health insurance benefits, business income, capital gains, and pension plans.[79]
  2. government benefits, which include cash and non-cash income from the government, such as Social Security, welfare benefits, food stamps, and Medicare benefits.[80]

* Private charities provide other sources of non-cash income to low-income people. These include but are not limited to food, clothing, housing, and healthcare.[81] [82] [83] [84]

* According to data from the Congressional Budget Office, U.S. households obtained about 86% of their income from the market and 14% from the government in 2019 prior to the Covid-19 pandemic.[85] This varied by income group on average as follows:

Income Source by Income Group

[86] [87]

* According to data from the Congressional Budget Office, U.S. households obtained about 82% of their income from the market and 18% from the government in 2020 amid Covid-19 government lockdowns and intensified social spending.[88] [89] [90] This varied by income group on average as follows:

Income Source by Income Group

[91] [92]

* From 1979 to 2019 (prior to the Covid-19 pandemic,[93]) government benefits rose from 9% of total household income to 14%, or by 60%. This varied by income group as follows:

Average Portion of Household Income From Government Benefits

Income Group

1979

2019

Change

Percentage Points

Percent

Lowest 20%

51%

56%

5

9%

Second 20%

19%

34%

15

77%

Middle 20%

8%

21%

13

155%

Fourth 20%

5%

13%

8

168%

Highest 20%

2%

4%

2

74%

All Groups

9%

14%

5

60%

[94] [95]

* From 1979 to 2020 (amid Covid-19 government lockdowns and intensified social spending,[96] [97] [98]) government benefits rose from 9% of total household income to 18%, or by 100%. This varied by income group as follows:

Average Portion of Household Income From Government Benefits

Income Group

1979

2020

Change

Percentage Points

Percent

Lowest 20%

51%

64%

13

25%

Second 20%

19%

42%

23

120%

Middle 20%

8%

27%

19

227%

Fourth 20%

5%

16%

12

241%

Highest 20%

2%

5%

2

99%

All Groups

9%

18%

9

100%

[99] [100]

* In 2019, prior to the Covid-19 pandemic,[101] roughly 60% of U.S. households received more in federal, state, and local government benefits than they paid in federal taxes:

Government Benefits v. Federal Taxes

[102] [103] [104]

* In 2020, amid Covid-19 government lockdowns and intensified social spending,[105] [106] [107] roughly 80% of U.S. households received more in federal, state, and local government benefits than they paid in federal taxes:

Government Benefits v. Federal Taxes

[108] [109] [110]

* In 1979, only the lowest-income 20% of U.S. households and the second lowest 20% received more in federal, state, and local government benefits than they paid in federal taxes. Since then, the following households have also moved into this territory:

  • The middle 20% from 2001 onwards
  • The fourth 20% in 2020—amid Covid-19 government lockdowns and intensified social spending[111] [112] [113]
Government Benefits Minus Federal Taxes

[114] [115] [116]

* Government benefits can suppress market income by:

  • providing the means and incentive not to work.[117] [118] [119] [120] [121]
  • reducing the incentive to work by cutting take-home pay (if taxes are raised to pay for the benefits).[122] [123] [124] [125]
  • depressing wages by decreasing productivity-enhancing investments (if governments borrow the money to pay for the benefits).[126] [127]

Market Income Breakdown

* According to data from the Congressional Budget Office, cash wages and salaries accounted for 62% of market income to U.S. households in 2020. Capital and business income provided 29%, and employer-paid benefits made up the remaining 8%. This varied by income group as follows:

Sources of Household Market Income

[128] [129]

* According to data from the Congressional Budget Office, benefits paid by employers accounted for 11% of middle-income worker compensation in 1979. By 2020, this figure had risen to 15%. This varied by income group as follows:

Portion of Worker Compensation in Benefits

Income Group

1979

2020

Lowest 20%

11%

14%

Second 20%

12%

15%

Middle 20%

11%

15%

Fourth 20%

10%

14%

Highest 20%

9%

10%

[130] [131]


Government Income Breakdown

* The two largest sources of household government income are Social Security and Medicare, both of which benefit elderly and disabled people.[132] [133] [134]

* In June of 2021, 65.0 million people—20% of the U.S. population—received Social Security benefits.[135]

* In 2021, 63.8 million people—19% of the U.S. population—received Medicare benefits.[136]

* According to data from the Congressional Budget Office, in 2019 prior to the Covid-19 pandemic:[137]

  • Social Security provided 41% of all government income to U.S. households.
  • Medicare provided 25%.
  • Medicaid provided 24%.
  • the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) and Supplemental Security Income (SSI) provided 4%.
  • Unemployment Insurance (UI) and Workers’ Compensation (WC) provided 2%.
  • other benefit programs provided 4%.[138] [139]
  • these figures varied by income group on average as follows:
Sources of Household Government Benefits

[140] [141]

* According to data from the Congressional Budget Office, in 2020 amid Covid-19 government lockdowns and intensified social spending:[142] [143] [144]

  • Social Security provided 32% of all government income to U.S. households.
  • Medicare provided 22%.
  • Medicaid provided 21%.
  • the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) and Supplemental Security Income (SSI) provided 4%.
  • Unemployment Insurance (UI) and Workers’ Compensation (WC) provided 5%.
  • other benefit programs provided 15%.[145] [146]
  • these figures varied by income group on average as follows:
Sources of Household Government Benefits

[147] [148]

Consumption

Overview & Trends

* “Personal consumption” is a comprehensive measure of the goods and services consumed by households. In the United States, consumption is recorded by the federal government’s Bureau of Economic Analysis and includes all material resources:

  • directly purchased by households.
  • given to households by non-profit organizations.
  • “financed by third-party payers on behalf of households, such as employer-paid health insurance and medical care financed through government programs.”[149] [150] [151]

* Per the World Bank:[152]

Consumption is conventionally viewed as the preferred welfare indicator, for practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.[153] [154]

* Per a 2003 paper in the Journal of Human Resources:

  • “substantial evidence” indicates that “consumption is better measured than income for those with few resources.”
  • consumption is “a more direct measure of material well-being” than income.
  • “consumption standards were behind the original setting of the poverty line,” but governments now use income because of its “ease of reporting.”[155]

* In the United States from 1929 to 2021, the average inflation-adjusted consumption per person rose by 5.1 times:

Inflation-Adjusted Consumption Per Person

[156] [157] [158] [159]


Distribution

* Most U.S. households—especially lower-income ones—consume more goods and services than revealed by common measures of income.[160] [161] [162] This is because widely used income measures, like the Census Bureau’s “money income”:

  • exclude “income in the form of noncash benefits, such as food stamps, health benefits, subsidized housing, and goods produced and consumed on the farm.”[163] [164] [165] [166]
  • are based on government household surveys, and households often underreport their cash and noncash income on such surveys.[167] [168] [169] [170]

* With regard to the exclusion of noncash benefits from common income measures:

  • Food Stamp beneficiaries received an average of $5,014 per household in Food Stamps during 2021.[171]
  • Employees with employer-provided single-person health coverage received an average of $6,423 in health benefits during 2021.[172]
  • Medicaid beneficiaries received an average of $8,810 per person in health benefits during 2021.[173]
  • Section 8 voucher beneficiaries received an average of $9,775 per household in rental assistance during 2021.[174] [175]
  • Head Start beneficiaries received an average of $12,327 per child in childcare and preschool benefits during 2021.[176]
  • Medicare beneficiaries received an average of $13,536 per person in health benefits during 2021.[177]
  • Employees with employer-provided family health coverage received an average of $16,221 in health benefits during 2021.[178]
  • Government programs provide other noncash benefits to low-income people in the form of utility assistance, college grants, school lunch, school breakfast, community health centers, family planning services, prescription drugs, job training, legal services, cell phones, cell phone service, and internet service.[179] [180] [181] [182]
  • Federal law requires most hospitals with emergency departments to provide an “examination” and “stabilizing treatment” for anyone who comes to such a facility and requests care for an emergency medical condition or childbirth, regardless of their ability to pay and immigration status.[183] [184] [185]
  • U.S. citizens donate about $50 billion each year to charities that provide “direct services to people in need”—an average of $1,471 for every person who is reportedly below the poverty line.[186] [187]
  • U.S. citizens donate to private charities that provide additional benefits to low-income people, such as food, clothing, shelter, and education.[188] [189] [190] Annually, these donations amount to an average of:
    • $1,732 in education for every person reportedly below the poverty line.[191] [192]
    • $1,126 in healthcare for every person reportedly below the poverty line.[193] [194] [195]

* With regard to the underreporting of income on government household surveys:

  • A study published by the American Economic Journal in 2019 found that:
    • 63% of all New York State households who received benefits from two major cash welfare programs did not report any of this money to the Census.[196] [197]
    • people who did report receiving cash welfare from these two programs received an average of 65% more money from the programs than they reported to the Census.[198]
  • A 2022 IRS study of tax data from 2014 to 2016 found that:
    • 55% of income not reported to the IRS by third parties (like employers) is never reported to the IRS by the people who receive the money.[199]
    • 13.0% of what people legally owe in federal taxes is not paid, and this is partially due to “underreporting” of income.[200] Adjusted for inflation, this amounts to an average annual tax underpayment of $4,262 for each household in the U.S.[201]
  • A 2015 paper in the Journal of Economic Perspectives titled “Household Surveys in Crisis” found that:
    • “in recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major” government surveys.
    • there has been “a sharp rise” in underreporting of government benefits received by low-income households.
    • the “understatement of incomes” masks “the poverty-reducing effects of government programs” and leads to “an overstatement of poverty and inequality.”[202]
  • In 2013, the chief actuary of the U.S. Social Security Administration estimated that 3.9 million illegal immigrants worked “in the underground economy” during 2010.[203]

* The U.S. Bureau of Economic Analysis normally reports consumption for the entire nation and doesn’t break down the data to show how people at different levels fare. However, it published a report in 2012 that does that for 2010.[204]

* In 2010, the poorest 20% of U.S. households consumed on average of $57,049 of goods and services per household, while they reported an average of $11,034 in pre-tax money income. For other households, the amounts varied as follows:

Reported Pre-Tax Money Income Versus Consumption, 2010

[205] [206]


Consumer Expenditures

* The U.S. Bureau of Labor Statistics collects data on a subset of consumption called “consumer expenditures.” This includes all direct purchases by households, including those made with the proceeds of government benefits like cash welfare and food stamps. However, it excludes goods and services received but not directly purchased by households, such as Medicaid, Medicare, housing subsidies, school lunches, and employer-provided health insurance.[207] [208] [209] [210] [211] [212]

* The Department of Labor collects data on consumer expenditures via household surveys.[213] Per the U.S. Bureau of Economic Analysis, such surveys “have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items.”[214] [215]

* The average consumer expenditures of the poorest 10% of U.S. households are 4.4 times their reported, before-tax, money income. The ratios of spending to income for other groups varied as follows:

Income & Consumption Levels, and Rate of Consumption to Income

[216] [217]

* The Department of Labor explains that consumers can temporarily spend more than their income by borrowing or “drawing down savings and investments.”[218] Thus, some people in the lowest income group “have expenditures that are more typical of upper-income consumers.”[219]

* From 1984 to 2021, the average inflation-adjusted consumer expenditures per household varied as follows:

Inflation-Adjusted Annual Expenditures by Income Group

[220] [221]

* From 1984 to 2021, the average inflation-adjusted consumer expenditures of the bottom 20% of households increased by $6,306. This gain closed the 1984 gap between the bottom 20% and the next income group by 81%. The gap closures between the other groups varied as follows:

Inflation-Adjusted Consumer Expenditures

Income Group

Year

Portion of 1989 Gap Closed

1984

2021

Bottom 20 Percent

$24,563

$30,869

81%

Second 20 Percent

$32,326

$43,918

100%

Middle 20 Percent

$43,897

$55,914

80%

Fourth 20 Percent

$58,934

$75,284

46%

Top 20 Percent

$94,304

$128,213

[222] [223]


Patterns & Priorities

* Per the U.S. Bureau of Labor Statistics, “consumption patterns indicate the priorities that families place on the satisfaction of the following needs”:

  • food
  • clothing
  • shelter
  • utilities
  • health
  • transportation
  • education[224]

* In 2021, households spent 21% of their consumer expenditures on shelter:

Median Income Household Expenditures

[225] [226]

* In 1901, U.S. households spent 43% of their income on food. By 2021, spending on food had decreased to 12% of income. The spending levels for other expenses varied as follows:

Average Annual U.S. Expenditure Shares

[227] [228] [229]

* Per a 2006 report by the Bureau of Labor Statistics:

Perhaps as revealing as the shift in consumer expenditure shares over the past 100 years is the wide variety of consumer items that had not been invented during the early decades of the 20th century but are commonplace today. In the 21st century, households throughout the country have purchased computers, televisions, iPods, DVD players, vacation homes, boats, planes, and recreational vehicles. They have sent their children to summer camps; contributed to retirement and pension funds; attended theatrical and musical performances and sporting events; joined health, country, and yacht clubs; and taken domestic and foreign vacation excursions. These items, which were unknown and undreamt of a century ago, are tangible proof that U.S. households today enjoy a higher standard of living.[230]

* In 2020, 88% of U.S. homes had air conditioning. The average usage or possession rates for air conditioning and other appliances varied by income group as follows:

Average Usage or Possession Rates by Income Group

Income Group

Appliance

Air Conditioning

Dishwasher

Clothes Washer

Clothes Dryer

Less than $20,000

80%

38%

61%

58%

$20,000 to $40,000

87%

61%

80%

78%

$40,000 to $60,000

88%

72%

85%

84%

$60,000 to $100,000

90%

83%

90%

90%

$100,000 to $150,000

93%

90%

93%

93%

$150,000 or More

93%

95%

95%

94%

All Homes

88%

73%

84%

83%

[231]

* As of 2020, 93% of U.S. homes had internet access. The average usage and possession rates for different types of electronic devices and services varied by income as follows:

Average Usage or Possession Rates by Income Group

Income Group

Electronic Device or Service

Primary TV 40” or Larger

Cable & Digital Video Recorder

Internet Access

Smartphone

Less than $20,000

53%

20%

76%

72%

$20,000 to $40,000

65%

29%

89%

80%

$40,000 to $60,000

71%

33%

95%

89%

$60,000 to $100,000

77%

37%

98%

94%

$100,000 to $150,000

80%

40%

99%

96%

$150,000 or More

85%

47%

100%

98%

All Homes

72%

34%

93%

88%

[232]

Gross Domestic Product

Overview & Trends

* Gross domestic product (GDP) is the standard measure of nations’ economic output. It is equal to the value of all goods and services that a country produces in a year minus the resources used to produce them. GDP is defined by the equation: Hours worked × Labor productivity.[233] [234]

* GDP divided by the population is often used to measure a country’s standard of living. Per the textbook Macroeconomics for Today:

GDP per capita provides a general index of a country’s standard of living. Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.[235]

* In the U.S. from 1947 to 2022, the average inflation-adjusted GDP per person rose by 4.2 times:[236]

U.S. Inflation-Adjusted GDP Per Capita

[237] [238] [239] [240]

* Inflation-adjusted GDP growth per person in the U.S. has varied as follows since 1959:

GDP Growth Per Person, 5-Year Moving Average

[241] [242] [243] [244]


Effects of Government Debt

* In 2012, the Journal of Economic Perspectives published a paper about the economic consequences of government debt. Using 2,000+ data points on national debt and economic growth in 20 advanced economies (such as the United States, France, and Japan) from 1800 to 2009, the authors found that countries with national debts above 90% of GDP averaged 34% less real annual economic growth than when their debts were below 90% of GDP.[245]

* At the close of 2022, the debt/GDP level in the U.S. was 123%.[246]

* In 2013, the Political Economy Research Institute at the University of Massachusetts, Amherst, published a paper about the economic consequences of government debt. Using data on national debt and economic growth in 20 advanced economies from 1946 to 2009, the authors found that countries with national debts over 90% of GDP averaged:

  • 31% less real annual economic growth than countries with debts from 60% to 90% of GDP,
  • 29% less real annual economic growth than countries with debts from 30% to 60% of GDP,
  • and 48% less real annual economic growth than countries with debts from 0% to 30% of GDP.[247]

* The authors of the above-cited papers have engaged in a heated dispute about the results of their respective papers and the effects of government debt on economic growth. Facts about these issues can be found in Just Facts’ article, “Do Large National Debts Harm Economies?

International Comparisons

Consumption

* “Personal consumption” is a comprehensive measure of the goods and services consumed by households. It includes all material resources:

  • directly purchased by households.
  • given to households by non-profit organizations.
  • “financed by third-party payers on behalf of households, such as employer-paid health insurance and medical care financed through government programs.”[248] [249]

* Per the World Bank:[250]

Consumption is conventionally viewed as the preferred welfare indicator, for practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.[251] [252]

* The Organization for Economic Cooperation and Development (OECD) is an international association that is mainly comprised of wealthy, developed nations.[253] [254] In 2021, the United States had the highest average consumption per person of all 38 nations in the OECD:

Average Consumption Per Person in OECD Nations

[255] [256] [257]

* The federal government’s Bureau of Economic Analysis—which is the source of consumption data for the United States—normally reports consumption for the entire nation and doesn’t break down the data to show how people at different levels fare. However, it published a report that does that for 2010.[258] Combined with World Bank data for the same year, these datasets show that:

  • middle-income people in the U.S. have higher average consumption per person than the averages for all people in every other nation of the world.
  • the poorest 20% of U.S. residents have higher average consumption per person than the averages for all people in most OECD nations, including the majority of its European members.
Average Consumption Per Person in OECD Nations and the Poorest U.S. Households , 2010, 2010

[259] [260] [261]

* In 2010, the poorest 20% of Americans consumed three to 30 times more goods and services on average than the national averages for all people in an array of developing nations:

Average Consumption Per Person in Developing Nations, 2010

[262] [263]

* For an article and video by Just Facts about how the New York Times misled the public about poverty in the U.S. compared to other nations, click here.


Gross Domestic Product

* Gross domestic product (GDP) is the standard measure of nations’ economic output. It is equal to the value of all goods and services that a country produces in a year minus the resources used to produce them.[264] [265]

* Per the U.S. Bureau of Labor Statistics:

GDP per capita [person], when converted to U.S. dollars using purchasing power parities, is the most widely used income measure for international comparisons of living standards.[266]

* Per the textbook Macroeconomics for Today:

Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.[267]

* In 2021, the worldwide average GDP per person was $16,997. This varied from a high of $62,403 in North America to a low of $3,717 in Sub-Saharan Africa:

GDP Per Person in Major Regions of the World

[268]

* In 2021, the U.S. ranked 5th among 41 developed nations in average GDP per person. Other developed nations ranked as follows:

GDP Per Person in Developed Nations

[269]


Disposable Income

* Per the Organization for Economic Cooperation and Development:

Disposable income, as a concept, is closer to the idea of income as generally understood in economics, than is either national income or gross domestic product (GDP).[270] [271]

* Household disposable income equals:

  • income received from work, investments, governments, gifts, and charities (including non-cash income like healthcare benefits, housing, and food).
  • minus taxes paid and money willingly given away.[272] [273] [274]

* In 2021, the United States ranked first among 29 developed nations in average disposable income per household:

Gross Adjusted Disposable Income per Household

[275]


Low-Income Wages

* Real wages are a measure of the goods that workers can buy with the money they earn from one hour of work.[276]

* In 2012, the American Economic Review published a paper by Princeton University economist Orley Ashenfelter that compared the real wages of McDonald’s workers in over 60 countries. He did this by determining how many Big Macs they could buy with their income from an hour of work. The advantage of using this measure is that:

  • “the workers are thus using identical skills, using identical technology, and producing the same product.”
  • “it does not rely on exchange rates at all. It is a direct physical measure of the output a worker may purchase with an hour of work, and it is comparable over time and across space.”[277]

* The study found that McDonald’s workers in the United States had the second-highest real wages of McDonald’s workers in all economic regions:

Number of Big Macs a McDonald’s Worker Could Buy with One Hour of Wages

[278]

Productivity

Overview & Trends

* Labor productivity is the amount of goods and services that workers produce in an hour.[279] [280] [281] [282]

* Per Federal Reserve Chair Janet Yellen (and various other economists with wide-ranging political views):

The most important factor determining living standards is productivity growth, defined as increases in how much can be produced in an hour of work. Over time, sustained increases in productivity are necessary to support rising incomes.[283] [284] [285] [286] [287] [288] [289]

* Per the Congressional Budget Office, “a small change in the growth of productivity” over an extended period can do more harm than recessions, because low labor productivity reduces economic “output by an ever-increasing amount.”[290]

* As an example of labor productivity growth, U.S. businesses increased their inflation-adjusted output by 42% from 1998 to 2013 without any increase in work hours.[291]

* Labor productivity growth is driven by three primary factors:

  1. investment in capital resources like machinery, buildings, and computers.
  2. workers becoming more skilled.
  3. technological innovation.[292] [293] [294]

* Because productivity growth often fluctuates over the short term, it is sometimes measured in five-year moving averages.[295] [296]

* The U.S. Bureau of Labor Statistics considers the nonfarm business sector to be the best single indicator of labor productivity for the U.S. economy. This is because it excludes sectors that are volatile or don’t produce concretely measurable output.[297] [298] [299]

* Nonfarm labor productivity growth in the U.S. has varied as follows since 1952:

U.S. Nonfarm Business Labor Productivity Growth 5-Year Rolling Average

[300]

* If the labor productivity slowdown that took place from 2005 to 2015 had not occurred, the U.S. economy in 2015 would have been about $3 trillion larger. This amounts to an average of $24,100 for every household in the United States.[301]

* Productivity growth can be suppressed by a variety of factors, such as:

  • education that does not equip people with practical skills.[302] [303]
  • government debt that diverts money away from capital investments.[304]
  • immigration of low-skilled workers.[305] [306]
  • immigration of people who don’t learn to speak English proficiently.[307]
  • laws and regulations that prohibit workers from using efficient or cost-effective means of production.[308] [309] [310] [311]

Worker Compensation

* Some politicians, commentators, and policy analysts have claimed that worker compensation has risen more slowly than worker productivity for decades, such as:

  • Lawrence Mishel, president of the Economic Policy Institute: “[T]he pay of a typical worker has not grown along with productivity in recent decades, even though it did just that in the early post-war period.”[312]
  • U.S. Senator Elizabeth Warren: “Productivity and GDP just kept going up, but workers were left behind.”[313]
  • The New York Times editorial board: “But for the vast majority of workers, pay increases have lagged behind productivity in recent decades.”[314]
  • U.S. presidential candidate Hillary Clinton: “You’re working harder but your wages aren’t going up.”[315] [316]
  • The Atlantic: “[B]etween worker wages and worker productivity, there’s a significant and, many believe, problematic, gap that has arisen in the past several decades.”[317]
  • Paul Krugman, Nobel Prize-winning economist and Princeton University professor: “The divergence between pay and productivity—a lot of productivity gains, almost total failure to trickle down—is one of the most striking features of American economics these past 40 (!) years.”[318]
  • Cal Berkeley professor Robert Reich: “Productivity has grown 3.7x as much as pay from 1979–2021. This is what I mean when I say the system is rigged.”[319] [320]

* Per Ph.D. economist Martin Feldstein, professor of economics at Harvard University and President Emeritus of the National Bureau of Economic Research:[321]

  • “Two principal measurement mistakes have led some analysts to conclude that the rise in labor income has not kept up with the growth in productivity.”
  • “The first of these is a focus on wages rather than total compensation. Because of the rise in fringe benefits and other noncash payments, wages have not risen as rapidly as total compensation. It is important therefore to compare the productivity rise with the increase of total compensation rather than with the increase of the narrower measure of just wages and salaries.”
  • “The second measurement problem” is that some studies use differing inflation adjustments for compensation and productivity, and “it is misleading in this context to use two different deflators, one for measuring productivity and the other for measuring real compensation.”
  • From 1970 to 2006, employee compensation per hour “increased at approximately the same annual rate” as productivity when all compensation is included and is “adjusted for inflation in the same way.”[322]

* Another reason behind claims that worker compensation has not kept pace with productivity growth is that some studies compare the compensation of one group of workers to the productivity of another group of workers.[323] [324]

* An objective comparison of labor productivity and compensation requires that:

  • all compensation is included.[325]
  • the data be adjusted for inflation using the same price index.[326] [327] [328]
  • the productivity and compensation of the same workers are examined.[329]

* The U.S. government typically adjusts:

  • productivity data for inflation using an “implicit price deflator,”[330] [331] [332] also known as the “value-added output price deflator.”[333]
  • worker compensation data for inflation using the Consumer Price Index.[334] [335]

* When adjusted for inflation using:

  • differing price indexes, average labor productivity and hourly compensation:
    • increased at the same rate from 1948 to 1973.
    • generally diverged from 1974 to 2021.
  • the same price index, average labor productivity and hourly compensation:
    • increased at about the same rate from 1948 to 2004.
    • diverged and converged from 2005 to 2021 around the eras of the Great Recession and Covid-19 pandemic.[336] [337] [338]
Average Productivity and Hourly Compensation

[339] [340]

Inequality

Overview & Trends

* Beyond economic trends in earnings, profits, and government benefits—household incomes are affected by social factors like divorce, cohabitation, single parenting, and dual-income families.[341]

* According to data from the Congressional Budget Office, the inflation-adjusted average income of U.S. households rose by 76% between 1979 and 2019 (prior to the Covid-19 pandemic.)[342] For various income groups, it grew as follows:

Inflation-Adjusted Income Growth by Income Group

[343] [344]

* According to data from the Congressional Budget Office, the inflation-adjusted average income of U.S. households rose by 85% between 1979 and 2020 (amid Covid-19 government lockdowns and intensified social spending.)[345] [346] [347] For various income groups, it grew as follows:

Inflation-Adjusted Income Growth by Income Group

[348] [349]

* From 1979 to 2019 (prior to the Covid-19 pandemic),[350] the inflation-adjusted average income of U.S. households after federal taxes rose by about $46,800 or 84%. For various income groups, it grew as follows:

Inflation-Adjusted Household Income After Federal Taxes

Income Group

1979

2019

Increase From 1979 to 2019

Dollars

Percent

Lowest 20%

$20,100

$38,900

$18,800

94%

Second 20%

$34,300

$54,900

$20,600

60%

Middle 20%

$49,100

$74,800

$25,700

52%

Fourth 20%

$64,300

$104,400

$40,100

62%

Highest 20%

$113,100

$252,100

$139,000

123%

Top 1%

$386,700

$1,398,500

$1,011,800

262%

All Groups

$55,600

$102,400

$46,800

84%

[351] [352] [353]

* From 1979 to 2020 (amid Covid-19 government lockdowns and intensified social spending),[354] [355] [356] the inflation-adjusted average income of U.S. households after federal taxes rose by about $56,500 or 101%. For various income groups, it grew as follows:

Inflation-Adjusted Household Income After Federal Taxes

Income Group

1979

2020

Increase From 1979 to 2020

Dollars

Percent

Lowest 20%

$20,300

$45,800

$25,500

126%

Second 20%

$34,700

$63,200

$28,500

82%

Middle 20%

$49,700

$84,300

$34,600

70%

Fourth 20%

$65,000

$115,100

$50,100

77%

Highest 20%

$114,300

$275,700

$161,400

141%

Top 1%

$391,000

$1,605,400

$1,214,400

311%

All Groups

$56,200

$112,700

$56,500

101%

[357] [358] [359]

* From 1979 to 2019 (prior to the Covid-19 pandemic),[360] U.S. middle-income households’ share of total income after federal taxes decreased by about 1.9 percentage points, or by 12%. The share of income for other groups changed as follows:

Share of Total Income After Federal Taxes

Income Group

1979

2019

Change

Percentage Points

Percent

Lowest 20%

7.8%

7.7%

–0.1

–1%

Second 20%

12.3%

10.7%

–1.6

–13%

Middle 20%

16.4%

14.5%

–1.9

–12%

Fourth 20%

22.1%

20.2%

–1.9

–9%

Highest 20%

41.8%

48.5%

6.7

16%

Top 1%

7.4%

13.0%

5.6

76%

[361] [362] [363]

* From 1979 to 2020 (amid Covid-19 government lockdowns and intensified social spending),[364] [365] [366] U.S. middle-income households’ share of total income after federal taxes decreased by about 1.4 percentage points, or by 9%. The share of income for other groups changed as follows:

Share of Total Income After Federal Taxes

Income Group

1979

2020

Change

Percentage Points

Percent

Lowest 20%

7.8%

8.2%

0.4

5%

Second 20%

12.3%

11.4%

–0.9

–7%

Middle 20%

16.4%

15.0%

–1.4

–9%

Fourth 20%

22.1%

20.0%

–2.1

–10%

Highest 20%

41.8%

46.8%

5.0

12%

Top 1%

7.4%

13.2%

5.8

78%

[367] [368] [369]


GINI Index

* The Gini index is the most common measure of income inequality.[370] [371] [372]

* Various reporters at major media outlets have cited the Gini index for household income to claim that:

  • “the gulf between high earners and low earners remains the widest it’s been since at least 1993, the earliest year for which there is comparable data.”[373]
  • income inequality is at a “record high.”[374]
  • “American inequality has increased significantly.”[375]

* A 2014 study published by the Social Science Research Network found that:

  • the average number of people per U.S. household has been declining for decades, and this accounts for “the reported increase” in the Gini index.
  • when the household data is “corrected for actual decrease in the average household size,” the index is comparable to the level for individual incomes.[376]

* From 1940 to 2022, the number of households in the U.S. increased by 275%, while the U.S. population increased by 152%.[377] [378] During this same period, the portion of unmarried or non-family households rose from 24% to 53%:

Married and Unmarried Households

[379]

* From 1967 to 2011:

  • the Gini index for persons in the U.S. did not vary by more than 2%.
  • the Gini index for households rose by 20% due to family fragmentation that has spread workers’ wages over an increasing number of households:
Gini Index for Households and Persons

[380]

* The standard Gini index published by the Census Bureau does not include all income and taxes.[381] From 1979 to 2003, the Census Bureau published Gini index data based on more comprehensive measures of income.[382] [383] Over this period, the standard Gini index averaged 12% higher than the Gini index based on the most comprehensive Census income measure:

Gini Index for Households by Census Income Definition

[384]

* All Gini indexes based on Census Bureau data are derived from surveys, and households often underreport their cash and noncash income on such surveys.[385] [386]

* Per a 2015 paper in the Journal of Economic Perspectives entitled “Household Surveys in Crisis”:

  • “In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major” government surveys.
  • There has been “a sharp rise” in underreporting of government benefits received by low-income households in the United States.
  • This “understatement of incomes” masks “the poverty-reducing effects of government programs” and leads to “an overstatement of poverty and inequality.”[387] [388] [389]

* An analysis of Federal Reserve data published by Rice University’s Baker Institute for Public Policy found that income inequality fell between 2016 and 2019. The decline was the largest since 1992.[390]


Politicians & Media

* During his acceptance speech at the 2016 Republican National Convention, Donald Trump made the following claim, and New York Times and NPR reported that it was “true”:

Household incomes are down more than $4,000 since the year 2000.[391] [392] [393]

* This claim is based on data from the U.S. Census Bureau,[394] which:

  • is “based solely on money income” and does “not include the value of noncash benefits,” such as food stamps, health benefits, subsidized housing, and “full or partial payments by business for retirement programs.”[395]
  • excludes “certain money receipts such as capital gains.”[396]
  • uses the Consumer Price Index to adjust for inflation.[397]
  • is collected via government surveys, and households underreport their income on such surveys.[398] [399] [400]

* More comprehensive data from the Congressional Budget Office shows that the inflation-adjusted average household income of the middle 20% of U.S. households rose from $72,100 in 2000 to $81,500 in 2016, or by $9,2400 or 13%. After federal taxes, their income climbed by $10,600 or 18%.[401] [402] [403]

* To adjust income data for inflation, the Congressional Budget Office uses the Personal Consumption Expenditure price index.[404] [405] If it were adjusted for inflation using the Consumer Price Index, this same data would show that from 2000 to 2016, average middle-class household income rose by $6,361 or 8%, and average middle-class household income after federal taxes rose by $8,161 or 13%.[406] [407] [408]


* In 2015, U.S. Senator Elizabeth Warren of Massachusetts made the following claim based on data from tax returns, and PolitiFact said it was “mostly true”:

Well, since 1980, guess how much of the growth in income over the last 32 years—how much of the growth in income did the 90 percent get? Zero. None. Nothing. In fact, it is worse than that. The average family not in the top 10 percent makes less money today than they were making a generation ago.[409] [410]

* More comprehensive data from the Congressional Budget Office shows that the inflation-adjusted average income of households in the bottom 90% rose from $55,527 in 1980 to $83,591 in 2015, or by 51%. After federal taxes, their income climbed from $44,922 in 1980 to $71,527 in 2015, or by $26,606 or 59%.[411] [412] [413]


* In 2013, the Pew Research Center claimed that:

  • “U.S. income inequality has been increasing steadily since the 1970s, and now has reached levels not seen since 1928.”
  • in 2012, the top 1% received “nearly 22.5% of all pretax income, while the bottom 90%’s share is below 50% for the first time ever.”[414]

* More comprehensive data from the Congressional Budget Office shows that in 2012, the top 1% received 18% of all pretax income, and the bottom 90% received 62%. The distribution of pretax income since 1979 has varied as follows:

Share of Pretax Income

[415] [416]

* After federal taxes, the top 1% received 15% of all household income in 2012, and the bottom 90% received 66%. The distribution of income after federal taxes since 1979 has varied as follows:

Share of Household Income After Federal Taxes

[417] [418] [419]


Piketty & Saez

* The claims above from PolitiFact (2015), and Pew Research (2013), are based on the work of Ph.D. economists Thomas Piketty and Emmanuel Saez.[420] [421] Paul Krugman of the New York Times has called their work on income inequality a “landmark piece of research that has had a major impact.”[422]

* Piketty and Saez have published articles and academic papers that overstate income inequality by:

  • excluding government benefits,[423] which are 13% of income for the bottom 90% of households and 2% of income for the top 10% of households.[424] [425]
  • excluding non-cash market income (like employer-provided healthcare benefits),[426] which is 3% of income for the bottom 90% and 1% of income for the top 10%.[427] [428]
  • excluding most federal taxes,[429] which effectively lowers the income of the bottom 90% by 14% and lowers the income of the top 10% by 23%.[430] [431] [432]
  • determining income based on tax units—“the group of individuals who file a tax return together”—instead of households.[433] This reduces the income growth of the bottom 90% relative to the top 10% by failing to account for additional sources of household income, such as households with cohabitors and adults who live with their parents.[434] [435] [436]
  • does not account for the rising portion of unmarried or nonfamily households, which grew from 28% in 1967 to 53% in 2019.[437] [438] [439] This reduces the income growth of the bottom 90% relative to the top 10%.[440]

* The income share of the top 10%—as estimated by Piketty and Saez in 2017, Piketty and Saez in 2022, and the Congressional Budget Office in 2022—have varied as follows:

Top 10% Income Share: Piketty & Saez Versus Congressional Budget Office

[441] [442]

NOTE: This chart does not account for the rise in number of households, which would reduce the income share growth of the top 10% over time.[443]


* According to Piketty and Saez, “the average federal tax burden on top 1% families has decreased from 44.4% in 1980 to 30.4% in 2004,” or by 14 percentage points.[444]

* More comprehensive tax and income data from the Congressional Budget Office shows that the average federal tax burden on the top 1% of households decreased from about 33% in 1980 to 30% in 2004, or by 3 percentage points.[445] [446] [447]


* According to Piketty and Saez, from 1980 to 2004, the total decrease in federal taxes paid by the top 1% was greater than the total increase in government benefits received by the bottom 99%.[448]

* More comprehensive inflation-adjusted data from the Congressional Budget Office shows that from 1980 to 2004:

  • the average federal tax burden on the top 1% declined by about 10%, which equates to a total decrease of $55 billion for this group.
  • average government benefits for the bottom 99% rose by 146%, which equates to a total increase of $815 billion for this group.[449] [450] [451]

Viewpoints

* In 1997, the Journal of Economic Behavior & Organization published a survey of 247 faculty, students, and staff at the Harvard School of Public Health. This survey:

  • asked participants if they would prefer to live in a world where:
    • A) “your current yearly income is $50,000” while “others earn $25,000,” or
    • B) “your current yearly income is $100,000” while “others earn $200,000.”
  • told respondents that “prices are what they are currently and prices (therefore the purchasing power of money) are the same in states A and B.”
  • found that “approximately 50 percent of the respondents preferred a world in which they had half the real purchasing power, as long as their relative income position was high.”[452]

* In 2015, U.S. residents of varying income, race, education, and marital status described their overall economic well-being as follows:

Self-Perception of Overall Economic Well-Being

Characteristic

Finding It Difficult to Get By

Just Getting By

Doing Okay

Living Comfortably

Family Income

Less than $40,000

18%

32%

39%

12%

$40,000–$100,000

4%

19%

47%

29%

Greater than $100,000

2%

8%

37%

54%

Race/Ethnicity

White, non-Hispanic

9%

20%

41%

30%

Black, non-Hispanic

10%

28%

41%

20%

Hispanic

12%

25%

43%

21%

Education

High school degree or less

13%

26%

41%

20%

Some college or associate degree

9%

25%

42%

24%

Bachelor’s degree or more

6%

14%

40%

41%

Marital and Parental Status

Unmarried, no children under 18

12%

25%

42%

21%

Married, no children under 18

6%

15%

43%

37%

Unmarried, children under 18

19%

34%

34%

13%

Married, children under 18

7%

22%

40%

31%

Overall

9%

22%

41%

28%

[453]

Correlates of Income

NOTE: When interpreting the facts in this section, it is important to realize that correlation does not prove causation. This is because numerous factors can affect economic outcomes such as income, and there is frequently no objective way to identify, measure, and determine the interplay between all of them.

* Per an academic textbook about analyzing data:

Association is not the same as causation. This issue is a persistent problem in empirical analysis in the social sciences. Often the investigator will plot two variables and use the tight relationship obtained to draw absolutely ridiculous or completely erroneous conclusions. Because we so often confuse association and causation, it is extremely easy to be convinced that a tight relationship between two variables means that one is causing the other. This is simply not true.[454] [455] [456]

Education

* In 2021, the average reported cash earnings of U.S. residents aged 25–64 with different levels of formal education varied as follows:

Average Cash Earnings of People 25–64

[457] [458]

* In 2021, 79% of U.S. residents aged 25–64 reported having at least some cash earnings, and 21% did not report any cash earnings. For varying levels of education, the rates varied as follows:

Portion of People Aged 25–64 with Cash Earnings

[459]

* In 2021, the top-10 highest-paying occupations were all in the medical or dental fields.[460]

* For more facts about education and income, visit Just Facts’ research on education.


Public-Sector Corruption

* In 2011, the EPPI-Centre at the University of London published a systematic review of 115 corruption studies which found that “corruption has negative and statistically significant effects on [economic] growth—directly and indirectly.”[461] [462]

* Gross Domestic Product (GDP) is the most common measure of a nation’s economic output.[463] It measures the value of all “goods and services produced within a country’s geographic borders.”[464]

* Per the textbook Microeconomics for Today (and other academic sources):

GDP per capita provides a general index of a country’s standard of living. Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.[465] [466] [467]

* Based on data from 170 countries, GDP per person is generally higher in countries with greater public-sector transparency and accountability:

GDP Per Person and Public-Sector Transparency & Accountability

[468] [469] [470] [471]


Natural, Produced & Human Resources

* Nations have three primary types of resources or wealth:

  1. Natural capital, which includes:
    1. cropland, pastureland, and forested areas.
    2. non-renewable resources, such as oil, natural gas, and minerals.[472]
  2. Produced capital, which includes:
    1. technology, machinery, and other equipment.
    2. structures, such as buildings and roads.[473]
  3. Intangible capital, which includes:
    1. human capital, such as skills and know-how.
    2. social capital, or “trust among people in a society and their ability to work together for a common purpose.”
    3. efficient and effective governance.[474]

* In 2006, the World Bank analyzed the capital resources of 118 nations and found that the wealth of most nations is mainly comprised of intangible capital. In about 85% of these countries, intangible capital accounted for more than half of their wealth.[475] Per the study:

  • “rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity.”
  • “if an economy has a very efficient judicial system, clear property rights, and an effective government, the result will be a higher total wealth….”[476]

* In 2005, the capital resources of nations with the highest and lowest wealth per person varied as follows:

Total Wealth Top and Bottom 10 Countries, 2005

Rank

Country

Wealth Per Person (PPP)

Capital

Natural

Produced

Intangible

Top 10 Countries

1

Luxembourg

$779,601

$5,805

$203,387

$570,409

2

Kuwait

$765,219

$618,083

$168,548

–$21,412

3

United States

$734,195

$13,692

$99,137

$621,367

4

United Arab Emirates

$728,889

$291,256

$175,427

$262,207

5

Brunei Darussalam

$657,376

$1,087,550

$438,724

–$868,898

6

Norway

$616,547

$82,291

$136,760

$397,496

7

Iceland

$593,380

$7,730

$85,959

$499,690

8

Singapore

$555,934

$4

$183,775

$372,155

9

Switzerland

$543,986

$7,511

$132,137

$404,337

10

Canada

$537,878

$36,665

$89,182

$412,031

Bottom 10 Countries

142

Ethiopia

$13,876

$4,406

$1,272

$8,198

143

Sierra Leone

$13,061

$4,110

$758

$8,194

144

Niger

$12,312

$3,767

$1,017

$7,529

145

Chad

$12,078

$10,205

$2,878

–$1,005

146

Liberia

$10,631

$6,702

$454

$3,475

147

Guinea-Bissau

$10,464

$5,010

$1,456

$3,998

148

Mozambique

$9,807

$2,115

$1,199

$6,492

149

Burundi

$9,388

$10,840

$666

–$2,118

150

Malawi

$9,261

$2,916

$1,315

$5,030

151

Congo, Dem. Rep.

$5,127

$3,309

$414

$1,403

[477] [478] [479]


Marriage

* From 1940 to 2022, the portion of unmarried or nonfamily households in the U.S. rose from 24% to 53%:

Unmarried or Nonfamily Households in the U.S.

[480]

* In 2021, the reported median household cash income for U.S. households with different marital statuses varied as follows:

Median Household Cash Income by Marital Status

[481]

* In 2011, the reported median cash income of U.S. households with children:

  • was $57,100.
  • headed by a single mother who was divorced, separated, or widowed was $29,000.
  • headed by a single mother who has never married was $17,400.[482] [483]

* From 1960 to 2011, the share of single mothers who have never married rose from 4% to 44%.[484]

* From 1949 to 2021 the reported median inflation-adjusted cash income of married-couple families in the U.S. rose by 3.2 times. The change in income for other types of families varied as follows:

Inflation-Adjusted Median Income by Family Type

[485] [486]


Gender

* In 2021, full-time, year-round female workers reportedly earned median cash wages of $49,263. This was 23% less than the $60,428 earned by males.[487]

* During his 2014 State of the Union address, President Barack Obama stated:

Today, women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment. A woman deserves equal pay for equal work.[488] [489]

* Obama’s statement does not account for the following factors that pertain to “equal pay” and “equal work”:

  • Full-time male workers average 5% more workdays per year and 8% more workhours per workday than full-time female workers.[490]
  • Men are more likely than women to pursue technically demanding and higher-paying careers, such as computer science, finance, and engineering.[491] [492] [493]
  • Women are more likely than men to temporarily leave their careers to raise a family, resulting in less work experience and continuity.[494] [495]
  • Women are more apt than men to select jobs that offer higher fringe benefits in exchange for less cash wages.[496] [497]
  • Women are more apt to choose jobs with shorter commutes over those with higher pay.[498]
  • More than 28% of U.S. workers are in physically challenging occupations (such as construction, law enforcement, firefighting, and the military), and most men have significantly greater muscular strength and cardiovascular endurance than most women.[499] [500]

* Various studies that have attempted to account for some (but not all) of the factors above have found:

[A]fter we controlled for all the factors included in our analysis that we found to affect earnings, college-educated women working full time earned an unexplained 7 percent less than their male peers did one year out of college.
– American Association of University Women, 2012[501]
Once we control for outside factors the wage gap between men and women shrinks considerably. Now women earn typical pay that is on average 98% of the typical pay for men by major. Occasionally, women may even earn more. Therefore, when looking at gender-specific pay by major for a controlled sample, the wage gap all but disappears.
– PayScale, 2009[502]
Our analysis of the gender pay gap is the first to include fringe benefits in a comprehensive measure of compensation for men and women. The results show that including fringe benefits makes a considerable difference in the analysis of earnings differentials. In fact, we conclude that any measure of earnings that excludes fringe benefits may produce misleading results as to the existence, magnitude, consequence, and source of market discrimination. For our sample of working men and women between the ages of 26 and 34 in 1990, the average female wage rate was 87.4% of the average male wage rate; but when an index of total compensation is used, the estimate rises to 96.4% of male compensation.
Industrial Labor Relations Review, 1995[503]

* Per a 2009 analysis of gender wage studies conducted for the U.S. Department of Labor by CONSAD Research Corporation:

It is not possible to produce a reliable quantitative estimate of the aggregate portion of the raw gender wage gap for which the explanatory factors that have been identified account. Nevertheless, it can confidently be concluded that, collectively, those factors account for a major portion and, possibly, almost all of the raw gender wage gap.[504]

Race

* In 2021, the median reported household cash incomes of different races and ethnicities in the U.S. varied as follows:

Median Household Cash Income

Race / Ethnicity

Median Income

Asian

$101,418

White

$74,262

Hispanic

$57,981

Black

$48,297

All Groups

$70,784

[505] [506] [507] [508]

* In 2021, the formal education levels of U.S. residents over age 25 with different races and ethnicities varied as follows:

Race / Ethnicity

Formal Education

No High School

Diploma

High School

Some College

Bachelor’s or

Higher

Asian

12%

14%

17%

56%

White

7%

26%

29%

38%

Black

12%

31%

32%

25%

Hispanic

28%

28%

25%

20%

[509] [510]

* In 2021, the median reported cash earnings of full-time workers in the U.S. aged 25 and older with different levels of formal education, races, and ethnicities varied as follows:

Race / Ethnicity

Median Earnings (Thousands $)

High School[511]

Bachelor’s or Higher[512]

Asian

$41

$95

White

$46

$81

Black

$39

$66

Hispanic

$41

$70

[513] [514] [515]

* In 2021, the portion of U.S. residents living in married couple families ranged from 73% for Asians to 38% for blacks:

U.S. Residents Living in Married Couple Families

[516] [517] [518] [519]

* In 2021, the median reported household cash incomes for U.S. households of different races, ethnicities, and marital or family statuses were as follows:

Race / Ethnicity

Median Household Cash Income (Thousands $)

Type of Family Household

Married Couple

Single Male

Single Female

Nonfamily

Asian

$131

$92

$72

$59

White

$107

$72

$55

$43

Black

$90

$58

$41

$34

Hispanic

$77

$66

$45

$40

All Groups

$107

$71

$51

$42

[520] [521] [522] [523]

* For more facts about race and income, visit Just Facts’ research on racial issues.


Immigration

* In 2021, the reported median cash income of families living in the U.S. was $91,162. This varied by immigration status and Hispanic origin as follows:

Median Family Cash Income by Citizenship

[524]

* In 2021, the reported average cash income of families living in the U.S. was $109,299.[525] [526] [527] This varied by immigration status and Hispanic origin as follows:

Average Family Cash Income by Citizenship & Hispanic Origin

[528] [529] [530]

* In 2017, the reported median cash income of families living in the U.S. was $67,123. This varied by immigration status and Hispanic origin as follows:

Family Cash Income by Immigration Status & Hispanic Origin

[531]

* Male immigrants who arrived in the U.S. during:

  • 1965–69 reportedly earned an average of 24% less than native-born workers of the same age. Ten years later, they were earning 12% less. Twenty years later, they were earning 2% less. Forty years later, they were earning 18% more.
  • 1985–89 reportedly earned an average of 33% less than native-born workers of the same age. Ten years later, they were earning 27% less. Twenty years later, they were earning 25% less.
  • 1995–99 reportedly earned an average of 27% less than native-born workers of the same age. Ten years later, they were earning 27% less.[532]
Wage Assimilation of Male Immigrants By Year of Entry

[533]

* In 2022, 43% of Mexican and Central American immigrants aged 25–64 did not have a high school diploma or GED, as compared to 5% of people born in the U.S. in the same age group. The rates for other groups were as follows:

U.S. Residents Aged 25–64 Without a HS Diploma or GED

[534] [535] [536] [537]

* A 2014 study by the Brookings Institution found that:

  • “nearly one in 10 working-age U.S. adults … is considered limited English proficient.”
  • workers with limited English proficiency “earn 25 to 40 percent less than their English proficient counterparts.”[538]

* For more facts about immigration and income, visit Just Facts’ research on immigration.

Work

Overview

* One of the key factors that impact nations’ standards of living is their average hours of work per person.[539]

* Unpaid work—such as caring for children, cooking, and cleaning—increases standards of living, but it is often not recorded in standard economic measures.[540] [541] Per an academic book published by Stanford University Press:

The impact of declining levels of unpaid work over time on all aspects of household living standards deserves more careful consideration. There is something fundamentally misleading about measuring gains to family earnings provided by increases in women’s employment that do not account for the reduction in living standards resulting from declines in time devoted to unpaid work.[542]

* In 2022, the employment status of the total U.S. civilian, non-institutionalized population was as follows:

  • 48% employed
  • 40% employed full-time
  • 8% employed part-time
  • 2% unemployed
  • 50% not in the labor force[543]

* In 2022, the employment status of the U.S. civilian, non-institutionalized population aged 16 years and over was as follows:

  • 60% employed
  • 50% employed full-time
  • 10% employed part-time
  • 2% unemployed
  • 38% not in the labor force[544]

* In 2022, the employment status of the U.S. civilian, non-institutionalized population aged 25–54 was as follows:

  • 80% employed
  • 72% employed full-time
  • 8% employed part-time
  • 3% unemployed
  • 18% not in the labor force[545]

* In 2021, 16% of adults earned income from occasional informal work.[546]


Labor Force Participation

* Per the Congressional Budget Office:

Labor force participation is an important component of economic growth: As more people participate in the labor force, firms are able to expand employment and increase production.
Greater labor force participation is associated with higher tax revenues because the number of employed people, and therefore the number of people paying income and payroll taxes, tends to rise. It is also associated with lower spending on means-tested programs (which provide cash payments or other forms of assistance to people with relatively low income or few assets), such as Medicaid, and on refundable tax credits.
Changes in the labor force participation rate can distort the significance of the unemployment rate—that is, the share of people in the labor force without a job—as a measure of the health of the economy. For example, between the end of the 2007–2009 recession and 2017, the unemployment rate for people ages 25 to 54 fell by 4.5 percentage points even though the share of that population with a job increased by just 3 percentage points. The unemployment rate declined partly because of an increase in the share of the population that was employed but also because of a decrease in the labor force participation rate.[547]

* The labor force, as defined by the Bureau of Labor Statistics, includes all people who are “either working or actively seeking work.” The potential labor force used by the Bureau to determine the labor force participation rate includes:

persons 16 years of age and older residing in the 50 states and the District of Columbia who do not live in institutions (for example, correctional facilities, long-term care hospitals, and nursing homes) and who are not on active duty in the Armed Forces.[548] [549]

* In 2022, men aged 35–44 had a labor force participation rate of 90%. This was the highest rate of all age and gender groups, which varied as follows:

Labor Force Participation Rate by Age and Gender

[550]

* From 1976 to 2022, the portion of men in their prime working years (25–54) who were not in the labor force increased by 96%.[551] [552]

* Current labor force participation rates for men of all age groups are lower than they were in 1948, while the opposite is true for women:

Labor Force Participation Rates

[553]


Employment & Unemployment

* As defined by the U.S. Bureau of Labor Statistics, “employed” people are those who, over the course of a week:

  • work at least one hour as paid employees, or
  • work “in their own business, profession, or on their own farm,” or
  • work at least 15 hours as “unpaid workers in an enterprise operated by a member of the family,” or
  • do not work but have jobs or businesses they are temporarily absent from due to:
    • vacation.
    • illness.
    • bad weather.
    • childcare problems.
    • maternity or paternity leave.
    • a labor-management dispute.
    • job training.
    • “other family or personal reasons.”[554]

* “Unemployed” people are those who are not working but are “available for work” and:

  • have made “specific efforts to find employment” in the prior four weeks, or
  • are waiting to be called back to a job after being laid off.[555]

* The federal unemployment rate is determined by dividing the number of unemployed people by the number of people in the labor force.[556] The labor force does not include:

  • retirees.
  • students.
  • people caring for children or family members.
  • “others who are neither working nor seeking work.”[557] [558]

* From 1947 to 2022, the annual unemployment rate averaged 5.7%, varying from a low of 2.9% in 1953 to a high of 9.7% in 1982. In 2022, it was 3.6%:

U.S. Unemployment Rate

[559] [560] [561] [562]


Underemployment

* “Underemployment” is a wider measure of idle potential labor than unemployment. The broadest measure of underemployment published by the U.S. Bureau of Labor Statistics is called “U-6,” which includes:

  • the unemployed.
  • discouraged and marginally attached workers, who are people who are not working and have searched for work in the prior 12 months but not in the prior four weeks.
  • involuntary part-time workers, who are people who work less than 35 hours per week, would like to work full time and are available to do so, but don’t because of economic reasons, such hour cutbacks by their employers.[563] [564]

* From 1994 to 2022, the annual underemployment rate averaged 10.3%, varying from a low of 6.9% in 2022 to a high of 16.7% in 2010. In 2022, it was 6.9%:

U-6 Underemployment Rate

[565] [566] [567] [568]


Work Hours

* During 2021, U.S. civilian residents aged 15 and over spent an average of 51% more time on leisure and sports than on paid work and work-related activities:

How U.S. Residents Spend Their Time

[569]

* During 2021, the U.S. residents of different age groups spent the following hours per day on various activities:

Average Hours Per Day Spent on Activities by Age Range

Activity

15–19

20–24

25–34

35–44

45–54

55–64

65–74

75+

Sleep & Personal care

10.8

9.9

9.7

9.4

9.4

9.5

9.7

9.9

Eating & drinking

1.1

1.2

1.1

1.1

1.2

1.3

1.3

1.4

Household activities

0.7

1.2

1.8

1.9

2.0

2.2

2.7

2.6

Purchasing goods & services

0.5

0.7

0.6

0.6

0.7

0.7

0.8

0.7

Caring for & helping household members

0.1

0.2

0.9

1.2

0.4

0.1

0.1

0.1

Caring for & helping non-household members

0.1

0.1

0.1

0.1

0.2

0.4

0.3

0.2

Working & work-related activities

1.3

3.9

4.5

5.1

5.0

3.8

1.3

0.3

Educational

3.0

1.5

0.3

0.1

0.0

0.1

–2

0.0

Organizational, civic, & religious activities

0.2

0.1

0.1

0.2

0.2

0.3

0.4

0.4

Leisure & sports

5.7

4.9

4.5

3.9

4.5

5.4

6.9

7.7

Telephone calls, mail, & e-mail

0.4

0.2

0.2

0.1

0.2

0.2

0.3

0.3

Other activities not elsewhere classified

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.3

[570]

* In 1890, U.S. manufacturing laborers worked an average of 60 hours per week,[571] as compared to 40 hours in 2022.[572]

* In the U.S. from 1948 to 2021, the average annual work hours per employee declined by 13%.[573] Over this period, work hours per employee and per person varied as follows:

Average Annual Work Hours

[574]

* In 2021, full-time workers averaged 8.2 hours of work per day on the days that they worked. This figure was higher on weekdays (8.5 hours) than on weekends or holidays (5.9 hours).[575]

* A 2011 study published by U.S. Bureau of Labor Statistics found that:

  • when employees were asked how many hours they usually work or had worked the prior week, their estimates were larger than the amount of time recorded in their daily time diaries.
  • employee estimates of their work hours exceeded their diaries “by between 5 percent and 12 percent.”
  • the average gap between time estimates and diaries was larger for women than men.
  • “larger discrepancies tend to arise from respondents who estimate more hours in their workweek.”[576] [577] [578]

Employee Compensation

Determinants

* Some of the primary factors that determine employee compensation are:[579]

  • worker productivity.[580] [581]
  • the law of supply and demand.[582] [583]
  • government-mandated minimum and prevailing wages.[584]
  • employer ability to pay.[585]
  • government regulations.[586]
  • costs of living.[587]
  • bargaining power.[588]
  • job requirements.[589]

* Per the U.S. Department of Labor, “In the final four decades of the 20th century, employee compensation, as measured by employer costs, has undergone dramatic shifts” from cash to benefits. Many of these benefits are “legally required” by government, such as Social Security and Medicare.[590]

* Government mandates that force employers to pay for programs like Social Security, Medicare, and the Affordable Care Act (ACA) suppress the wages and salaries of employees. Per the:

  • Congressional Budget Office, “the employers’ share of payroll taxes is passed on to employees in the form of lower wages.”[591] [592]
  • Government Accountability Office, “employees bear the entire burden of social insurance taxes in the form of reduced wages.”[593]
  • Tax Policy Center, “the employer portion of payroll taxes translate into lower wages.”[594]
  • Congressional Budget Office, employers’ costs of complying with the employee insurance mandates of the ACA will ultimately “be borne primarily by workers in the form of reductions in wages or other compensation.”[595]
  • American Health Policy Institute, “The cost of the ACA to large U.S. employers (10,000 or more employees) is estimated to be between $4,800 to $5,900 per employee” during 2013 to 2023.[596] [597]

* From 1959 to 2021, the portion of blue collar worker compensation consisting of:

  • wages and salaries declined by 14.3 percentage points, or 17%.
  • benefits increased by 14.5 percentage points, or 79%.
  • legally required benefits increased by 4.2 percentage points, or 102%:
Components of Employee Compensation

[598] [599] [600]


Private-Sector Employees

* Adjusted for inflation, the average hourly compensation of private-sector employees (including wages, salaries, and benefits) rose by 31% between 1986 and 2021:

Average Inflation-Adjusted Employee Compensation

[601]

* In 2021, the components of compensation for private industry employees were as follows:

Employer Hourly Costs for Private Industry Employees

[602]

* Adjusted for inflation, average hourly employee compensation rose at the following rates over the time periods below:

Inflation-Adjusted Hourly Cost Growth of Employee Compensation

Category

Private Sector
(1986–2021)

State and Local
Government
(1991–2021)

Wages & Salaries

27%

22%

Benefits

43%

72%

Total

31%

37%

[603]


Government Employees

* In 2022, federal, state, and local governments spent $2.21 trillion on employee compensation. This amounts to an average of $17,016 from every household in the United States.[604] [605] [606] [607] [608] [609]

* In 2022, government workers accounted for 15% of all employees in the United States.[610]

* Adjusted for inflation, the average hourly compensation of government employees (including wages, salaries, and benefits) rose by 31% between 1991 and 2021:

Average Inflation-Adjusted Employee Compensation

[611]

* In 2017, the Congressional Budget Office published a study comparing the compensation of full-time, year-round private sector workers to non-postal, civilian, federal workers in 2011 to 2015. The study accounted for education, occupation, work experience, geographic location, employer size, and various demographic characteristics. The study found that:

  • federal workers received an average of 17% more compensation than comparable private sector workers.
  • across various education levels, federal employee compensation premiums ranged from a low of –18% for workers with a professional degree or doctorate to a high of 53% for workers with a high school diploma or less:

Federal Employee Compensation Premiums Relative to Private Sector

Formal Education

Wages

Benefits

Total

High School Diploma or Less

34%

93%

53%

Some College

22%

80%

39%

Bachelor’s Degree

5%

52%

21%

Master’s Degree

–7%

30%

5%

Professional Degree or Doctorate

–24%

–3%

–18%

All Levels of Education

3%

47%

17%

[612]

* Click here for an article from Just Facts about the compensation of federal civilian employees and a broad range of studies about this issue.

* Adjusted for inflation, average hourly employee compensation rose at the following rates over the time periods below:

Inflation-Adjusted Hourly Cost Growth of Employee Compensation

Category

Private Sector
(1986–2021)

State and Local
Government
(1991–2021)

Wages & Salaries

27%

22%

Benefits

43%

72%

Total

31%

37%

[613]

* In 2013, the journal Public Administration Research published a study comparing the compensation of full-time workers over 50 years of age in government and private sectors during 2006. The study accounted for wages and pensions but not “employment security, paid vacation, health insurance benefits,” and other types of compensation. It found that:

  • state government workers received 7% more compensation than private-sector workers with similar “educational attainment, gender, race, marital status,” and age.
  • local government workers received 8% more compensation than comparable private-sector workers.
  • federal workers received 34% more compensation than comparable private-sector workers.[614]

* In 2010, full-time private industry workers worked an average of 12% more hours per year than full-time state and local government workers. This includes time spent working beyond assigned schedules at the workplace and at home.[615]

* For more facts about government employee compensation, visit Just Facts’ research on unions.


Minimum Wage

* Minimum wage laws force employers to pay certain employees more than the market rate for their services.[616] [617]

* In 1931, the 71st U.S. Congress and Republican President Herbert Hoover enacted the first federal minimum wage law. It required contractors engaged in federal construction projects in excess of $5,000 dollars to pay workers “not less than the prevailing rate of wages for work of a similar nature in” the area.[618]

* In 1938, the 75th U.S. Congress and Democratic President Franklin D. Roosevelt enacted a law that required all employers to pay a minimum wage to most employees “engaged in commerce or in the production of goods for commerce.”[619]

* The 1938 law set the federal minimum wage at $0.25 per hour. Adjusted for inflation, this is equivalent to $5.30 in 2023 dollars.[620] [621]

* Since 1938, various federal laws have increased the minimum wage more than 20 times. The latest increase, in July of 2009, brought the minimum wage to $7.25 per hour.[622]

* Adjusted for inflation, the federal minimum wage is currently 37% higher than when it was enacted in 1938.[623]

* Federal minimum wage law has exceptions that “apply under specific circumstances to workers with disabilities, full-time students, youth under age 20 in their first 90 consecutive calendar days of employment, tipped employees and student-learners.”[624]

* Excluding tips, commissions, and overtime pay, 1% of all employees in the U.S. were paid at or below the federal minimum wage in 2021. The rates for different age groups varied as follows:

U.S. Employees Paid at or Below Minimum Wage

Age Group

Total

Portion

16 to 19 Years

4,776,000

4%

20 to 24 Years

10,377,000

3%

25 Years and Older

60,973,000

1%

[625]

* Per the U.S. Bureau of Labor Statistics:

As has historically been the case, the industry with the highest percentage of workers earning hourly wages at or below the federal minimum wage in 2021 was leisure and hospitality (8 percent). About two-thirds of all workers paid at or below the federal minimum wage were employed in this industry, almost entirely in restaurants, bars, and other food services. For many of these workers, tips may supplement the hourly wages received.[626]

* In 2021, part-time hourly employees—those who worked 34 hours or less—accounted for 48% of employees at or below the federal minimum wage.[627]

* The portion of employees at or below federal minimum wage peaked at 15% in 1980 and 1981. It has since varied as follows:

Portion of Hourly Workers at or Below Minimum Wage

[628]

* As of January 1, 2023:

  • 5 states have no minimum wage laws (federal law applies).
  • 15 states have set minimum wages equal to the federal law.
  • 30 states, the District of Columbia, and Puerto Rico have set minimum wages that exceed federal law (state law applies).
  • the District of Columbia has the highest minimum wage, $16.50 per hour. Washington follows at $15.74 per hour.[629] [630]

* While noting there is “considerable uncertainty” about the effects of the minimum wage, a 2019 study by the Congressional Budget Office found that increasing the minimum wage by 65%, or from $7.25 per hour to $12, “would boost wages, but it would also increase joblessness, reduce business income, raise prices, and lower total output in the economy.”[631] With regard to families at different income levels, the study estimated that such a law would:

  • raise the average annual reported cash income of families below the poverty line by about 1.6% or $229.[632]
  • give 74% of the resultant salary increases to families above the poverty line.
  • give 37% of the salary increases to families earning three or more times the poverty line.[633]

* The same 2019 Congressional Budget Office study estimated that increasing the minimum wage by more than 100%, or from $7.25 per hour to $15 would:

  • raise the annual average reported cash income of families below the poverty line by about 5.2% or $589.[634]
  • give 81% of the resultant salary increases to families above the poverty line.
  • give 36% of the salary increases to families earning three or more times the poverty line.[635]

* A 5.2% increase in reported cash income (or $589) would raise the average total income of families below the poverty line by about 1%. This is because reported cash income accounts for about 19% of their total income, while the other 81% is comprised of unreported cash and non-cash government benefits like Food Stamps, Medicaid, housing, and a wide array of other programs.[636] [637] [638] [639]

* Per a 2014 paper by Ph.D. labor economists David Neumark, J.M. Ian Salas, and William Wascher:[640] [641] [642]

  • The debate “about the economic effects and the merits of the minimum wage date back at least as far as the establishment of the Department of Labor as a cabinet-level agency in 1913.”
  • Over time, empirical studies, “especially the time-series studies conducted in the 1960s and 1970s, increasingly found that minimum wages tended to reduce employment among teenagers, who were viewed as a proxy for low-skilled labor.” Thus, economists “began to coalesce around the idea that minimum wages have adverse effects on low-skilled employment.”
  • The “debate over the employment effects of the minimum wage reemerged in the early 1990s” after the publication of four studies that “formed the basis for what is sometimes termed the ‘new minimum wage research.’ ” These studies “were diverse in their findings, ranging from”:
    • a negative effect on employment, to
    • no effect on employment, to
    • a positive effect on employment.[643]

* In 2007, the journal Foundations and Trends in Microeconomics published a review of the “new minimum wage research” that examined 102 studies. This review found that:

  • the new studies produced a “wide range of estimates of the effects of the minimum wage on employment.”[644]
  • the frequent “assertion that the new minimum wage research fails to support the conclusion that the minimum wage reduces the employment of low-skilled workers is clearly incorrect.” Nearly two thirds of the 102 studies “give a relatively consistent (although by no means always statistically significant) indication of negative employment effects of minimum wages.”[645]
  • when “researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages the evidence for” the negative effect on employment “seems especially strong.”[646]
  • there were “very few—if any—cases where a study provides convincing evidence of positive employment effects of minimum wages.”[647]

* In 2015, the Los Angeles Federation of Labor union helped lead an effort to increase the minimum wage in Los Angeles to $15/hour by 2020. After the city council passed the bill, the same labor union lobbied to change it so that companies with union workers would be exempt from the law.[648]

* For more facts about the effects of governments forcing employers to pay wages that are above market rates, visit Just Facts’ research on unions.


Overtime

* The U.S. Department of Labor regulates overtime pay, which is 1.5 times an employee’s hourly rate for hours worked over forty hours.[649]

* Executive, administrative and professional workers are among those employees who are exempt from overtime pay regulations.[650]

* In the 2000s, three employees brought a class action lawsuit against IBM for withholding overtime pay from workers that IBM considered to be exempt from the regulations. The company settled the lawsuit for $65 million.[651] [652]

* To prevent future lawsuits, IBM converted 7,000 salaried employees into hourly employees and decreased their base pay by 15% to offset the anticipated overtime costs.[653]


* In 2016, the U.S. Department of Labor, then under the leadership of Barack Obama, enacted a regulation to make overtime pay mandatory for workers earning less than $47,476/year. This was double the previous threshold of $23,660.[654] [655] [656]

* Obama’s regulation was scheduled to take effect on December 1, 2016,[657] but a federal judge granted an injunction before it was implemented.[658]

* In 2017, a federal judge appointed by Obama struck down this regulation,[659] and the Trump administration decided to not appeal this ruling.[660]

Wealth

Overview

* Wealth, or net worth, is the value of assets minus debts at a given point in time, while income is “a flow of purchasing power.” [661] [662] [663] [664] [665]

* Assets include items such as:

  • checking and saving accounts.
  • mutual funds.
  • retirement accounts.
  • royalties.
  • proceeds from lawsuits and estates.
  • vehicles.
  • equity in property and businesses.
  • artwork.
  • jewelry.
  • precious metals and stones.
  • antiques and collectibles.[666]

* Per the Organization for Economic Cooperation and Development and the U.S. Census Bureau:

  • “Income and wealth are essential components of individual well-being.”
  • “Both income and wealth enhance individuals’ freedom to choose the lives that they want to live.”
  • “Wealth allows individuals to smooth consumption over time and to protect them from unexpected changes to income.”
  • “Households with reserves of wealth can also utilize these to generate income and to support a higher standard of living.”[667]
  • “[W]ealth is also an important source of post-retirement income” that provides “an additional source of income” during “times of economic hardship.”[668]
  • “For individuals and households with a householder 65 years and older, wealth is also an important source of post-retirement income.”[669]

Data Sources

* Researchers generally consult two primary sources of information for the wealth of U.S. residents: the Federal Reserve’s Survey of Consumer Finances and Internal Revenue Service tax returns. The Congressional Budget Office and the Census Bureau also publish wealth data.[670] [671] [672] [673] [674] These sources have varying strengths and weaknesses:

  • Neither the Survey of Consumer Finances nor the IRS data “fully identifies wealth across the nation’s entire distribution of wealth.”[675]
  • Congressional Budget Office and Survey of Consumer Finances data are the product of cross-sectional studies—observations at a specific point in time. Thus, each survey “samples a different group of families,” taking “snapshots of family wealth” without providing “information about changes in the wealth of particular families over time.”[676]
  • The Census Bureau’s Survey of Income and Program Participation is a longitudinal survey that documents changes that occur in the lives of specific people over time.[677]
  • IRS data:
    • does not account for unreported income, which is a significant portion of all income.[678] [679] [680]
    • contains limited demographic information, and this “precludes researchers from identifying the distribution of family wealth on the basis of age or education.”[681]
    • requires analysts to make assumptions based on yearly income to estimate people’s wealth.[682]
  • Congressional Budget Office data does not account for future Social Security benefit payments which understates the resources of some families. This exaggerates the concentration of wealth at the top of the distribution. [683] [684]

Distribution

* Per the Federal Reserve’s Survey of Consumer Finances:

Net worth tends to rise systematically with income, as higher-income families have higher levels of saving, which results in a feedback effect of higher income from the accumulated assets.[685]

* According to the Federal Reserve’s Survey of Consumer Finances, the median net worth of U.S. families was $121,800 in 2019. The net worth for different income groups varied as follows:

Median Family Net Worth by Income Group

[686]

* The inflation-adjusted median net worth of U.S. families increased by 30% from 1989 to 2019. The change in net worth for different wealth groups varied as follows:

Change in Median Family Net Worth by Income Group

[687] [688]

* Per a 2017 report by the Federal Reserve:

[P]atterns in net worth over the past several surveys were largely driven by the Great Recession and subsequent recovery in house and other asset prices. Declines in house prices in particular had a disproportionate effect on families in the middle of the net worth distribution, whose wealth portfolio is dominated by housing.[689]

Age

* In 2019, the median wealth of families where the head of household is aged 65 to 74 was 18.2 times that of families under the age of 35:

Inflation-Adjusted Median Family Wealth by Age of Household Head

[690] [691]

Education

* According to U.S. Census Bureau data, the median net worth of households in which someone had a bachelor’s degree (and no further education) was $233,700 in 2020. The net worth of those with other levels of educational attainment varied as follows:

Median Net Worth by Educational Attainment

[692] [693]

* Federal Reserve data shows that from 1989 to 2019, inflation-adjusted median family wealth:

  • rose by 22% for families headed by someone with a college degree, and by 1% for those with a high-school diploma.
  • fell by 57% for families headed by someone without a high-school diploma, and by 4% for those with some college:
Inflation-Adjusted Median Wealth by Education

[694] [695]

Race

* The median net worth of U.S. families was $121,800 in 2019. Family net worth by race and ethnicity varied as follows:

Inflation-Adjusted Median Family Net Worth by Race

[696] [697]

* Data from a 2020 study by the Federal Reserve show that inheritances account for 11% of the median wealth gap between blacks and whites.[698]

Family Structure

* The median net worth of U.S. families was $121,800 in 2019. Net worth by family structure varied as follows:

Inflation-Adjusted Median Net Worth by Family Structure

[699] [700]


Savings

* In 2021, 75% of working adults reported having “at least some retirement savings,” while about 25% said they had none.[701]

* In 2019, 36% of low-income families were saving some of their income, as compared to 60% of middle-income families. From 1992 to 2019, the portion of families who saved varied as follows:

U.S. Families Saving Rate by Income Group

[702]


Mobility

* Per the Congressional Budget Office:

There are significant differences in wealth among different age … groups. In 2013, the median family wealth of families headed by someone who was age 65 or older—$211,000—was more than 3½ times the median wealth of families headed by someone between the ages of 35 and 49.[703]

* The Congressional Budget Office and the Survey of Consumer Finances provide “a series of snapshots of family wealth” rather than “information about changes in the wealth of particular families over time.”[704]

* It is possible to approximate changes in the net worth of particular families over time. For example, many of the 25–34 year-olds interviewed for the 1983 Survey of Consumer Finances were aged 35–44 in the 1992 survey (notwithstanding the deceased and migrants). From 1983 to 2019, this group of families increased their median inflation-adjusted net worth by 33 times:

Inflation-Adjusted Median Family Net Worth by Age of Head

[705]


Social Programs

* In 2018, the Journal of Human Development and Capabilities published a paper that found:

  • European nations with greater levels of “welfare state spending” have higher levels of “wealth inequality.”
  • “As the state organizes and offers more public insurance, there is less need for relatively poor households to hold precautionary savings, and more income might be used for consumption purposes.”
  • Social “services provided by the state are substitutes for private wealth accumulation.”[706] [707]

* Per Ph.D. economist Martin Feldstein, professor of economics at Harvard University and President Emeritus of the National Bureau of Economic Research:[708]

[S]ocial security substantially depresses private saving. … The estimated reduction in saving is more than two-thirds of the concurrent “contributions” of employees and employers to the social security retirement and survivors fund.[709]

* Middle-income U.S. workers are hindered from saving because they are forced to contribute 15.3% of their paychecks to social insurance taxes.[710] If these workers saved and invested one-fifth of these taxes during their careers, each retired worker would have an additional $199,000 to $764,000 in savings today.[711]

* A study published by the University of Chicago Press in 2002 found that Social Security:

  • leaves lower-income households with “less to save, less reason to save, and a larger share of their old-age resources” in a form they cannot pass along to their heirs.
  • reduces “the flow of bequests to the next generation.”
  • increases “the share of total wealth held by the richest members of society.”
  • raises wealth inequality by about 20%.[712]

Credit

* Per the U.S. Federal Deposit Insurance Corporation (FDIC):

Access to credit is a critical component of asset building, in that large financial assets are often accumulated by borrowing, which can magnify returns. In addition, households with access to reasonably priced credit can borrow money to fund purchases or meet emergency needs without tapping savings. Except in the case of a windfall, such as an inheritance, it is very difficult to build wealth without access to credit.[713] [714]

* In 2019, 18% of U.S. families’ access to credit was constrained due to denial (11%) and the fear of denial (13%).[715]

* In 1999, Freddie Mac—a government-sponsored enterprise that is tasked to “promote affordable housing”—published a study that measured the rates of “bad credit” among Americans of different races. As defined by the study, people with “bad credit” were those over the past two years who were more than 30 days late paying two bills, more than 90 days late paying one bill, or had a bankruptcy, lien, or judgment. The study, which was based on a scientific sample of 80,000 people, showed that upper-middle income blacks had a higher rate of bad credit than lower-income Asians and whites. For example:

  • 20% of Asians who earned less than $25,000 per year had bad credit.
  • 22% of whites who earned $45,000 to $65,000 per year had bad credit.
  • 34% of blacks who earned $65,000 to $75,000 per year had bad credit.[716] [717]

Self-Control

* Per a 2017 study in the Journal of Behavioral and Experimental Finance, the “ability to control impulses is undoubtedly a key factor for long-term success in many areas of life.”[718]

* A 2015 paper by scholars from the International Monetary Fund and the European Central bank found that households who:

  • “exhibit high levels of self-control strength have higher wealth accumulation.”
  • “fail to exhibit self-control have disproportionately low wealth.”[719]

Inheritances

* A 2020 study by the Federal Reserve found that 30% of white families in the U.S. have received an inheritance. Adjusted for inflation into 2019 dollars, the median value of these inheritances was $88,500. For various races and ethnicities, inheritances are as follows:

Inheritances

White

Black

Hispanic

Other

Portion Who Received

30%

10%

7%

18%

Median Value (2019 dollars)

$88,500

85,800

$52,200

$59,400

[720]

* Data from the same study show that inheritances account for 11% of the median wealth gap between blacks and whites.[721]


Home Ownership

* Per the Department of Housing and Urban Development:

[H]omeownership is widely believed to provide a variety of benefits for both individuals and communities. The benefits of homeownership for individuals include the ability to accumulate wealth through principal payments and asset appreciation and the ability to have greater control over their living environment. Owning a home results in greater investment by owners in their neighborhood and home because they are the recipients of changes in the value of the property.[722]

* Some of the downsides of owning a home can include:

  • maintenance time and costs.
  • significant upfront costs for down payment and closing.
  • financial losses if selling in a down market.
  • restricted job mobility.[723] [724] [725] [726]

* In 2021, 65% of U.S. households owned their home. Since 1901, home ownership rates have varied as follows:

U.S. Home Ownership Rate

[727] [728] [729]

Poverty

Measures

* Poverty can be measured in absolute or relative terms. Relative poverty is based on comparisons to people living in certain nations or areas, while absolute poverty is based on stable benchmarks.[730] For example:

  • The Organization for Economic Cooperation and Development publishes a relative “poverty rate” based on the portion of people in a nation with “income” below “half the median income” in that nation. According to this measure, the U.S. has the same poverty rate as Mexico (16.6%).[731]
  • The World Bank publishes an absolute “poverty rate” based on the portion of people in a nation “living on less than $6.85 a day.” According to this measure, the poverty rate of Mexico (31.1%) is 18 times that of the United States (1.7%).[732] [733]

* Governments originally measured poverty based on people’s consumption of goods and services. They now measure poverty based on people’s “money income” because it is easier for people to report this.[734] [735] [736] [737] Money income:

  • excludes “income in the form of noncash benefits, such as food stamps, health benefits, subsidized housing, and goods produced and consumed on the farm.”[738] [739]
  • is based on government household surveys, and low-income households substantially underreport their cash and noncash income on such surveys.[740] [741] [742]

* The official U.S. poverty rate:

  • is determined with money income data collected by the Census Bureau and thresholds set by the Census Bureau.[743] [744] [745] [746]
  • excludes about 80% of the material resources of the poorest 20% of U.S. households.[747]
  • is one the most-cited government statistics in the media.[748]

* With regard to the exclusion of noncash benefits from money income:

  • Food Stamp beneficiaries received an average of $5,014 per household in Food Stamps during 2021.[749]
  • Medicaid beneficiaries received an average of $8,810 per person in health benefits during 2021.[750]
  • Section 8 voucher beneficiaries received an average of $9,775 per household in rental assistance during 2021.[751] [752]
  • Head Start beneficiaries received an average of $12,327 per child in childcare and preschool benefits during 2021.[753]
  • Government programs provide other noncash benefits to low-income people in the form of utility assistance, college grants, school lunch, school breakfast, community health centers, family planning services, prescription drugs, job training, legal services, cell phones, cell phone service, and internet service.[754] [755] [756] [757]
  • Federal law requires most hospitals with emergency departments to provide an “examination” and “stabilizing treatment” for anyone who comes to such a facility and requests care for an emergency medical condition or childbirth, regardless of their ability to pay and immigration status.[758] [759] [760]
  • U.S. citizens donate about $50 billion each year to charities that provide “direct services to people in need”—an average of $1,471 for every person who is reportedly below the poverty line.[761] [762]
  • U.S. citizens donate to private charities that provide additional benefits to low-income people, such as food, clothing, shelter, and education.[763] [764] [765] Annually, these donations amount to an average of:
    • $1,732 in education for every person reportedly below the poverty line.[766] [767]
    • $1,126 in healthcare for every person reportedly below the poverty line.[768] [769] [770]

* With regard to the underreporting of cash income on government household surveys:

  • A study published by the American Economic Journal in 2019 found that 63% of all New York State households who received benefits from two major cash welfare programs did not report any of this money to the Census Bureau.[771] [772]
  • The same study found that people who did report receiving cash welfare from these two programs received an average of 65% more money from the programs than they reported to the Census Bureau.[773]
  • In 2022, the IRS reported that 55% of income not reported to the IRS by third parties (like employers) is never reported to the IRS by the people who receive the money.[774]
  • In 2013, the chief actuary of the U.S. Social Security Administration estimated that 3.9 million illegal immigrants worked “in the underground economy” during 2010.[775]

* In 2010 (latest data), the poorest 20% of households reported an average of $11,034 in pre-tax money income per household, while they consumed an average of $57,049 of goods and services per household—or 5.2 times their reported money income:

Reported Pre-Tax Money Income Versus Consumption, 2010

[776] [777]

* The official poverty thresholds were developed in 1963–1964 by an economist at the Social Security Administration named Mollie Orshansky. In 1969, the White House Office of Management & Budget made them the formal standard. Per Orshansky:

Unlike some other calculations, those relating to poverty have no intrinsic value of their own. They exist only in order to help us make them disappear from the scene. With imagination, faith and hope, we might succeed in wiping out the scourge of poverty even if we don’t agree on how to measure it.[778] [779]

* The U.S. government uses two “slightly different” poverty benchmarks:

  1. The official Census Bureau poverty thresholds.
  2. Department of Health and Human Services poverty guidelines.[780]

* The Census Bureau poverty thresholds “do not vary geographically, but they are updated for inflation using the Consumer Price Index.”[781]

* Per the Department of Health and Human Services, its:

poverty guidelines are a simplified version of the federal poverty thresholds used for administrative purposes—for instance, determining financial eligibility for certain federal programs. They are issued each year in the Federal Register by the Department of Health and Human Services.[782]

* In 2022, the Census Bureau poverty thresholds and Health and Human Services poverty guidelines for families or households of different sizes varied as follows:

2022 Poverty Measures

Family/Household

Census Thresholds*

HHS Guidelines

1 Adult, No Children

$15,225

$13,590

1 Adult, 1 Child

$20,172

$18,310

1 Adult, 2 Children

$23,578

$23,030

1 Adult, 3 Children

$29,782

$27,750

2 Adults, No Children

$19,597

$18,310

2 Adults, 1 Child

$23,556

$23,030

2 Adults, 2 Children

$29,678

$27,750

2 Adults, 3 Children

$34,926

$32,470

* Householder under age 65

† 48 Contiguous States and the District of Columbia

[783] [784]


* In 2021, the official U.S. poverty rate was 11.6%, representing 38 million people in poverty.[785]

* From 1959 to 2021, the portion of the U.S. population with reported cash income at or below the official federal poverty line ranged from 22.4% to 10.5%, with an average of 13.9%:

Portion of U.S. Population Reportedly in Poverty

[786] [787]

* In 2021, the portion of the U.S. population with reported cash income at or below:

  • 50% of the poverty line was 5.5%.
  • 75% of the poverty line was 8.3%.
  • 100% of the poverty line was 11.6%.
  • 150% of the poverty line was 19.4%.
  • 200% of the poverty line was 27.6%.[788]

* In 2021, adults aged 18–64 accounted for 55% of people reportedly in poverty. Children under the age of 18 and people above 65 years comprised 29% and 15%, respectively. From 1966 to 2021, the portion of the U.S. population reportedly in poverty varied by age as follows:

Age Distribution of People in Poverty

[789] [790]


Welfare

* “Means-tested welfare” programs—commonly called “welfare”—provide cash and other benefits to people with incomes and/or assets below certain thresholds. Examples of such include:

  • Medicaid.
  • cash welfare.
  • Affordable Care Act (Obamacare) exchange subsidies.
  • Supplemental Nutrition Assistance Program (Food Stamps).
  • student financial aid (mostly Pell Grants).
  • the Children’s Health Insurance Program.
  • the Earned Income Tax Credit.
  • Supplemental Security Income.[791] [792] [793] [794]

* In 2015, the U.S. Government Accountability Office identified 82 federal means-tested welfare programs.[795]

* Seven of the 10 largest federal means-tested welfare programs are “mandatory.”[796] [797] This means they are permanently funded and can spend money without Congress and the president passing new laws. In contrast, Congress and the president typically fund “discretionary” programs for one year at a time.[798] [799]

* In 2020, the federal government spent $869 billion on mandatory means-tested welfare programs, amounting to 81% of all spending “on benefits and services for people with low income.”[800]

* Per the U.S. Government Accountability Office:

[F]ederally funded programs for low-income people vary significantly with regard to who is eligible, how income is counted and the maximum income applicants may have to be eligible, and the benefits provided.[801] [802] [803]

* Various government agencies use the Department of Health and Human Services poverty guidelines—or multiples of them—to determine eligibility for at least 31 means-tested programs.[804] Eligibility for the programs below is based on the applicant’s reported income being at or under the following percentages of the HHS poverty guidelines:

  • Supplemental Nutrition Assistance Program: 130%[805]
  • National School Lunch Program:
    • Free lunch: 130%
    • Reduced-price lunch: 131%–185%[806]
  • Low Income Home Energy Assistance Program: 150%[807]
  • Women, Infants, and Children: 100%–185%[808]
  • Affordable Care Act health insurance exchanges: 400%[809]

* The following programs use other criteria instead of the Health and Human Services guidelines:

  • Supplemental Security Income
  • Earned Income Tax Credit
  • State/local-funded General Assistance
  • Some parts of Medicaid
  • Section 8 low-income housing assistance
  • Low-rent public housing[810]

* In 2021—amid the Covid-19 pandemic,[811] [812] the federal government spent $1.6 trillion on means-tested welfare.[813] [814] This amounts to:

  • 24% of all federal outlays.[815]
  • $4,769 for every person living in the U.S.[816]
  • $12,188 for every household in the U.S.[817]
  • roughly $59,057 for every household that reports cash income below 150% of the official poverty line.[818] [819]
  • 6.8% of the U.S. gross domestic product.[820]

* From 1962 to 2021, spending on means-tested welfare increased from 4% of all federal outlays to 23%:

Federal Spending on Means-Tested Welfare

[821]


Correlates

NOTE: When interpreting the facts in this section, it is important to realize that correlation does not prove causation. This is because numerous factors can affect societal outcomes like poverty, and there is frequently no objective way to identify, measure, and determine the interplay between all of them.

* In 2021, the portion of the U.S. population aged 18–64 with incomes reportedly below Census Bureau poverty thresholds varied by work time as follows:

People Aged 18–64 in Poverty by Work Time, 2021

Type of Worker

Portion

Less Than 1 Week of Work

30%

Less Than Full-Time Year-Round Workers

12%

All Workers

5%

Full-Time Year-Round Workers

2%

[822]

* In 2021, 5% of married-couple families reported incomes below Census Bureau poverty thresholds. The rates for other types of families varied as follows:

Families in Poverty by Type

[823]

* In 2021, the portion of children in families with incomes reportedly below Census Bureau poverty thresholds varied by their family structure as follows:

Children in Poverty by Family Structure, 2021

Kind of Family

Portion

Female Householder

36%

Male Householder

18%

Husband–Wife Family

7%

[824] [825] [826]

* In 2021, the portion of the U.S. population with incomes reportedly below Census Bureau poverty thresholds varied by race as follows:

People in Poverty by Race, 2021

Race

Portion

Black

20%

Hispanic

17%

White

10%

Asian

9%

[827]

* In 2019—prior to the Covid-19 pandemic—the reported poverty rates for U.S. residents of different races, ethnicities, and marital statuses varied as follows:

Race / Ethnicity

Poverty Rate by Race, Ethnicity, and Marital Status, 2019

Married,

Spouse Present

Divorced

Separated

Never Married

White

6%

14%

24%

13%

Asian

9%

13%

26%

14%

Black

9%

19%

28%

21%

Hispanic

14%

19%

34%

20%

[828] [829] [830] [831] [832]

* In 2021—amid increased government spending on Covid-19 “relief” programs—the reported poverty rates for U.S. residents of different races, ethnicities, and marital statuses varied as follows:

Race / Ethnicity

Poverty Rate by Race, Ethnicity, and Marital Status, 2021

Married,

Spouse Present

Divorced

Separated

Never Married

White

4%

11%

12%

7%

Asian

7%

12%

17%

11%

Black

7%

15%

16%

12%

Hispanic

9%

13%

18%

11%

[833] [834] [835] [836] [837]

* For more facts about poverty and race, visit Just Facts’ research on racial issues.

* In 2021, the portion of the U.S. population aged 18–64 with incomes reportedly below Census Bureau poverty thresholds varied by immigration status as follows:

People Aged 18–64 in Poverty by Immigration Status, 2021

Nativity Status

Portion

Non-Citizen

17%

Native Born

10%

Naturalized Citizen

9%

[838] [839] [840]

* For more facts about poverty and immigration, visit Just Facts’ research on immigration.

* In 2021, the portion of the U.S. population aged 25 and older with incomes reportedly below Census Bureau poverty thresholds varied by educational attainment as follows:

People Aged 25 and Older in Poverty by Education, 2021

Educational Attainment

Portion

No High School Diploma

27%

High School, No College

13%

Some College, No Degree

9%

Bachelor’s Degree or Higher

4%

[841]

* For more facts about poverty and education, visit Just Facts’ research on education.

* In 2021, the portion of the U.S. population aged 18–64 with incomes reportedly below Census Bureau poverty thresholds varied by disability status as follows:

People Aged 18–64 in Poverty by Disability Status, 2021

Disability Status

Portion

With a Disability

25%

With No Disability

9%

[842]

Debt

Benefit & Harm

* Per the U.S. Census Bureau:

Debt is an important financial tool used by U.S. households to finance their purchases. Households often use their available credit in times of economic prosperity to finance large purchases—such as a home or a vehicle—or to pay for a household member’s education. Additionally, they may take on debt to help them get through a period of unemployment or to help pay for medical care.[843]

* Per a 2007 Federal Reserve Board working paper published near the outset of the Great Recession:

As illustrated by the recent developments among subprime mortgage borrowers, excessive accumulation of debt can, in some circumstances, lead to financial distress.
[T]he ability to borrow more easily or cheaply means that households with unreasonable expectations about future income or asset appreciation can take on more debt than may be appropriate.[844] [845]

* The same Federal Reserve paper states that the increases “in debt–income ratios” make “some households more vulnerable to shocks to” incomes, interest rates, and asset prices.[846]

* Debt can be secured or unsecured.[847] Per the District of Oregon U.S. Bankruptcy Court:

A debt that is backed by real or personal property is a “secured” debt. A creditor whose debt is “secured” has a legal right to take the property as full or partial satisfaction of the debt. For example, most homes are burdened by a “secured debt.” This means that the lender has the right to take the home if the borrower fails to make payments on the loan.
If you simply promise to pay someone a sum of money at a particular time, and you have not pledged any real or personal property to collateralize [make secure] the debt, the debt is unsecured. For example, most debts for services and some credit card debts are “unsecured.”[848]

* Some of the consequences of failure to repay unsecured debt are:

  • lower credit ratings.
  • difficulty obtaining further credit.
  • “frequent calls from collection agencies.”
  • “debt collection lawsuits.”[849]

Personal

* In the fourth quarter of 2022, the average U.S. household owed $144,475 in consumer debt, such as mortgages and credit cards.[850]

* In 2019, 77% of U.S. families had some kind of debt. Among these families, the median debt was $65,000, and:

  • 45% had credit card balances.
  • 40% had mortgages.
  • 37% had vehicle loans.
  • 21% had education loans.
  • 5% had home equity loans.[851]

* The most common category of family debt in 2019 was for a primary residence. Other categories varied as follows:

Category of Family Debt

[852]

* In 2019, the median ratio of debt payments to family income for families who carried debt was 15%. This varied by family income as follows:

Median Ratio of Debt Payments to Family Income

[853]

* In 2019, the median ratio of family debt payments was roughly 15%. Since 1989, the ratio has varied as follows:

Median Ratio of Family Debt Payments to Income

[854]

* In 2016, the Congressional Budget Office reported that during and after the Great Recession:

  • the “increase in average indebtedness … for families in debt was mainly the result of falling home equity and rising student loan balances.”[855]
  • the portion of families whose total debt was greater than total assets increased from 8% to 12%.[856]

* Adjusted for inflation, median family debt peaked at $83,200 in 2010. Since 1989, inflation-adjusted median family net worth and debt have varied as follows:

Inflation-Adjusted Family Median Net Worth and Debt

[857]

* From 1989 to 2013, the inflation-adjusted average indebtedness of families in debt increased by 256%.[858]

* From 1989 to 2019, the portion of debt payments for the purchase of a primary residence rose from 71% to 78%. The portion of debt payments for other purchases varied as follows:

Composition of Other Family Debt

[859] [860]

* In 2012, the 90+ day delinquency rate for student loans exceeded that of credit cards for the first time since reliable data on this measure became available in 2003.[861] It remained the most common type of delinquent debt until early 2020 when the federal government passed a law that suspended student loan payments in the wake of the Covid-19 pandemic through September 2020.[862] After this, President Trump and President Biden unilaterally extended this policy:[863]

Balance of Consumer Loans 90+ Days Delinquent

[864] [865]

* For more facts about student loans, visit Just Facts’ research on education.


Bankruptcy

* Per the Administrative Office of the U.S. Courts:

Filing bankruptcy can help a person by discarding debt or making a plan to repay debts.
All bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code.
There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code.[866] [867]

* Per the Federal Trade Commission:

Although bankruptcy is one option to deal with financial problems, it’s generally considered the option of last resort. The reason: its long-term negative impact on your creditworthiness. Bankruptcy information (both the date of your filing and the later date of discharge) stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live.[868]

* In 2005, Congress passed and President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.[869] The purpose of the bill was to:

improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.[870]

* Congress passed this law in response “to many of the factors contributing to the increase in consumer bankruptcy filings,” such as the:

  • “lack of personal financial accountability.”
  • rapid increase of people who file bankruptcy repeatedly.
  • “absence of effective oversight to eliminate abuse in the system.”[871]

* The law mandated “the implementation and monitoring of”:

  • means testing “to prevent debtors who have the ability to repay their creditors” from being relieved of their debts.
  • debtor audits “to determine the accuracy of information provided by individuals filing for bankruptcy.”
  • required credit counseling and a debtor education course “before having debts discharged.”[872]

* During the Covid-19 pandemic the federal government and banks took actions to prevent bankruptcies.[873] [874]

* Since 2001 personal bankruptcy filings have varied as follows:

Personal Bankruptcy Filings

[875] [876] [877] [878] [879]


Federal

* At the close of 2022, the official debt of the United States government was $31.4 trillion ($31,419,689,421,558).[880] This amounted to:

  • $94,005 for every person living in the U.S.[881]
  • $239,476 for every household in the U.S.[882]
  • 66% more than the combined consumer debt of every household in the U.S.[883]

* For comprehensive facts about the national debt, visit Just Facts’ research on this issue.

Footnotes

[1] Article: “Income Tax, Personal.” By David N. Hyman. Encyclopedia of Contemporary American Social Issues, Volume 1: Business and Economy. Edited by Michael Shally-Jensen. ABC-CLIO, 2011. Pages 170–178.

Pages 170–172:

What Is Income?

Income is a flow of purchasing power from earnings of labor, capital, land and other sources that a person receives over a period of one year. The most comprehensive definition of income views it as an annual acquisition of rights to command resources. Income can be used to consume goods and services during the year it is received, or it can be stored up for future use in subsequent years. Income stored up for future use is saving, which increases a person’s net worth (a measure of the value of assets less debts). The most comprehensive measure of income views it as the sum of annual consumption plus savings, where savings is any increase in net worth that can result from not spending earnings and other forms of income or from increases in the market value of such assets as stocks, bonds, or housing that a person might own. The annual increase in the value of a person’s existing assets are capital gains, which can either be realized (converted to cash) by selling an asset or unrealized (not turned into cash in the current year).

[2] Report: “American Housing Survey for the United States: 2015 – Appendix A. Subject Definitions and Table Index.” U.S. Department of Housing and Urban Development and U.S. Census Bureau. Last revised March 7, 2019. <www2.census.gov>

Appendix A–16:

“Money income” is the income received on a regular basis (exclusive of certain money receipts such as capital gains and lump-sum payments) before payments for personal income taxes, social security, union dues, Medicare deductions, etc. It includes income received from wages, salary, commissions, bonuses, and tips; self-employment income from own nonfarm or farm businesses, including proprietorships and partnerships; interest, dividends, net rental income, royalty income, or income from estates and trusts; Social Security or Railroad Retirement income; Supplemental Security Income (SSI); any cash public assistance or welfare payments from the state or local welfare office; retirement, survivor, or disability benefits; and any other sources of income received regularly such as Veterans’ (VA) payments, unemployment and/or worker’s compensation, child support, and alimony.

[3] Book: OECD Framework for Statistics on the Distribution of Household Income, Consumption and Wealth. Organization for Economic Cooperation and Development, 2013. <www.keepeek.com>

Pages 27–28: “Income allows people to satisfy their needs and pursue many other goals that they deem important to their lives, while wealth makes it possible to sustain these choices over time. Both income and wealth enhance individuals’ freedom to choose the lives that they want to live.”

[4] Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>

Page 2:

In 2013, according to the Congressional Budget Office’s estimates, average household market income—a comprehensive income measure that consists of labor income, business income, capital income (including capital gains), and retirement income—was approximately $86,000. Government transfers, which include benefits from programs such as Social Security, Medicare, and unemployment insurance, averaged approximately $14,000 per household. The sum of those two amounts, which equals before-tax income, was about $100,000, on average. In this report, CBO [Congressional Budget Office] analyzed the distribution of four types of federal taxes: individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Taken together, those taxes amounted to about $20,000 per household, on average, in 2013.1 Thus, average after-tax income—which equals market income plus government transfers minus federal taxes—was about $80,000, and the average federal tax rate (federal taxes divided by before-tax income) was about 20 percent.

1 Data for 2013 are the most recent available with complete information about tax payments. For more details, see the appendix.

[5] Webpage: “Income.” U.S. Census Bureau. Accessed January 4, 2023 at <www.census.gov>

“The Census Bureau reports income from several major household surveys and programs. Each differs from the others in some way, such as the length and detail of its questionnaire, the number of households included (sample size), and the methodology used.”

[6] Webpage: “Wages Earning & Benefits.” U.S. Department of Labor, Bureau of Labor Statistics. Accessed April 20, 2019 at <www.dol.gov>

Overview of BLS Statistics on Pay and Benefits

The Bureau of Labor Statistics (BLS) publishes a large amount of information on the wages, earnings, and benefits of workers. Generally, this information is categorized in one or more of the following ways:

• Geographic area (national regional, state, metropolitan area, or county data)

• Occupation (such as teacher); and

• Industry (such as manufacturing)

Additional categories, such as age, sex, or union membership, may be used in some cases.

[7] Webpage: “National Economic Accounts.” U.S. Department of Commerce, Bureau of Economic Analysis. Page last modified August 8, 2018. <www.bea.gov>

What are the National Economic Accounts?

BEA’s [Bureau of Economic Analysis’s] national economic statistics provide a comprehensive view of U.S. production, consumption, investment, exports and imports, and income and saving. These statistics are best known by summary measures such as gross domestic product (GDP), corporate profits, personal income and spending, and personal saving. …

• Disposable Personal Income

The income that’s left after people pay their taxes …

• Personal Income

Wages, Social Security, interest, rents, and other income received by U.S. residents

• Personal Saving Rate

The percentage of people’s disposable income that they save instead of spending

[8] Webpage: “SOI [Statistics of Income] Tax Stats – Individual Income Tax Return (Form 1040) Statistics.” Internal Revenue Service. Last updated December 14, 2018. <www.irs.gov>

Form 1040 Data

Publications

• Individual Income Tax Returns Publication (Complete Report) …

General Statistical Tables

• by Size of Adjusted Gross Income

• by Filing Status

• by Tax Rate and Income Percentile

• Time Series Data

[9] Webpage: “Survey of Consumer Finances: About.” Board of Governors of the Federal Reserve System. Last updated March 16, 2017. <www.federalreserve.gov>

The Survey of Consumer Finances (SCF) is normally a triennial cross-sectional survey of U.S. families. The survey data include information on families’ balance sheets, pensions, income, and demographic characteristics. Information is also included from related surveys of pension providers and the earlier such surveys conducted by the Federal Reserve Board. No other study for the country collects comparable information. Data from the SCF are widely used, from analysis at the Federal Reserve and other branches of government to scholarly work at the major economic research centers.

The survey has contained a panel element over two periods. Respondents to the 1983 survey were re-interviewed in 1986 and 1989. Respondents to the 2007 survey were re-interviewed in 2009.

The study is sponsored by the Federal Reserve Board in cooperation with the Department of the Treasury. Since 1992, data have been collected by the NORC at the University of Chicago.

To ensure the representativeness of the study, respondents are selected randomly using procedures described in the technical working papers on this web site. A strong attempt is made to select families from all economic strata.

Participation in the study is strictly voluntary. However, because only about 6,500 families were interviewed in the most recent study, every family selected is very important to the results. To maintain the scientific validity of the study, interviewers are not allowed to substitute respondents for families that do not participate. Thus, if a family declines to participate, it means that families like theirs may not be represented clearly in national discussions.

The confidentiality of the information provided in the study is of the highest importance to NORC and the Federal Reserve. Strenuous efforts are made to protect the privacy of participants, and in the history of the survey, there has never been a leak. The names of the participants in the survey are known only to NORC, which has more than 50 years of successful experience in collecting confidential information.

For the 1983 and 1989 surveys, a separate Survey of Pension Providers (SPP) was conducted to obtain detailed technical information on the pensions of SCF participants; data and documentation for the SPP appear under a separate link.

A link is also given for data and documentation from the 1962 Survey of Financial Characteristics of Consumers (SFCC) and the 1963 Survey of Changes in Family Finances (SCFF); these surveys are the most direct precursors of the SCF.

[10] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1:

Data on personal income and expenditures from the National Income and Product Accounts (NIPAs) produced by the Bureau of Economic Analysis (BEA) and from those based on household surveys have shown divergent trends in recent years. From 2000 to 2010, BEA estimates of real per capita disposable personal income (DPI) increased by 12 percent, while the Census Bureau’s Current Population Survey Statistical and Economic Supplement (CPS–ASEC) estimates of real median household money income decreased by 7 percent. Consumer expenditure data have shown similar differences between the BEA estimates and those based on the Bureau of Labor Statistics’ (BLS) Consumer Expenditure Survey (CE) program.

[11] Working paper: “A Comparison of Income Concepts: IRS Statistics of Income, Census Current Population Survey, and BLS [Bureau of Labor Statistics] Consumer Expenditure Survey.” By Eric L. Henry and Charles D. Day. Internal Revenue Service, 2005. <www.irs.gov>

Page 149:

Several Federal Government agencies produce statistics on individual and household income. Because of the differing purposes to which their data will be put, agencies use different definitions for income (income concepts), as well as different reporting units, sample designs, collection modes, and processing rules. Data users are faced with an array of choices, often without much help to sort out which data series best meets their needs or much guidance to reconcile results based on different sources of data.

[12] Webpage: “Income: About.” U.S. Census Bureau. Accessed October 27, 2020 at <bit.ly>

Census money income is defined as income received on a regular basis (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, social security, union dues, medicare deductions, etc. Therefore, money income does not reflect the fact that some families receive part of their income in the form of noncash benefits, such as food stamps, health benefits, subsidized housing, and goods produced and consumed on the farm. In addition, money income does not reflect the fact that noncash benefits are also received by some nonfarm residents which may take the form of the use of business transportation and facilities, full or partial payments by business for retirement programs, medical and educational expenses, etc.

Data users should consider these elements when comparing income levels. Moreover, users should be aware that for many different reasons there is a tendency in household surveys for respondents to underreport their income. Based on an analysis of independently derived income estimates, the Census Bureau determined that respondents report income earned from wages or salaries much better than other sources of income and that the reported wage and salary income is nearly equal to independent estimates of aggregate income.

The Census Bureau also derives alternative income measures that systematically remove or add various income components such as deducting payroll taxes and federal and state income taxes and including the value of specific noncash benefits, food stamps, school lunches, housing subsidies, health insurance programs, and return on home equity.

[13] Paper: “Alternative Measures of Household Income: Personal Income, CPS Money Income, and Beyond.” By John Ruser, Adrienne Pilot, and Charles Nelson. U.S. Bureau of Economic Analysis, November 2004. <apps.bea.gov>

Pages 1–2:

Two of the most widely used measures of household income are BEA’s [Bureau of Economic Analysis’s] personal income and the Census Bureau’s money income. These two statistics spring from different traditions of measurement—personal income from national income accounting and money income from income distribution analysis. …

• The Current Population Survey (CPS) Annual Social and Economic Supplement is the source of the Census Bureau’s official national estimates of poverty. CPS money income is defined as total pre-tax cash income earned by persons, excluding certain lump sum payments and excluding capital gains.

• BEA estimates that personal income for the US was $8.678 trillion in 2001, as compared to a CPS money income estimate of $6.446 trillion.2 Over 64 percent of this $2.232 trillion gap—$1.429 trillion—can be accounted for by differences in the income types that are included in the two measures, including the $982 billion of property income that is counted in personal income but not in CPS money income.

• Half of the remaining $804 billion money income gap can be accounted for by BEA adjustments to proprietors’ income and wages and salaries for underreporting in BEA source data.

[14] Paper: “Alternative Measures of Household Income: BEA Personal Income, CPS Money Income, and Beyond.” By John Ruser, Adrienne Pilot, and Charles Nelson. U.S. Department of Commerce, Bureau of Economic Analysis, November 2004. <apps.bea.gov>

Page 2:

The Census Bureau has developed a number of alternative measures of money income that may measure economic well-being better than CPS [Current Population Survey] money income. These measures remove taxes, add in-kind transfers, add realized capital gains or losses, and add the imputed return on equity in own home. The Census Bureau has found that a broadened definition of income results in a more equal distribution of income and tends to reduce the gaps between the incomes of traditionally high- and low-income groups.

Page 4:

BEA Personal Income and Census Money Income

Two of the most widely used measures of household income are BEA’s [Bureau of Economic Analysis’s] personal income and the Census Bureau’s money income. These two measures differ in the scope of individuals covered, in the income items included, in the sources of the data and in the extent of disaggregation of the estimates. This section will discuss the general definitions, sources and uses of these two measures, while the next section presents a reconciliation of aggregate income estimates as a means of indicating the nature and size of differences.3

3A third widely used measure of income is IRS adjusted gross income (AGI). For a comparison of BEA personal income and IRS AGI, see Ledbetter (2004).

Pages 10–11:

Alternative Census Bureau Income Definitions

Description

The traditional money income concept is limited and does not provide a completely satisfactory measure of economic well-being. For example, money income (unlike BEA’s disposable income concept) does not include the effects of taxes and, therefore, does not reflect the effect of tax law changes on economic well-being. Similarly, the official measure of money income excludes the effect of noncash benefits (such as employment-related group health insurance and food stamps), which enhance economic well-being and are also included in BEA’s personal income. The Census Bureau has a fairly long history of producing estimates that address these shortcomings.

Since the early 1980s, the Census Bureau has published analysis showing the effect of using a broadened income definition on measures of economic well-being. Currently, annual Census Bureau reports on income and poverty show the effect of using an income measure that includes the effect of noncash benefits and taxes on the distribution of income, prevalence of poverty, and level of income inequality based on the 17 income definitions as summarized below:

Definition 1: official money income

Definition 1b: definition 1 plus capital gains/losses less taxes

Definition 2: definition 1 less government cash transfers

Definition 3: definition 2 plus capital gains/less capital losses

Definition 4: definition 3 plus the value of employment-related health benefits

Definition 5: definition 4 less Social Security payroll taxes

Definition 6: definition 5 less federal income taxes (excluding the Earned • Income Tax Credit)

Definition 7: definition 6 plus the Earned Income Tax Credit

Definition 8: definition 7 less state income taxes

Definition 9: definition 8 plus non-means-tested government cash transfers

Definition 10: definition 9 plus the value of Medicare

Definition 11: definition 10 plus the value of regular-price school lunches

Definition 12: definition 11 plus means-tested cash transfers

Definition 13: definition 12 plus the value of Medicaid

Definition 14a: definition 13 plus the value of other means-tested government noncash transfers less Medicare and Medicaid

Definition 14: definition 13 plus the value of other means-tested government noncash transfers

Definition 15: definition 14 plus net imputed return on equity in own home

Obviously, the construction of 17 definitions of income was not based on the premise that each of these definitions represented a viable income concept. Rather, the construction of so many income definitions was to facilitate the analysis that examines which components of a broadened income measure are most responsible for the significant changes in income summary measures as one transitions from the money income concept to an expanded definition of well-being. That said, there are several expanded income definitions that the Census Bureau has found useful to track trends and differences between groups. For example, the 2002 CPS income report (U.S. Bureau of the Census, 2003) highlighted four definitions of income in addition to the traditional money income definition. These were definitions 1b, 14a, 14, and 15. It should be noted that in the 2002 income report for the first time these alternative income measures were featured in the main body of the report and presented along with the money income measures (in previous reports these figures were examined in supplemental report sections).

[15] Webpage: “Comparability of Current Population Survey Income Data with Other Data.” U.S. Census Bureau. Accessed January 13, 2017 at <www.census.gov>

The concepts used in the SIPP [Survey of Income and Program Participation] and the March supplement to the Current Population Survey (CPS) differ in some regards. These differences occur primarily between components of the income definition used in each survey and the manner in which certain reference units are categorized. An explanation of these differences follows.

Two basic units of reference common to both the SIPP and CPS are people and households. Groups of people living together, when combined based on relationship, form family units. A family refers to a group of two or more people related by birth, marriage, or adoption who reside together (one of whom is the householder). Two or more people who live together and are related to one another, but not related to the householder, form an unrelated subfamily. People in unrelated subfamilies are not included in the count of family members in the CPS, but are included as family members for the SIPP.

A unique feature of a longitudinal survey, such as SIPP, is its ability to capture change over time. A cross-sectional survey, such as CPS, does not have this feature and can only provide a series of snapshots of the socio-economic conditions that exist at different fixed points in time. CPS data are based on the demographic characteristics as they existed at the time the survey was conducted and are applied to the economic characteristics that existed for the previous calendar year. The demographic data in the SIPP are collected with the economic data throughout the calendar year and are likely to have changed during the year. In order to incorporate the effect of changes over time in family compositions in measures of SIPP income data, the data are presented for people rather than families. People are characterized by the income of their respective family unit based on living arrangements each month during the calendar year.

The definition of income used in the SIPP is basically the same as in the CPS. It reflects money income before taxes and does not include the value of noncash benefits such as employer-provided health insurance, food stamps, or Medicaid. Differences do exist however, they are:

• Accrued interest on Individual Retirement Accounts (IRA’s) KEOGH retirement plans, 401(k), and U.S. savings bonds; and educational assistance are excluded in SIPP and counted in the CPS.

• Lump-sum or one-time payments such as inheritances, insurance settlements, and lump-sum payments from a pension or retirement plan are counted in the SIPP and excluded in the CPS.

• Self-employment income (both farm and nonfarm) is counted in the CPS as a net amount, gross receipts minus operating expenses. In the SIPP, self-employment income includes a regular salary and/or any other income from the business.

[16] Article: “Comparison of BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross Income.” By Mark Ledbetter. U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, November 2007. <apps.bea.gov>

Page 35:

The Bureau of Economic Analysis (BEA) annually publishes a comparison of BEA’s measure of personal income and the Internal Revenue Service (IRS) measure of adjusted gross income (AGI); both are widely used measures of household income. This comparison features the “AGI gap,” which is the difference between BEA-derived estimates of adjusted gross income and the IRS estimate of adjusted gross income.

Key Terms

Adjusted gross income (AGI), for Federal income tax purposes, includes all income that is received in the form of money, property, and services that is not explicitly exempt by law.

Personal income is the income received by individuals, nonprofit institutions serving households, private noninsured welfare funds, and private trust funds from all sources. It includes income that is taxed, that is partly taxed (such as social security benefit payments), and that is tax-exempt (such as tax-exempt interest, nontaxable The AGI gap for each type of income is the difference transfer payments, and Medicare, Medicaid, and welfare benefit payments). It is the sum of “compensation of employees (received),” proprietors’ income, rental income, personal income receipts on assets, and personal current transfer receipts; contributions for government social insurance is subtracted. Personal income includes imputed income, but it excludes net gains from the sale of assets (capital gains), pension benefit payments, and employee and self-employed contributions for government social insurance. …

BEA-derived adjusted gross income is BEA’s conceptual measure of adjusted gross income without taxpayer misreporting. It is based on IRS tabulations of data from individual income tax returns, corporate income tax returns, nonfarm sole proprietorship income tax returns, partnership income tax returns, and extrapolated estimates for tax-exempt income and for private foundation income.

The AGI gap is the difference between the BEA-derived adjusted gross income and IRS adjusted gross income. The AGI gap for each type of income is the difference between the BEA-derived adjusted gross income for that type of income and the reallocated IRS adjusted gross income.

The relative AGI gap for each type of income shows the AGI gap by type of income as a percentage of the BEA-derived adjusted gross income by type of income.

Misreporting adjustments are adjustments to IRS source data that are designed to correct for the effects of taxpayer misreporting in the tax return tabulations and economic census data used in the NIPAs [National Income and Product Accounts]. These adjustments account for income that is underreported on tax returns and for the income that is earned by individuals who do not file tax returns.

[17] Webpage: “Frequently Asked Questions Related to the Poverty Guidelines and Poverty.” U.S. Department of Health and Human Services. Accessed March 4, 2023 at <aspe.hhs.gov>

Are the Poverty Guidelines Before-Tax or After-Tax? Are They Gross Income or Net Income? What Definition of Income Is Used with the Poverty Guidelines?

There is no simple answer to these questions. When determining program eligibility, some agencies compare before-tax income to the poverty guidelines, while other agencies compare after-tax income. Likewise, eligibility can be dependent on gross income, net income, or some other measure of income. Federal, state, and local program offices that use the poverty guidelines for eligibility purposes may define income in different ways. To find out the specific definition of income (before-tax, after-tax, etc.) used by a particular program or activity, one must consult the office or organization that administers that program.

While there is no standard definition of income for program eligibility purposes, the Census Bureau uses a standard definition of income for computing poverty statistics based on the official poverty thresholds. More information is available on the Census Bureau’s web site.

[18] Paper: “Alternative Measures of Household Income: Personal Income, CPS Money Income, and Beyond.” By John Ruser, Adrienne Pilot, and Charles Nelson. U.S. Bureau of Economic Analysis, November 2004. <apps.bea.gov>

Page 1: “Two of the most widely used measures of household income are BEA’s [Bureau of Economic Analysis’s] personal income and the Census Bureau’s money income.”

[19] Report: “Current Population Survey: 2022 Annual Social and Economic (ASEC) Supplement.” U.S. Census Bureau, November 30, 2022. <www2.census.gov>

Page G-1: “The CPS [Current Population Survey], sponsored jointly by the Census Bureau and the U.S. Bureau of Labor Statistics, is the country’s primary source of labor force statistics for the entire population. The Census Bureau and the U.S. Bureau of Labor Statistics also jointly sponsor the CPS ASEC [Annual Social and Economic Supplement].”

[20] Report: “Income in the United States: 2021.” By Jessica Semega and Melissa Kollar. U.S. Census Bureau, September 2022. <www.census.gov>

Page 55:

The Current Population Survey (CPS) is the longest-running survey conducted by the U.S. Census Bureau. The CPS is a household survey primarily used to collect employment data. The sample universe for the basic CPS consists of the resident civilian, noninstitutionalized population of the United States. …

The CPS Annual Social and Economic Supplement (CPS ASEC), which estimates in this report are based on, collects data in February, March, and April each year, asking detailed questions categorizing income into over 50 sources. The key purpose of the survey is to provide timely and comprehensive estimates of income, poverty, and health insurance and to measure change in these national-level estimates.

Page 15: “Table A-1. Income Summary Measures by Selected Characteristics: 2020 and 2021 … Type of Household … Race3 and Hispanic Origin of Householder … Age of Householder … Nativity of Householder … Region … Residence4 … Educational Attainment of Householder”

[21] Webpage: “Income: About.” U.S. Census Bureau. Accessed October 27, 2020 at <www.census.gov>

Census money income is defined as income received on a regular basis (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, social security, union dues, medicare deductions, etc. Therefore, money income does not reflect the fact that some families receive part of their income in the form of noncash benefits, such as food stamps, health benefits, subsidized housing, and goods produced and consumed on the farm. In addition, money income does not reflect the fact that noncash benefits are also received by some nonfarm residents which may take the form of the use of business transportation and facilities, full or partial payments by business for retirement programs, medical and educational expenses, etc.

[22] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF): “The Current Population Survey Annual Statistical and Economic Supplement (CPS–ASEC) from the Census Bureau and the Consumer Expenditure Survey (CE) program from the Bureau of Labor Statistics (BLS) are household surveys used to produce micro estimates of household income and expenditures. “

Page 3:

Reports from businesses collected in economic censuses, sample surveys, and administratively are more reliable than household surveys, which for the CE Interview Survey and CPS–ASEC have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items. For the CE Diary Survey, there are issues of what is sometimes called “diary fatigue”, which refers to the dropoff in recording of expenditures over time, evidenced by a persistent pattern of lower reported expenditures for the second of the one-week surveys compared to the first (CE 1983, 2003).

[23] Paper: “Household Surveys in Crisis.” By Bruce D. Meyer, Wallace K.C. Mok, and James X. Sullivan. The Journal of Economic Perspectives, Fall 2015. Pages 199–226. <www.jstor.org>

Page 199:

Large and nationally representative surveys are arguably among the most important innovations in social science research of the last century. … Household surveys are the source of official rates of unemployment, poverty, health insurance coverage, inflation, and other statistics that guide policy. They are also a primary source of data for economic research and are used to allocate government funds.

Page 200:

One productive approach to measuring the degree of bias in household surveys, along with addressing potential bias, is to compare survey results with administrative data. … We examine the quality of household survey data through comparisons with administrative data from nine large programs that receive considerable attention from both the research and policy community. For example, we compare the total dollar value of food stamp benefits reported, by all respondents in a survey to the total dollar value of food stamp benefits awarded as recorded in US Department of Agriculture, Food and Nutrition Service administrative data.

Our results show a sharp rise in the downward bias in household survey estimates of receipt rates and dollars received for most programs. In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major surveys. In particular, this measurement error typically takes the form of underreporting resulting from true program recipients being recorded as non-recipients. (Throughout this paper we use underreporting as a synonym for understatement or under-recording, since it is likely due to errors by both interviewers and interviewees.) We argue that although all three threats to survey quality are important, in the case of transfer program reporting and amounts, measurement error rather than unit nonresponse or item nonresponse appears to contribute the most bias.

Page 201:

The underreporting of transfer income in surveys has profound implication for our understanding of the low-income population and the effect of government programs for the poor. We point to evidence from linked administrative and survey data that indicates that this underreporting leads to an understatement of incomes at the bottom, the rate of program receipt, and the poverty-reducing effects of government programs—and thus to an overstatement of poverty and inequality.

[24] Report: “Income in the United States: 2021.” By Jessica Semega and Melissa Kollar. U.S. Census Bureau, September 2022. <www.census.gov>

Page 1: “This report presents estimates on income in the United States for calendar year 2021, based on information collected in the 2022 and earlier Current Population Survey Annual Social and Economic Supplements (CPS ASEC) conducted by the Census Bureau.*”

Page 13: “Moreover, readers should be aware that for many different reasons there is a tendency in household surveys for respondents to underreport their income.”

[25] Paper: “Income Measurement Error in Surveys: A Review.” By Jeffrey C. Moore, Linda L. Stinson, and Edward J. Welniak. U.S. Census Bureau, December 1997. <www.census.gov>

Page 2:

In its role as producer of the nation’s “official statistics,” the Census Bureau has, over the years, examined the quality of its income estimates through comparisons to independent estimates derived from independent, outside sources—e.g., the National Income and Products Accounts (NIPA), individual income tax data, Social Security Administration records, caseload statistics from agencies that administer various transfer programs, etc. Table 1, derived from Coder and Scoon-Rogers (1995), summarizes the results of recent work comparing survey-based estimates and independent benchmarks for an extensive set of income types. The Census Bureau’s two major income surveys, the Survey of Income and Program Participation (SIPP) and the Current Population Survey’s (CPS) March Income Supplement, supply the survey estimates. Two conclusions are immediately obvious from Table 1. First, a primary goal of SIPP was to provide more complete income data than CPS. The fact that SIPP’s estimates are generally closer to the benchmarks than CPS’s suggests that SIPP has had some success in meeting that goal—especially, perhaps, for transfer program income. Second, however, and even more pronounced, is the consistency with which the survey estimates fall short of the benchmarks—across surveys, across time, and across income categories.

[26] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 2 (of PDF): “The Congressional Budget Office regularly analyzes household income in the United States. This report presents the distributions of household income, means-tested transfers, and federal taxes in 2020 and explores how they differ from the distributions in 2019.

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[27] Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>

Page 2:

In 2013, according to the Congressional Budget Office’s estimates, average household market income—a comprehensive income measure that consists of labor income, business income, capital income (including capital gains), and retirement income—was approximately $86,000. Government transfers, which include benefits from programs such as Social Security, Medicare, and unemployment insurance, averaged approximately $14,000 per household. The sum of those two amounts, which equals before-tax income, was about $100,000, on average. In this report, CBO [Congressional Budget Office] analyzed the distribution of four types of federal taxes: individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Taken together, those taxes amounted to about $20,000 per household, on average, in 2013.1 Thus, average after-tax income—which equals market income plus government transfers minus federal taxes—was about $80,000, and the average federal tax rate (federal taxes divided by before-tax income) was about 20 percent.

1 Data for 2013 are the most recent available with complete information about tax payments. For more details, see the appendix.

Pages 1–2:

Market income consists of labor income, business income, capital gains (profits realized from the sale of assets), capital income excluding capital gains, income received in retirement for past services, and other sources of income.

Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs. Those transfers include payments and benefits from federal, state, and local governments.

Before-tax income is market income plus government transfers. …

Income groups are created by ranking households by their size-adjusted income. A household consists of people sharing a housing unit, regardless of their relationships. Each income quintile (fifth) contains approximately equal numbers of people but different numbers of households. Similarly, each percentile (hundredth) contains approximately equal numbers of people but different numbers of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

Household income over time is adjusted for inflation using the price index for personal consumption expenditures as calculated by the Bureau of Economic Analysis.

[28] Paper: “Household Incomes in Tax Data: Using Addresses to Move from Tax Unit to Household Income Distributions.” By Jeff Larrimore, Jacob Mortenson, and David Splinter. Association for Public Policy Analysis and Management, October 2018. <appam.confex.com>

Page 1:

Over the past decade, research using administrative IRS tax return data has greatly expanded our understanding of incomes at the top of the U.S. income distribution (e.g., Piketty and Saez, 2003; Atkinson, Piketty, and Saez, 2011). However, researchers have been forced to adapt their analysis to fit the limitations of IRS tax return data. In particular, the absence of non-filers in tax return data has largely restricted analyses using tax records to the upper end of the income distribution. Additionally, tax returns provide information on those individuals appearing on the same tax return (a tax unit), but households may contain multiple tax units or non-filers. This situation has precluded household level analyses, which is the standard unit of analysis in both national and cross-national distributional studies.

Pages 2–3:

Standard tax return data exclude the nearly 15 percent of adults and 13 percent of household heads who do not file a tax return and are not claimed as dependents each year (Auten and Gee, 2009; Molloy, Smith, and Wozniak, 2011). These non-filers are not missing at random and are instead concentrated in the lower tail of the distribution—which means that researchers using tax return data observe only a truncated version of the income distribution. Most researchers partially overcome this problem by using tax return data only to analyze the top of the distribution and assuming that all non-filers have an income of 20 to 30 percent of average filer income (Piketty and Saez, 2003; Auten and Splinter, 2017). However, such an approach cannot be expanded to analyze lower-tail or distribution-wide inequality measures because it does not capture observation-level incomes for these non-filers.

[29] Webpage: “Income Measure Used for Distributional Analysis by the Tax Policy Center.” Tax Policy Center. Accessed January 5, 2023 at <www.taxpolicycenter.org>

The purpose of an income classifier is to proxy for taxpayers’ economic well-being and their ability to pay taxes. The measurement of income also matters importantly for the calculation and interpretation of effective tax rates (ETRs), the amount of taxes paid measured as a percentage of income. An income measure that understates economic income overstates effective tax rates and the burden of tax policy changes, measured either as the change in ETR or the percentage change in after-tax income. …

In the initial versions of the tax model, TPC [Tax Policy Center] used adjusted gross income (AGI) as the income classifier because it was readily available on income tax returns. But AGI has serious deficiencies. It is far from comprehensive—causing many households to be mischaracterized—and its definition can change with changes in tax law. It excludes such items as untaxed Social Security and pension benefits, tax-exempt employee benefits, income earned within retirement accounts, and tax-exempt interest.

[30] Report: “Tax Gap Estimates for Tax Years 2014–2016.” Internal Revenue Service, August 2022. <www.irs.gov>

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The gross tax gap is the amount of true tax liability that is not paid voluntarily and timely. The estimated annual gross tax gap for Tax Years (TY) 2014–2016 is $496 billion. The voluntary compliance rate (VCR) is a ratio measure of relative compliance and is defined as the amount of “tax paid voluntarily and timely” divided by “total true tax”, expressed as a percentage. The estimated VCR is 85.0 percent.

The gross tax gap comprises three components:

• Nonfiling (tax not paid on time by those who do not file required returns on time, $39 billion),

• Underreporting (tax understated on timely filed returns, $398 billion), and

• Underpayment (tax that was reported on time, but not paid on time, $59 billion).

The net tax gap is the gross tax gap less tax that subsequently will be paid, either voluntarily but late or collected through IRS administrative and enforcement activities. The net tax gap is the portion of the gross tax gap that will not be paid. An estimated $68 billion of the gross tax gap eventually will be paid, resulting in a TY 2014–2016 net tax gap of $428 billion. The Net Compliance Rate (NCR) is defined as the sum of “tax paid voluntarily and timely” and “enforced and other late payments” divided by “total true tax”, expressed as a percentage. The estimated NCR is 87.0 percent.

The tax gap estimates are also segmented by type of tax. The individual income tax makes up the largest component of the tax gap, contributing $357 billion to the gross tax gap and $306 to the net tax gap. The second and third largest components involve employment tax, which includes self-employment, FICA and FUTA tax, and corporation income tax.

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Tax gap concepts include several ratio measures expressed as rates or percentages. The purpose of these measures is to provide a relative measure of compliance or noncompliance. These measures are ratios of dollar amounts in the aggregate.2

The voluntary compliance rate (VCR) is defined as the amount of tax paid voluntarily and timely divided by total true tax, expressed as a percentage. The VCR is a complement to the gross tax gap.

The net compliance rate (NCR) is defined as the sum of all timely and enforced and other late payments divided by total true tax, expressed as a percentage. The NCR is a complement to the net tax gap. It is also equal to one minus the ratio of the net tax gap to total true tax.

Two other measures are used only for the underreporting tax gap. The net misreporting percentage (NMP) for a given line item is the NMA divided by the sum of the absolute values of the amounts that should have been reported. For most return or schedule line items, amounts that should have been reported can be positive only. However, amounts can be either positive or negative for business-related net income and certain other lines. So, for those line items where amounts can be negative, the denominator of the NMP is not the net of positive and negative amounts, but instead it is the total of all the amounts disregarding the sign in the calculation—that is, it is the sum of the absolute values. The NMP is a complement to the NMA.

The voluntary reporting rate, or VRR, is another underreporting tax gap measure. It is a measure of the overall extent of reporting compliance for a particular type of tax. It is defined as the amount of reported tax divided by the amount of tax that should have been reported. It reflects reporting compliance on timely filed returns and is a complement to the underreporting tax gap for a particular type of tax.

[31] Written statement: “How Tax Complexity Hinders Small Businesses: The Impact On Job Creation And Economic Growth.” By Nina E. Olson. Internal Revenue Service, National Taxpayer Advocate, April 13, 2011. <www.irs.gov>

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IRS data show that when taxpayers have a choice about reporting their income, tax compliance rates are remarkably low. Workers who are classified as employees have little opportunity to underreport their earned income because it is subject to tax withholding. Employees thus report about 99 percent of their earned income. But among workers whose income is not subject to withholding, compliance rates plummet. IRS studies show that nonfarm sole proprietors report only 43 percent of their business income and unincorporated farming businesses report only 28 percent.

[32] Report: “Concepts and Methods of the U.S. National Income and Product Accounts (Chapter 5).” U.S. Bureau of Economic Analysis, December 2022. <www.bea.gov>

Pages 5-2–5-3:

PCE [personal consumption expenditures] measures the goods and services purchased by “persons”—that is, by households and by nonprofit institutions serving households (NPISHs)—who are resident in the United States. Persons resident in the United States are those who are physically located in the United States and who have resided, or expect to reside, in this country for 1 year or more. PCE also includes purchases by U.S. government civilian and military personnel stationed abroad, regardless of the duration of their assignments, and by U.S. residents who are traveling or working abroad for 1 year or less.3

Table 5.1 shows the kinds of transactions that are included in and excluded from PCE. Most of PCE consists of purchases of new goods and of services by households from private business. In addition, PCE includes purchases of new goods and of services by households from government and government enterprises, the costs incurred by NPISHs in providing services on behalf of households, net purchases of used goods by households, and purchases abroad of goods and services by U.S. residents traveling, working, or attending school in foreign countries. PCE also includes expenditures financed by third-party payers on behalf of households, such as employer-paid health insurance and medical care financed through government programs, and it includes expenses associated with life insurance and with private and government employee pension plans. Finally, PCE includes imputed purchases that keep PCE invariant to changes in the way that certain activities are carried out—for example, whether housing is rented or owned or whether employees are paid in cash or in kind. PCE transactions are valued in market prices, including sales and excise taxes.

In the NIPAs [national income and product accounts], final consumption expenditures by NPISHs is the portion of PCE that represents the services that are provided to households by NPISHs without explicit charge (such as the value of the education services provided by a nonprofit college or university that is over and above the tuition and other costs paid by or for the student’s household). It is equal to their gross output, which is measured as their current operating expenses (not including purchases of buildings and equipment, which are treated as private fixed investment), less their sales to households and to other sectors of the economy (such as sales of education services to employers) and less the value of any investment goods (such as software) that are produced directly by the NPISH. Services that are provided by NPISHs and are paid by or on behalf of households (such as the tuition and other costs) are already accounted for in PCE as purchases by households.

[33] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

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This paper examines macro and micro sources of information about household income and expenditures. The Bureau of Economic Analysis (BEA) produces macro estimates of personal income and outlays (PI&O) that are part of the U.S. National Income and Product Accounts (NIPAs). … BEA’s estimates of personal income (PI), disposable personal income (DPI), personal outlays (PO), and personal consumption expenditures (PCE) cover the personal sector in the U.S. economy, consisting of resident households and of the nonprofit institutions serving households (NPISHs). … The integrated estimates are developed for the years 2006 through and 2010.

Pages 1–2:

Though the NIPA estimates of household income and expenditures are generally considered to be more accurate than estimates derived from the household surveys and are broader measures, they have no distributional information. A proposed solution, and the approach followed in this paper, is to reconcile the differences in these estimates through the integration of micro data from household surveys with national accounts data.1 This results in measures of income distribution and of other breakdowns of household income and consumption that are consistent with national accounts values and definitions. This is consistent with recommendations made in the “Report by the Commission on the Measurement of Economic Performance and Social Progress,” which stated that “distributional measures should be compatible in scope with average measures from the national accounts” (Stiglitz-Sen-Fitoussi, I.43).

1 BEA and its predecessor agency, the Office of Business Economics, periodically published estimates of the size distribution of national accounts personal income in the U.S. from the 1950s to the 1970s using CPS, Internal Revenue Service, and Federal Reserve Board data, and such estimates were published as part of the National Income and Product Accounts from 1959 to 1964. More recently, the Expert Group on Disparities in National Accounts, sponsored by the Organization for Economic Cooperation and Development (OECD) and Eurostat, has been working to develop internationally comparable estimates of the breakdown of household income and consumption on a national accounts basis, and Fixler and Johnson have done work to account for the distribution of income in the U.S. National Accounts.

[34] Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>

Page 2: “Household income over time is adjusted for inflation using the price index for personal consumption expenditures as calculated by the Bureau of Economic Analysis.”

[35] Webpage: “How the Census Bureau Measures Poverty.” U.S. Census Bureau. Accessed January 30, 2023 at <www.census.gov>

Following the Office of Management and Budget’s (OMB) Statistical Policy Directive 14, the Census Bureau uses a set of money income thresholds that vary by family size and composition to determine who is in poverty. If a family’s total income is less than the family’s threshold, then that family and every individual in it is considered in poverty. The official poverty thresholds do not vary geographically, but they are updated for inflation using the Consumer Price Index (CPI-U). The official poverty definition uses money income before taxes and does not include capital gains or noncash benefits (such as public housing, Medicaid, and food stamps).

[36] Webpage: “R-CPI-U-RS Homepage.” Consumer Price Index, U.S. Department of Labor, Bureau of Labor Statistics. Last modified March 12, 2021. <www.bls.gov>

The Bureau of Labor Statistics (BLS) has made numerous improvements to the Consumer Price Index (CPI) over the past several decades. While these improvements make the present and future CPI more accurate, historical price index series are not adjusted to reflect the improvements. Many researchers, however, expressed an interest in having a historical research series that was measured consistently over the entire period. Accordingly, the Consumer Price Index retroactive series using current methods (R-CPI-U-RS) presents an estimate of the CPI for all Urban Consumers (CPI-U) from 1978 to the present that incorporates, when possible, most of the improvements made over that time span into the entire series.

The primary users of the R-CPI-U-RS data are researchers that use it as a valuable proxy of a historical estimate of inflation using current methods. In addition, the Census Bureau currently makes use of the index to adjust some of its income measures for changes in the cost of living. The direct adjustment of individual CPI index series makes this the most detailed and systematic estimate available of a consistent CPI series. This measure attempts to answer the question, “What would have been the measured rate of inflation from 1978 forward had the methods currently used in calculating the CPI-U been in use since 1978?”

It is important to recognize that the R-CPI-U-RS provides an annual inflation series that adjusts for specific changes in BLS methodology. The R-CPI-U-RS is of use to forecasters and other researchers in analyzing the trends and other movements in consumer inflation over the last few decades. The measure should help answer the question of the degree to which the measured rate of inflation has been affected by some of the improvements BLS has made.

Limitations

The R-CPI-U-RS has some limitations. First, most estimates are based on BLS research covering a short period of time and extrapolated to a longer period. Therefore, there is uncertainty surrounding the magnitude of the adjustments. Second, there have been several improvements in the CPI not incorporated into the R-CPI-U-RS, either because they do not represent changes in methodology, because they had negligible impacts on the CPI’s growth rate, or because it was impossible to systematically estimate the impacts of the new methods in past years. Examples include changes in imputation methods, improvements in methods for pricing hospital services, and some changes in quality adjustment procedures, such as for wireless telephone services. A list of the changes incorporated in the R-CPI-U-RS is available in an online table.

Available data

The R-CPI-U-RS presents an estimate of the CPI for all Urban Consumers (CPI-U) from 1978 to the present that incorporates most of the improvements made over that time span into the entire series. Note that many of the improvements occurred prior to 2000 and the monthly percent change in the R-CPI-U-RS is very similar to the published CPI-U for years after 2001; many of the differences prior to 1999, however, are substantial, reflecting major methodological changes such as the switch to a rental equivalence approach for shelter in 1983 and the adoption of a geometric means formula in 1999. Monthly data are published once a year in March.

[37] Canberra Group Handbook on Household Income Statistics (2nd edition). United Nations Economic Commission for Europe, 2011. <www.unece.org>

Pages 2–3:

A household’s economic well-being can be expressed in terms of its access to goods and services. The more that a household can consume, the higher its level of economic wellbeing. …

Consumption is therefore an indicator of economic well-being. However, a household may be able to choose not to consume the maximum amount it could in any given period but to save at least some of the resources it has available. By saving, households can accumulate wealth through the purchase of assets which will generate income at a later date and serve as a “nest egg” for spending at a later time when income levels may be lower, or needs higher. As well as possibly earning a return for the household, ownership of wealth also affects their broader economic power and is another aspect of economic well-being. For example, households that own their own home outright generally have lower housing costs and may therefore have lower income requirements to satisfy their desired standard of living.

Thus to capture fully the extent of a household’s economic well-being it is desirable to look at a number of different aspects of their economic situation, including not only their income, but also their levels of wealth, changes in the value of that wealth and levels of consumption.

[38] Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>

Page 2: “Income groups are created by ranking households by their size-adjusted income. A household consists of people sharing a housing unit, regardless of their relationships.”

[39] Working paper: “Examining the Middle Class in the United States Using the Lens of the Supplemental Poverty Measure.” By Trudi Renwick and Kathleen Short. U.S. Census Bureau, September 30, 2014. <www.census.gov>

Pages 1–2:

II. Approaches to Defining the Middle Class

While much has been written on the middle class, there is no widely accepted approach to defining the middle class. Some analyses of the middle class equate being in the middle class with having income in the middle of the income distribution. Other analyses include in the middle class anyone who self-identifies as middle class. A third approach is to count as middle class anyone who has achieved certain aspirations—owning their own home, having savings for retirement and/or the ability to send their children to college. As may be expected, these disparate approaches do not identify the same people as being in the middle class.

Of the analyses that equate being in the middle class with having an income in the middle of the income distribution, many use median household income to “define” the middle class. This metric is a useful summary measure that can be tracked over time and across countries. Each year the Census Bureau publishes a number of tables providing estimates of median household income and median family income.

[40] Webpage: “Glossary.” U.S. Census Bureau. Accessed January 5, 2023 at <www.census.gov>

Median

This measure represents the middle value (if n is odd) or the average of the two middle values (if n is even) in an ordered list of data values. The median divides the total frequency distribution into two equal parts: one-half of the cases fall below the median and one-half of the cases exceed the median.

For example, the median income is the amount which divides the income distribution into two equal groups, one having incomes above the median, and the other having incomes below the median. The median for households, families, and unrelated individuals is based on all households, families, and unrelated individuals, respectively. The median for people is based on people with income.

[41] Report: “Was JFK Wrong? Does Rising Productivity No Longer Lead to Substantial Middle Class Gains?” By Stephen J. Rose. Information Technology & Innovation Foundation, December 16, 2014. <www2.itif.org>

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So the phrase “stagnating income” does not apply to the experiences of real people but to “similarly-situated” people. This cumbersome phrase means that accurate comparisons involve comparing slots along the income ladder at different points in time. … There is always a group of families in the middle of the distribution; it is just not the same families. One should think of this comparison as the “group” comparison—i.e., comparing the median (or another wrung on the income ladder) over a specified number of years.

In other words, at any specific time, the economy is composed of people of varying ages and income. The people in the lowest rungs of the income ladder are often young people and older people with lots of assets, fewer expenses, and large government subsidies through Medicare, Social Security, and sometimes Medicaid. If we look 10, 20, or 30 years later, there has been a large changing of places (think of what happens on a crowded escalator with the same number of people at each level even though it is different people). Younger people are no longer on the bottom, but have moved up to a higher place on the income ladder; some old people have died and been replaced by people who were formerly in their prime-earning years; and new independent young people who were part of families now populate the lower rungs of the income ladder.

This means that comparing the income gains of the bottom three quintiles in 1979 and 2007 has little to do with the path of real families. Instead it is a commentary on the overall structure of the economy in that it compares low income people in 1979 to low income people in 2007 even though they aren’t the same people. … For example, the median income of those 20–31 in 1979 and married was $51,800 (2007 dollars), while 28 years later in 2007, the median of those 48 to 59 and married was $87,200.7

[42] Paper: “New Perspectives on Income Mobility and Inequality.” By Gerald Auten, Geoffrey Gee, and Nicholas Turner. National Tax Journal, December 2013. Pages 893–912. <www.law.upenn.edu>

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This study examines several dimensions of income mobility and inequality—mobility of individuals through their peak earnings years, intergenerational mobility, and persistence in the top 1 percent. Its main findings can be summarized as follows. Half of those age 35–40 in the bottom quintile of their cohort moved to higher quintiles 20 years later; over 60 percent moved up relative to the full population. About 70 percent of dependents from low-income households were themselves in higher quintiles 20 years later. Younger generations gradually replaced those that dominated the top percentile in 1987. The results show the importance of life cycle effects and the changing composition of top income groups.

[43] Webpage: “Glossary of Statistical Terms: Purchasing Power Parities (PPPs).” Organization for Economic Co-operation and Development, September 25, 2001. Last updated 6/11/13. <bit.ly>

Definition:

Purchasing power parities (PPPs) are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries.

Context:

PPPs are calculated in three stages:

– first for individual products,

– then for groups of products or basic headings and,

– finally, for groups of basic headings or aggregates.

The PPPs for basic headings are unweighted averages of the PPPs for individual products. The PPPs for aggregates are weighted averages of the PPPs for basic headings.

The weights used are the expenditures on the basic headings. PPPs at all stages are price relatives. They show how many units of currency A need to be spent in country A to obtain the same volume of a product or a basic heading or an aggregate that X units of currency B purchases in country B.

In the case of a single product, the “same volume” means “identical volume.” But in the case of the complex assortment of goods and services that make up an aggregate such as GDP [Gross Domestic Product], the “same volume” does not mean an “identical basket of goods and services.”

The composition of the basket will vary between countries according to their economic, social and cultural differences, but each basket will provide equivalent satisfaction or utility.

Also referred to as “parity” or “parities.”

[44] Report: “International Comparisons of GDP Per Capita and Per Hour, 1960–2011.” U.S. Department of Labor, Bureau of Labor Statistics, November 7, 2012. <www.bls.gov>

Page 1: “GDP per capita, when converted to U.S. dollars using purchasing power parities, is the most widely used income measure for international comparisons of living standards.”

Page 2:

Gross Domestic Product (GDP) is defined as the value of all market and some nonmarket goods and services produced within a country’s geographic borders. As such, it is the most comprehensive measure of a country’s economic output that is estimated by statistical agencies. GDP per capita may therefore be viewed as a rough indicator of a nation’s economic well being, while GDP per hour worked can provide a general picture of a country’s productivity.

[45] Report: “Eurostat–OECD Methodological Manual on Purchasing Power Parities.” Eurostat and the Organization for Economic Cooperation and Development, 2012. <www.oecd-ilibrary.org>

Pages 13–14:

In their simplest form, PPPs are nothing more than price relatives that show the ratio of the prices in national currencies of the same good or service in different countries. For example, if the price of a litre of Coca Cola is 2.30 euros in France and 2.00 dollars in the United States, then the

Page 14: PPP for Coca Cola between France and the United States is the ratio 2.30 euros to 2.00 dollars or 1.15 euros to the dollar. This means that for every dollar spent on Coca Cola in the United States, 1.15 euros would have to be spent in France to obtain the same quantity and quality—or, in other words, the same volume—of Coca Cola.

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For example, if the PPP for GDP between the European Union and the United States is 1.28 dollars per euro and between the European Union and Japan it is 150 yen per euro, it can be inferred that a given volume of GDP that costs 1.00 euro in the European Union will cost 1.28 dollars in the United States and 150 yen in Japan. By converting these costs to a common currency with exchange rates (1 euro = 1.47 dollars = 151 yen), they can be compared. After conversion, the costs are 1.00 euro in the European Union, 0.87 euro in the United States and 0.99 euro in Japan from which it can be seen that the given volume of GDP costs more in the European Union and Japan than in United States and that it costs almost the same in the European Union and Japan. From this it can be concluded that the general price level of the European Union is higher than that of the United States but only marginally higher than that of Japan.

Page 16:

The purpose of the PPPs produced by Eurostat and the OECD is to make international price and volume comparisons of GDP and GDP expenditures. They are designed specifically to compare the size or the price levels of these expenditures between countries and should always be used to effect such comparisons. They are not designed, however, to make international comparisons of monetary flows, such as aid and foreign direct investment, or trade flows. For such comparisons, exchange rates should be used. Note that many international comparisons require neither PPPs nor exchange rates. For example, to compare real growth rates of GDP between countries, each country’s own published growth rate can be used. Similarly, for a comparison of government debt as a ratio of GDP, the ratios are calculated in each country’s own currency.

[46] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[47] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[48] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[49] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[50] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[51] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[52] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[53] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[54] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[55] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[56] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[57] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[58] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[59] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[60] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[61] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[62] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[63] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[64] Economists typically use a “comprehensive measure of income” to calculate effective tax rates because this provides a complete “measure of ability to pay” taxes.† In keeping with this, Just Facts determines effective tax rates by dividing all measurable taxes by all income. The Congressional Budget Office (CBO) previously did the same,‡ but in 2018, CBO announced that it would exclude means-tested transfers from its measures of income and effective tax rates.§ #

Given this change, Just Facts now uses CBO data to determine comprehensive income and effective tax rates by adding back the means-tested transfers that CBO publishes but takes out of these measures. To do this, Just Facts makes a simplifying assumption that households in various income quintiles do not significantly change when these transfers are added. This is mostly true, but as CBO notes:

Almost one-fifth of the households in the lowest quintile of income before transfers and taxes would have been in higher quintiles if means-tested transfers were included in the ranking measure (see Table 5). Because net movement into a higher income quintile entails a corresponding net movement out of those quintiles, more than one-fifth of the households in the second quintile of income before transfers and taxes would have been bumped down into the bottom before-tax income quintile. Because before-tax income excludes income in the form of means-tested transfers, almost one-fifth of the people in the lowest quintile of income before transfers and taxes were in higher before-tax income quintiles. There is no fundamental economic change represented by those changes in income groups—just a change in the income definition used to rank households. Because means-tested transfers predominantly go to households in the lower income quintiles, there is not much shuffling across income quintile thresholds toward the top of the distribution.§

NOTES:

  • † Report: “Fairness and Tax Policy.” U.S. Congress, Joint Committee on Taxation. February 27, 2015. <www.jct.gov>. Page 2: “The notion of ability to pay (i.e., the taxpayer’s capacity to bear taxes) is commonly applied to determine fairness, though there is no general agreement regarding the appropriate standard by which to assess a taxpayer’s ability to pay. … Many analysts have advocated a comprehensive measure of income as a measure of ability to pay.”
  • ‡ Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>. Page 39: “Before-tax income is market income plus government transfers. Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs.”
  • § Report: “The Distribution of Household Income, 2014.” Congressional Budget Office, March 19, 2018. <www.cbo.gov>. Page 4: “The new measure of income used in this report—income before transfers and taxes—is equal to market income plus social insurance benefits.1 That new measure is similar to the previous measure, except that means-tested transfers are no longer included….”
  • # Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>. Page 19: “The estimates in this report were produced using the agency’s framework for analyzing the distributional effects of both means-tested transfers and federal taxes.2 That framework uses income before transfers and taxes, which consists of market income plus social insurance benefits.”
  • § Working paper: “CBO’s New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Household Income.” By Kevin Perese. Congressional Budget Office, December 2017. <www.cbo.gov>. Page 18.

[65] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[66] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[67] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[68] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[69] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[70] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[71] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[72] Economists typically use a “comprehensive measure of income” to calculate effective tax rates, because this provides a complete “measure of ability to pay” taxes.† In keeping with this, Just Facts determines effective tax rates by dividing all measurable taxes by all income. The Congressional Budget Office (CBO) previously did the same,‡ but in 2018, CBO announced that it would exclude means-tested transfers from its measures of income and effective tax rates.§ #

Given this change, Just Facts now uses CBO data to determine comprehensive income and effective tax rates by adding back the means-tested transfers that CBO publishes but takes out of these measures. To do this, Just Facts makes a simplifying assumption that households in various income quintiles do not significantly change when these transfers are added. This is mostly true, but as CBO notes:

Almost one-fifth of the households in the lowest quintile of income before transfers and taxes would have been in higher quintiles if means-tested transfers were included in the ranking measure (see Table 5). Because net movement into a higher income quintile entails a corresponding net movement out of those quintiles, more than one-fifth of the households in the second quintile of income before transfers and taxes would have been bumped down into the bottom before-tax income quintile. Because before-tax income excludes income in the form of means-tested transfers, almost one-fifth of the people in the lowest quintile of income before transfers and taxes were in higher before-tax income quintiles. There is no fundamental economic change represented by those changes in income groups—just a change in the income definition used to rank households. Because means-tested transfers predominantly go to households in the lower income quintiles, there is not much shuffling across income quintile thresholds toward the top of the distribution.§

NOTES:

  • † Report: “Fairness and Tax Policy.” U.S. Congress, Joint Committee on Taxation. February 27, 2015. <www.jct.gov>. Page 2: “The notion of ability to pay (i.e., the taxpayer’s capacity to bear taxes) is commonly applied to determine fairness, though there is no general agreement regarding the appropriate standard by which to assess a taxpayer’s ability to pay. … Many analysts have advocated a comprehensive measure of income as a measure of ability to pay.”
  • ‡ Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>. Page 31: “Before-tax income is market income plus government transfers. … Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs.”
  • § Report: “The Distribution of Household Income, 2014.” Congressional Budget Office, March 19, 2018. <www.cbo.gov>. Page 4: “The new measure of income used in this report—income before transfers and taxes—is equal to market income plus social insurance benefits. That new measure is similar to the previous measure, except that means-tested transfers are no longer included….”
  • # Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>. Page 33: “The estimates in this report were produced using the agency’s framework for analyzing the distributional effects of both means-tested transfers and federal taxes.2 That framework uses income before transfers and taxes, which consists of market income plus social insurance benefits.”
  • § Working paper: “CBO’s New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Household Income.” By Kevin Perese. Congressional Budget Office, December 2017. <www.cbo.gov>. Page 18.

[73] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[74] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[75] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[76] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[77] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[78] Economists typically use a “comprehensive measure of income” to calculate effective tax rates because this provides a complete “measure of ability to pay” taxes.† In keeping with this, Just Facts determines effective tax rates by dividing all measurable taxes by all income. The Congressional Budget Office (CBO) previously did the same,‡ but in 2018, CBO announced that it would exclude means-tested transfers from its measures of income and effective tax rates.§ #

Given this change, Just Facts now uses CBO data to determine comprehensive income and effective tax rates by adding back the means-tested transfers that CBO publishes but takes out of these measures. To do this, Just Facts makes a simplifying assumption that households in various income quintiles do not significantly change when these transfers are added. This is mostly true, but as CBO notes:

Almost one-fifth of the households in the lowest quintile of income before transfers and taxes would have been in higher quintiles if means-tested transfers were included in the ranking measure (see Table 5). Because net movement into a higher income quintile entails a corresponding net movement out of those quintiles, more than one-fifth of the households in the second quintile of income before transfers and taxes would have been bumped down into the bottom before-tax income quintile. Because before-tax income excludes income in the form of means-tested transfers, almost one-fifth of the people in the lowest quintile of income before transfers and taxes were in higher before-tax income quintiles. There is no fundamental economic change represented by those changes in income groups—just a change in the income definition used to rank households. Because means-tested transfers predominantly go to households in the lower income quintiles, there is not much shuffling across income quintile thresholds toward the top of the distribution.§

NOTES:

  • † Report: “Fairness and Tax Policy.” U.S. Congress, Joint Committee on Taxation. February 27, 2015. <www.jct.gov>. Page 2: “The notion of ability to pay (i.e., the taxpayer’s capacity to bear taxes) is commonly applied to determine fairness, though there is no general agreement regarding the appropriate standard by which to assess a taxpayer’s ability to pay. … Many analysts have advocated a comprehensive measure of income as a measure of ability to pay.”
  • ‡ Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>. Page 39: “Before-tax income is market income plus government transfers. Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs.”
  • § Report: “The Distribution of Household Income, 2014.” Congressional Budget Office, March 19, 2018. <www.cbo.gov>. Page 4: “The new measure of income used in this report—income before transfers and taxes—is equal to market income plus social insurance benefits.1 That new measure is similar to the previous measure, except that means-tested transfers are no longer included….”
  • # Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>. Page 19: “The estimates in this report were produced using the agency’s framework for analyzing the distributional effects of both means-tested transfers and federal taxes.2 That framework uses income before transfers and taxes, which consists of market income plus social insurance benefits.”
  • § Working paper: “CBO’s New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Household Income.” By Kevin Perese. Congressional Budget Office, December 2017. <www.cbo.gov>. Page 18.

[79] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[80] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits. …

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

[81] Article: “Volunteer Opportunities: Donations Needed for Upcoming Holidays.” Houston Chronicle, November 17, 2005. <www.chron.com>

In preparation for Thanksgiving and Christmas, volunteers and donations of goods are needed to support Bay Area families in need.

Help prepare or serve meals at Thanksgiving and throughout the holiday season at Ronald McDonald House in Galveston, the Salvation Army in Pasadena and Galveston, New Horizon Family Center in Baytown, Twin Oaks Community Center in Pasadena, Bay Area Turning Point in Webster, and Communities in Schools or Habitat for Humanity locations in the Bay Area.

Groups will accept donations of food

Many organizations are seeking donations of nonperishable food.

Bay Area Turning Point accepts food and grocery gift certificates to help victims of domestic violence. Bay Area Meals on Wheels is seeking individual-sized drinks, snacks, crackers and candy bars to deliver with meals to shut-ins.

Boys and Girls Harbor, a children’s shelter in La Porte, needs nonperishable food for breakfast, lunch and dinner for children.

Communities in Schools is a charity that partners with local schools and needs food or grocery gift certificates to provide to needy children and their families. Hope Village in Friendswood needs food to provide more than 300 meals each day.

Neighborhood Centers in Pasadena and Clear Lake welcome food and paper goods for seniors. The Christus-Our Daily Bread soup kitchen in Galveston welcomes grocery cards to offer to needy individuals.

Food pantries in need of more donations

Food pantries such as Interfaith Caring Ministries in League City, Christian Helping Hands in Pearland, M.I. Lewis Social Services in Dickinson, Southeast Area Ministries in South Houston and the Salvation Army in Galveston are in great need of nonperishable meat, vegetables, fruit, rice and cereal.

[82] Article: “Free and Charitable Clinics Increase Amid Possible Cuts to Healthcare for the Poor.” By Tony Pugh. Miami Herald, June 14, 2017. <www.miamiherald.com>

Unlike Community Health Centers that are federally funded, free and charitable clinics rely mainly on volunteer medical providers and private philanthropic funding. Typical supporters include local churches, businesses, hospitals, universities, foundations and other community organizations.

The clinics mainly serve the uninsured, underinsured and those with trouble accessing primary and specialty care, including undocumented immigrants.

[83] Article: “How Well Do Human Services Organizations Do at Fundraising, Compared to Other Charities?” By Nathan Dietz and Kimberly Hawkins. Giving USA, August 11, 2016. <givingusa.org>

“Human Services organizations (HSOs)—food banks, homeless shelters, youth services, sports organizations, family and legal services—are the organizations that many people think of when they think about the nonprofit sector.”

[84] Pamphlet: “Where Did the Generosity Come From? Contributions by Source.” Giving USA, June 10, 2022. <givingusa.org>

“In 2021, Americans gave $484.85 billion to charity, a 4.0% increase over 2020. … [up] 2.2% … $65.33 billion to Human Services … percentage of the total contributions [=] 13%”

[85] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[86] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[87] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[88] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[89] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[90] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[91] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[92] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[93] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[94] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[95] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[96] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[97] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[98] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[99] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[100] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[101] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[102] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[103] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[104] Economists typically use a “comprehensive measure of income” to calculate effective tax rates, because this provides a complete “measure of ability to pay” taxes.† In keeping with this, Just Facts determines effective tax rates by dividing all measurable taxes by all income. The Congressional Budget Office (CBO) previously did the same,‡ but in 2018, CBO announced that it would exclude means-tested transfers from its measures of income and effective tax rates.§ #

Given this change, Just Facts now uses CBO data to determine comprehensive income and effective tax rates by adding back the means-tested transfers that CBO publishes but takes out of these measures. To do this, Just Facts makes a simplifying assumption that households in various income quintiles do not significantly change when these transfers are added. This is mostly true, but as CBO notes:

Almost one-fifth of the households in the lowest quintile of income before transfers and taxes would have been in higher quintiles if means-tested transfers were included in the ranking measure (see Table 5). Because net movement into a higher income quintile entails a corresponding net movement out of those quintiles, more than one-fifth of the households in the second quintile of income before transfers and taxes would have been bumped down into the bottom before-tax income quintile. Because before-tax income excludes income in the form of means-tested transfers, almost one-fifth of the people in the lowest quintile of income before transfers and taxes were in higher before-tax income quintiles. There is no fundamental economic change represented by those changes in income groups—just a change in the income definition used to rank households. Because means-tested transfers predominantly go to households in the lower income quintiles, there is not much shuffling across income quintile thresholds toward the top of the distribution.§

NOTES:

  • † Report: “Fairness and Tax Policy.” U.S. Congress, Joint Committee on Taxation. February 27, 2015. <www.jct.gov>. Page 2: “The notion of ability to pay (i.e., the taxpayer’s capacity to bear taxes) is commonly applied to determine fairness, though there is no general agreement regarding the appropriate standard by which to assess a taxpayer’s ability to pay. … Many analysts have advocated a comprehensive measure of income as a measure of ability to pay.”
  • ‡ Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>. Page 31: “Before-tax income is market income plus government transfers. … Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs.”
  • § Report: “The Distribution of Household Income, 2014.” Congressional Budget Office, March 19, 2018. <www.cbo.gov>. Page 4: “The new measure of income used in this report—income before transfers and taxes—is equal to market income plus social insurance benefits. That new measure is similar to the previous measure, except that means-tested transfers are no longer included….”
  • # Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>. Page 33: “The estimates in this report were produced using the agency’s framework for analyzing the distributional effects of both means-tested transfers and federal taxes.2 That framework uses income before transfers and taxes, which consists of market income plus social insurance benefits.”
  • § Working paper: “CBO’s New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Household Income.” By Kevin Perese. Congressional Budget Office, December 2017. <www.cbo.gov>. Page 18.

[105] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[106] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[107] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[108] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[109] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[110] Economists typically use a “comprehensive measure of income” to calculate effective tax rates because this provides a complete “measure of ability to pay” taxes.† In keeping with this, Just Facts determines effective tax rates by dividing all measurable taxes by all income. The Congressional Budget Office (CBO) previously did the same,‡ but in 2018, CBO announced that it would exclude means-tested transfers from its measures of income and effective tax rates.§ #

Given this change, Just Facts now uses CBO data to determine comprehensive income and effective tax rates by adding back the means-tested transfers that CBO publishes but takes out of these measures. To do this, Just Facts makes a simplifying assumption that households in various income quintiles do not significantly change when these transfers are added. This is mostly true, but as CBO notes:

Almost one-fifth of the households in the lowest quintile of income before transfers and taxes would have been in higher quintiles if means-tested transfers were included in the ranking measure (see Table 5). Because net movement into a higher income quintile entails a corresponding net movement out of those quintiles, more than one-fifth of the households in the second quintile of income before transfers and taxes would have been bumped down into the bottom before-tax income quintile. Because before-tax income excludes income in the form of means-tested transfers, almost one-fifth of the people in the lowest quintile of income before transfers and taxes were in higher before-tax income quintiles. There is no fundamental economic change represented by those changes in income groups—just a change in the income definition used to rank households. Because means-tested transfers predominantly go to households in the lower income quintiles, there is not much shuffling across income quintile thresholds toward the top of the distribution.§

NOTES:

  • † Report: “Fairness and Tax Policy.” U.S. Congress, Joint Committee on Taxation. February 27, 2015. <www.jct.gov>. Page 2: “The notion of ability to pay (i.e., the taxpayer’s capacity to bear taxes) is commonly applied to determine fairness, though there is no general agreement regarding the appropriate standard by which to assess a taxpayer’s ability to pay. … Many analysts have advocated a comprehensive measure of income as a measure of ability to pay.”
  • ‡ Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>. Page 39: “Before-tax income is market income plus government transfers. Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs.”
  • § Report: “The Distribution of Household Income, 2014.” Congressional Budget Office, March 19, 2018. <www.cbo.gov>. Page 4: “The new measure of income used in this report—income before transfers and taxes—is equal to market income plus social insurance benefits.1 That new measure is similar to the previous measure, except that means-tested transfers are no longer included….”
  • # Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>. Page 19: “The estimates in this report were produced using the agency’s framework for analyzing the distributional effects of both means-tested transfers and federal taxes.2 That framework uses income before transfers and taxes, which consists of market income plus social insurance benefits.”
  • § Working paper: “CBO’s New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Household Income.” By Kevin Perese. Congressional Budget Office, December 2017. <www.cbo.gov>. Page 18.

[111] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[112] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[113] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[114] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 3. Average Household Income, by Income Source and Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next footnote provides relevant context about this data.

[115] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[116] Economists typically use a “comprehensive measure of income” to calculate effective tax rates because this provides a complete “measure of ability to pay” taxes.† In keeping with this, Just Facts determines effective tax rates by dividing all measurable taxes by all income. The Congressional Budget Office (CBO) previously did the same,‡ but in 2018, CBO announced that it would exclude means-tested transfers from its measures of income and effective tax rates.§ #

Given this change, Just Facts now uses CBO data to determine comprehensive income and effective tax rates by adding back the means-tested transfers that CBO publishes but takes out of these measures. To do this, Just Facts makes a simplifying assumption that households in various income quintiles do not significantly change when these transfers are added. This is mostly true, but as CBO notes:

Almost one-fifth of the households in the lowest quintile of income before transfers and taxes would have been in higher quintiles if means-tested transfers were included in the ranking measure (see Table 5). Because net movement into a higher income quintile entails a corresponding net movement out of those quintiles, more than one-fifth of the households in the second quintile of income before transfers and taxes would have been bumped down into the bottom before-tax income quintile. Because before-tax income excludes income in the form of means-tested transfers, almost one-fifth of the people in the lowest quintile of income before transfers and taxes were in higher before-tax income quintiles. There is no fundamental economic change represented by those changes in income groups—just a change in the income definition used to rank households. Because means-tested transfers predominantly go to households in the lower income quintiles, there is not much shuffling across income quintile thresholds toward the top of the distribution.§

NOTES:

  • † Report: “Fairness and Tax Policy.” U.S. Congress, Joint Committee on Taxation. February 27, 2015. <www.jct.gov>. Page 2: “The notion of ability to pay (i.e., the taxpayer’s capacity to bear taxes) is commonly applied to determine fairness, though there is no general agreement regarding the appropriate standard by which to assess a taxpayer’s ability to pay. … Many analysts have advocated a comprehensive measure of income as a measure of ability to pay.”
  • ‡ Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>. Page 39: “Before-tax income is market income plus government transfers. Government transfers are cash payments and in-kind benefits from social insurance and other government assistance programs.”
  • § Report: “The Distribution of Household Income, 2014.” Congressional Budget Office, March 19, 2018. <www.cbo.gov>. Page 4: “The new measure of income used in this report—income before transfers and taxes—is equal to market income plus social insurance benefits.1 That new measure is similar to the previous measure, except that means-tested transfers are no longer included….”
  • # Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>. Page 19: “The estimates in this report were produced using the agency’s framework for analyzing the distributional effects of both means-tested transfers and federal taxes.2 That framework uses income before transfers and taxes, which consists of market income plus social insurance benefits.”
  • § Working paper: “CBO’s New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Household Income.” By Kevin Perese. Congressional Budget Office, December 2017. <www.cbo.gov>. Page 18.

[117] Article: “Unemployment.” By Lawrence H. Summers.† The Concise Encyclopedia of Economics (2nd edition). Edited by David Henderson. Liberty Fund, 2008. <www.econlib.org>

The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.

NOTE: † “Former Treasury Secretary Lawrence H. Summers is one of America’s leading economists. In addition to serving as 71st Secretary of the Treasury in the Clinton Administration, Dr. Summers served as Director of the White House National Economic Council in the Obama Administration, as President of Harvard University, and as the Chief Economist of the World Bank.” [Webpage: “Biography.” Larry Summers. Accessed December 11, 2017 at <larrysummers.com>]

[118] Paper: “Unemployment Durations and Extended Unemployment Benefits in Local Labor Markets.” By Stepan Jurajda and Frederick J. Tannery. Industrial and Labor Relations Review, January 2003. Pages 324–348. <home.cerge-ei.cz>

Page 324:

Many empirical studies have confirmed the theoretical prediction that longer-term Unemployment Insurance (UI) entitlement leads to longer unemployment duration. Most of those studies have examined special programs that provide extra weeks of unemployment benefits when unemployment rates in the region are higher. Hence, they must distinguish if the longer unemployment duration among UI claimants observed in these cases is due to the extended benefits or to the adverse labor market conditions that trigger those extensions. In contrast, this paper measures the effect of identical entitlement extensions across two labor markets facing very different demand conditions—Pittsburgh and Philadelphia, over the years 1980–85. The results confirm findings of the existing literature and indicate that the adverse effect of longer entitlement changes relatively little in response to variation in demand conditions.

Page 343: “Over 28% of claimants even in the depressed Pittsburgh labor market were able to find work as soon as benefits ended, and two-thirds of this group found new jobs.”

Page 345: “First, the high incidence of exhausted benefits in both extended benefits programs, combined with the dramatic spike at the moment of exhaustion even in deeply depressed labor markets, suggests that greater focus needs to be put on incentives for rapid reemployment.”

[119] Report: “The Budget and Economic Outlook: 2014 to 2024.” Congressional Budget Office, February 2014. <cbo.gov>

Page 119:

The Magnitude of the Incentive to Reduce Labor Supply

For some people, the availability of exchange subsidies under the ACA [Affordable Care Act, i.e. Obamacare] will reduce incentives to work both through a substitution effect and through an income effect. The former arises because subsidies decline with rising income (and increase as income falls), thus making work less attractive. As a result, some people will choose not to work or will work less—thus substituting other activities for work. The income effect arises because subsidies increase available resources—similar to giving people greater income—thereby allowing some people to maintain the same standard of living while working less. The magnitude of the incentive to reduce labor supply thus depends on the size of the subsidies and the rate at which they are phased out.

[120] Article: “How Did Unemployment Insurance Extensions Affect the Unemployment Rate in 2008–10?” By Bhashkar Mazumder. Federal Reserve Bank of Chicago Chicago Fed Letter, April 2011. <www.chicagofed.org>

Page 1:

During recessions, it is common for the federal government to extend the standard unemployment insurance (UI) program. Many economic studies have shown that workers who receive UI extensions tend to take longer to find new employment, leading to a somewhat longer average duration of unemployment among all workers.

The passage and creation of the Emergency Unemployment Compensation (EUC) federal program in July 2008 and subsequent extensions substantially increased the maximum number of weeks of eligibility for unemployment insurance (UI). As of February 2011, unemployed workers in 26 states and Washington, DC were eligible for a maximum of 99 weeks of UI benefits. The national average was about 95 weeks.1 By contrast, during the deep recession in 1983, the maximum potential duration of UI coverage in any state was 55 weeks.

[121] Article: “What Is Behind the Rise in Long-Term Unemployment?” By Daniel Aaronson, Bhashkar Mazumder, and Shani Schechter. Federal Reserve Bank of Chicago Economic Perspectives, Second Quarter 2010. Pages 28–51. <www.chicagofed.org>

Page 28:

As we entered 2010, the average length of an ongoing spell of unemployment in the United States was more than 30 weeks—the longest recorded in the post-World War II era. Remarkably, more than 4 percent of the labor force (that is, over 40 percent of those unemployed) were out of work for more than 26 weeks—we consider these workers to be long-term unemployed. In contrast, the last time unemployment reached 10 percent in the United States, in the early 1980s, the share of the labor force that was long-term unemployed peaked at 2.6 percent. Although there has been a secular rise in long-term unemployment over the last few decades, the sharp increases that occurred during 2009 appear to be outside of historical norms. Further, this trend may present important implications for the aggregate economy and for macroeconomic policy going forward.

Page 46:

Perhaps 10–25 percent of the increase in long-term unemployment from mid-2008 to the end of 2009 is associated with extensions of unemployment insurance benefits. These estimates for the current business cycle constitute a notable departure from historical patterns in transitions between being unemployed and out of the labor force. Some simple counterfactual estimates suggest that had these transitions followed more typical patterns, the unemployment rate might be about 0.7 percentage points lower. Finally, we find that high levels of long-term unemployment typically persist well into an economic recovery, since firms tend to hire the long-term unemployed last. Some simple simulations suggest that a historically long unemployment duration distribution as currently experienced in the United States could slow the process of labor market recovery, but it is not expected to have much of an impact on compensation growth.

[122] Report: “The 2012 Long-Term Budget Outlook.” By Joyce Manchester and others. Congressional Budget Office, June 2012. <cbo.gov>

Pages 36–37:

Similarly, a lower marginal tax rate on labor income increases the incentive to work, raising the number of hours people work and therefore the amount of output and income. However, because that lower marginal tax rate increases people’s after-tax income from the work they are already doing, they do not need to work as much to maintain their standard of living, which reduces the supply of labor. Again, CBO [Congressional Budget Office] concludes, as do most analysts, that the former effect outweighs the latter and that lower marginal tax rates on labor income increase the labor supply. A higher marginal tax rate on labor income has the opposite effect.

To reflect the high degree of uncertainty that attends the effect of the marginal tax rate on labor supply, CBO produced estimates of the economic effects of the two budget scenarios using three assumptions about how people would adjust the number of hours they worked in response to changes in marginal tax rates (and changes in pretax wages as well):

• A “strong labor supply response,” under which workers’ response is on the high side of the consensus range of empirical estimates;

• A “weak labor supply response,” under which workers’ response is on the low side of the consensus range; and

• A “medium labor supply response,” under which workers’ response is roughly midway between strong and weak.

The responsiveness of labor supply to taxes is often expressed as the total wage elasticity (the change in total labor income caused by a 1 percent change in after-tax wages). The total wage elasticity, in turn, has two components: a substitution elasticity (which measures the effect of changes in marginal tax rates) and an income elasticity (which measures the effect of changes in average tax rates). In this analysis, CBO’s assumptions for labor supply response correspond to total wage elasticities of about 0.35 for the strong response (composed of a substitution elasticity of 0.35 and an income elasticity of zero); about –0.05 for the weak response (composed of a substitution elasticity of 0.15 and an income elasticity of –0.20); and about 0.15 for the medium response (composed of a substitution elasticity of 0.25 and an income elasticity of –0.1). (Reflecting CBO’s review of research in this area, the strong labor supply response is substantially stronger, and the weak labor supply response slightly weaker, than those used for CBO’s 2011 long-term budget outlook.)

[123] Report: “Federal Tax Treatment of Individuals.” U.S. Congress, Joint Committee on Taxation, September 12, 2011. <www.jct.gov>

Pages 25–26:

Some analysts have suggested that high marginal tax rates may alter taxpayers’ decisions to work and alter economic output. For example, assume a taxpayer in the 35 percent tax bracket is considering working on an overtime assignment which pays $1,000, and which the taxpayer would certainly choose to undertake if he or she received the full $1,000. However, the taxpayer’s net of tax remuneration for the project is $650. The taxpayer may feel the net remuneration of $650 is insufficient to offset the loss of leisure time and the effort that would be expended to complete the project. If the taxpayer chooses not to work, society loses the benefit of his or her labor.

There is disagreement among economists on the extent to which labor supply decisions are affected by the marginal tax rate on labor income. Empirical evidence indicates that taxpayer response is likely to vary depending upon a number of taxpayer-specific factors. In general, findings indicate that the labor supply of so called “primary earners” tends to be less responsive to changes in marginal tax rates than is the labor supply of “secondary earners.”26 Some have suggested that the labor supply decision of the lower earner or “secondary earner” in married households may be quite sensitive to the household’s effective marginal tax rate.27 Other evidence suggests the decision to work additional hours may be less sensitive to changes in the marginal tax rate than the decision to enter the labor force.28 That is, there may be more effect on an individual currently not in the labor force than on an individual already in the labor force.

26 The phrase “primary earner” refers to the individual in the household who is responsible for providing the largest portion of household income. “Secondary earners” are earners other than the primary earner.

27 For a review of econometric studies on labor supply of so-called primary and secondary earners, see United States Congress, Congressional Budget Office Memorandum, “Labor Supply and Taxes,” 2006, and Charles L. Ballard, John B. Shoven, and John Whalley, “General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States,” American Economic Review, 75, March 1985. See also John Pencavel, “A Cohort Analysis of the Association between Work Hours and Wages Among Men,” Journal of Human Resources 37(2), 2002, pp. 251–274; and Francine D. Blau and Lawrence M. Kahn “Changes in the Labor Supply Behavior of Married Women: 1980–2000,” Journal of Labor Economics, July 2007.

[124] Article: “Employer Costs for Employee Compensation: Tracking Changes in Benefit Costs.” By William J. Wiatrowski. U.S. Department of Labor, Bureau of Labor Statistics Compensation and Working Conditions, Spring 1999. <www.bls.gov>

Page 32:

In the final four decades of the 20th century, employee compensation, as measured by employer costs, has undergone dramatic shifts. In 1959, cash payments (including straight-time pay, premium pay, bonuses, and paid leave) comprised 91 percent of all compensation costs for production workers in manufacturing industries; this fell to 78 percent by 1998. The remaining employer compensation costs were for benefits—those non-wage items that generally provide time off, insurance protection, and retirement security. In 1959, the largest proportion of benefit expenditures was for paid time off; by 1998, the largest benefit expenditure was for legally required items, such as Social Security and Medicare.

NOTE: For more facts about how government programs sometimes divert employee compensation away from wages, see the section of this research on employee compensation.

[125] Report: “The Budget and Economic Outlook: 2014 to 2024.” Congressional Budget Office, February 2014. <cbo.gov>

Page 122:

Effects of the Employer Penalty on Labor Supply

Under the ACA [Affordable Care Act, i.e. Obamacare], employers with 50 or more full-time-equivalent employees will face a penalty if they do not offer insurance (or if the insurance they offer does not meet certain criteria) and if at least one of their full-time workers receives a subsidy through an exchange. Originally scheduled to take effect in 2014, that penalty is now scheduled to be enforced beginning in 2015. In CBO’s [the Congressional Budget Office’s] judgment, the costs of the penalty eventually will be borne primarily by workers in the form of reductions in wages or other compensation—just as the costs of a payroll tax levied on employers will generally be passed along to employees.12 Because the supply of labor is responsive to changes in compensation, the employer penalty will ultimately induce some workers to supply less labor. …

12. By contrast, if employers add health insurance coverage as a benefit in response to the penalty or drop coverage despite it, CBO estimates that their workers’ wages will adjust by roughly the employers’ cost of providing that coverage—so total compensation would stay about the same and labor supply would not be affected by the change in employer coverage.

[126] Report: “Estimated Macroeconomic Impacts of the American Recovery and Reinvestment Act of 2009.” Congressional Budget Office, March 2, 2009. <www.cbo.gov>

Page 2:

In contrast to its positive near-term macroeconomic effects, the legislation will reduce output slightly in the long run, CBO [Congressional Budget Office] estimates. The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will “crowd out” private investment.

[127] Report: “The Budget and Economic Outlook: Fiscal Years 2013 to 2023.” U.S. Congressional Budget Office, February 2013. <www.cbo.gov>

Page 7: “Because federal borrowing generally reduces national saving, the stock of capital assets, such as equipment and structures, will be smaller and aggregate wages will be less than if the debt were lower.”

[128] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 5. Components of Income Before Transfers and Taxes, by Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[129] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[130] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 5. Components of Income Before Transfers and Taxes, by Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[131] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[132] Report: “The Distribution of Household Income and Federal Taxes, 2013.” Congressional Budget Office, June 2016. <www.cbo.gov>

Page 9: “Social Security and Medicare are the two largest government transfer programs. Benefits from those programs are provided mostly to elderly households, many of which have low market income.”

[133] Report: “Major Decisions in the House and Senate on Social Security.” By Geoffrey Kollmann and Carmen Solomon-Fears. Domestic Social Policy Division, Social Security Administration, March 26, 2001. <www.ssa.gov>

[House Resolution] 7225, the Social Security Amendments of 1956, was signed by President Eisenhower on August 1, 1956. The amendments provided benefits, after a 6-month waiting period, for permanently and totally disabled workers aged 50 to 64 who were fully insured and had at least 5 years of coverage in the 10-year period before becoming disabled; to a dependent child 18 and older of a deceased or retired insured worker if the child became disabled before age 18; to women workers and wives at the age of 62, instead of 65, with actuarially reduced benefits; reduced from 65 to 62 the age at which benefits were payable to widows or parents, with no reduction; extended coverage to lawyers, dentists, veterinarians, optometrists, and all other self-employed professionals except doctors increased the tax rate by 0.25% on employer and employee each (0.375% for self-employed people) to finance disability benefits (thereby raising the aggregate tax rate ultimately to 4.25%); and created a separate disability insurance (DI) trust fund. The Social Security program now consisted of old-age, survivors, and disability insurance….

NOTE: For more facts about Social Security, visit Just Facts’ comprehensive research on this issue.

[134] Report: “Medicare Primer.” By Patricia A. Davis. Congressional Research Service, May 21, 2020. <crsreports.congress.gov>

Page 1: “Medicare is a federal program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under the age of 65.”

NOTE: For more facts about Medicare, visit Just Facts’ comprehensive research on this issue.

[135] Calculated with data from:

a) “2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.” United States Social Security Administration, June 7, 2022. <www.ssa.gov>

Pages 63–64: “Table IV.B3.—Covered Workers and Beneficiaries, Calendar Years 1945–2100 … Historical data: … 2021 Beneficiariesb (in thousands) … OASDIc [=] 65,032 b Beneficiaries with monthly benefits in current-payment status as of June 30. c This column is the sum of OASI [Old-Age & Survivors Insurance] and DI [Disability Insurance] beneficiaries. A small number of beneficiaries receive benefits from both funds.”

b) Dataset: “Monthly Population Estimates for the United States: April 1, 2020 to December 1, 2023.” U.S. Census Bureau, Population Division, December 2022. <www2.census.gov>

“Resident Population … June 1, 2021 [=] 331,933,393”

CALCULATION: 65,032,000 beneficiaries / 331,933,393 people = 20%

[136] Calculated with data from:

a) “2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.” United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, June 2, 2022. <www.cms.gov>

Page 12: “Table II.B1.—Medicare Data for Calendar Year 2021 … Total … Enrollment (millions) … Total [=] 63.8”

b) Dataset: “Monthly Population Estimates for the United States: April 1, 2020 to December 1, 2023.” U.S. Census Bureau, Population Division, December 2022. <www2.census.gov>

“Resident Population … January 1, 2022 [=] 332,662,461”

CALCULATION: 63,800,000 Medicare enrollees / 332,662,461 population = 19.2%

[137] Webpage: “Listings of WHO’s Response to Covid-19.” World Health Organization, June 29, 2020. Last updated January 29, 2021. <bit.ly>

11 Mar 2020: Deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction, WHO made the assessment that Covid-19 could be characterized as a pandemic.”

[138] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 5. Components of Income Before Transfers and Taxes, by Income Group, 1979 to 2019, 2019 Dollars”

“Table 6. Components of Means-Tested Transfers, by Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[139] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[140] Calculated with the dataset: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

“Table 5. Components of Income Before Transfers and Taxes, by Income Group, 1979 to 2019, 2019 Dollars”

“Table 6. Components of Means-Tested Transfers, by Income Group, 1979 to 2019, 2019 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[141] Report: “The Distribution of Household Income, 2019.” Congressional Budget Office, November 2022. <www.cbo.gov>

Pages 33–34:

Data

The core data used in CBO’s [Congressional Budget Office’s] distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the Internal Revenue Service (IRS). The number of returns sampled grew over the period studied—1979 to 2019—rising from roughly 90,000 in some of the early years to more than 350,000 in later years. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. …

Information from tax returns is supplemented with data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which contains survey data on the demographic characteristics and income of a large sample of households.5 The two sources are combined by statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.6

Page 35:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses, information on taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information on nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 39–40:

Household income, unless otherwise indicated, refers to income before accounting for the effects of means-tested transfers and federal taxes. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of Social Security, Medicare, and federal unemployment insurance payroll taxes; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital income (including capital gains). Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales); taxable and tax-exempt interest; dividends paid by corporations (but not dividends from S corporations, which are considered part of business income); positive rental income; and the share of corporate income taxes borne by capital owners.†

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), unemployment insurance, and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the government of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local government general assistance programs.

Average means-tested transfer rates are calculated as means-tested transfers divided by income before transfers and taxes.

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 93 percent of federal revenues in fiscal year 2019. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received that year, regardless of when the taxes are paid. Those taxes comprise the following:

Individual income taxes. Individual income taxes are paid by U.S. citizens and residents on their income from all sources, except those sources exempted under the law. Individual income taxes can be negative because they include the effects of refundable tax credits, which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries and generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.-based corporations organized as C corporations. In its analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes divided by income before transfers and taxes.

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationships. The income quintiles (fifths) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (hundredth) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses are larger than its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[142] Article: “How Many Workers Are Employed in Sectors Directly Affected by Covid-19 Shutdowns, Where Do They Work, and How Much Do They Earn?” By Matthew Dey and Mark A. Loewenstein. U.S. Bureau of Labor Statistics Monthly Labor Review, April 2020. <www.bls.gov>

Page 1: “To reduce the spread of coronavirus disease 2019 (Covid-19), nearly all states have issued stay-at-home orders and shut down establishments deemed nonessential.”

[143] Article: “Covid-19 Restrictions.” USA Today. Last updated July 11, 2022. <www.usatoday.com>

Throughout the pandemic, officials across the United States have rolled out a patchwork of restrictions on social distancing, masking and other aspects of public life. The orders vary by state, county and even city. At the height of restrictions in late March and early April 2020, more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home.” Restrictions are now ramping down in many places, as most states have fully reopened their economies.

[144] During 2020 and early 2021, federal politicians enacted six “Covid relief” laws that will cost a total of about $5.2 trillion over the course of a decade. This amounts to an average of $40,444 in spending per U.S. household.

Calculated with data from:

a) Report: “CBO Estimate for H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, as Posted on March 4, 2020.” Congressional Budget Office, March 4, 2020. <www.cbo.gov>

b) Report: “Cost Estimate for H.R. 6201, Families First Coronavirus Response Act, Enacted as Public Law 116-127 on March 18, 2020.” Congressional Budget Office, April 2, 2020. <www.cbo.gov>

c) Report: “Cost Estimate for H.R. 748, CARES Act, Public Law 116-136.” Congressional Budget Office, April 16, 2020. <www.cbo.gov>

d) Report: “CBO Estimate for H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act as Passed by the Senate on April 21, 2020.” Congressional Budget Office, April 22, 2020. <www.cbo.gov>

e) Report: “Estimate for Division N—Additional Coronavirus Response and Relief, H.R. 133, Consolidated Appropriations Act, 2021, Public Law 116-260, Enacted on December 27, 2020.” Congressional Budget Office, January 14, 2021. <www.cbo.gov>

f) Report: “Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021 as Passed by the Senate on March 6, 2021.” Congressional Budget Office, March 10, 2021. <www.cbo.gov>

g) Dataset: “HH-1. Households by Type: 1940 to Present.” U.S. Census Bureau, Current Population Survey, November 2021. <www.census.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[145] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 5. Components of Income Before Transfers and Taxes, by Income Group, 1979 to 2020, 2020 Dollars”

“Table  6. Components of Means-Tested Transfers, by Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[146] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[147] Calculated with the dataset: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

“Table 5. Components of Income Before Transfers and Taxes, by Income Group, 1979 to 2020, 2020 Dollars”

“Table  6. Components of Means-Tested Transfers, by Income Group, 1979 to 2020, 2020 Dollars”

NOTES:

  • An Excel file containing the data and calculations is available upon request.
  • The next two footnotes contain important context for these calculations.

[148] Report: “The Distribution of Household Income, 2020.” Congressional Budget Office, November 2023. <www.cbo.gov>

Page 20:

Data

The core data used in CBO’s distributional analyses come from the Statistics of Income (SOI), a nationally representative sample of individual income tax returns collected by the IRS. That sample of tax returns becomes available to CBO approximately two years after the returns are filed. Data on household income are systematically and consistently reported in the SOI. The sample is therefore considered a reliable resource to use when analyzing the effects of fiscal policy on income. However, certain types of income are not reported in the SOI. In 2020, for example, the portion of payments from the Paycheck Protection Program that was not used to pay for employees’ wages was not taxable and therefore not available in the SOI data.

SOI data include information about tax filers’ family structure and age, but they do not include certain demographic information or data on people who do not file taxes. For that information, CBO uses data from the Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey (CPS), which has data on the demographic characteristics and income of a large sample of households.6

CBO combines the two data sources, statistically matching each SOI record to a corresponding CPS record on the basis of demographic characteristics and income. Each pairing results in a new record that takes on some characteristics of the CPS record and some characteristics of the SOI record.7

Page 22:

Measures of Income, Federal Taxes, and Means-Tested Transfers

Most distributional analyses rely on a measure of annual income as the metric for ranking households. In CBO’s analyses of the distribution of household income, information about taxable income sources for tax-filing units that file individual income tax returns comes from the SOI, whereas information about nontaxable income sources and income for tax-filing units that do not file individual income tax returns comes from the CPS. Among households at the top of the income distribution, the majority of income data are drawn from the SOI. In contrast, among households in the lower and middle quintiles, a larger portion of income data is drawn from the CPS….

Pages 31–32:

Household income, unless otherwise indicated, refers to income before the effects of means-tested transfers and federal taxes are accounted for. Throughout this report, that income concept is called income before transfers and taxes. It consists of market income plus social insurance benefits.

Market income consists of the following five elements:

Labor income. Wages and salaries, including those allocated by employees to 401(k) and other employment-based retirement plans; employer-paid health insurance premiums (as measured by the Census Bureau’s Current Population Survey); the employer’s share of payroll taxes for Social Security, Medicare, and federal unemployment insurance; and the share of corporate income taxes borne by workers.

Business income. Net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.

Capital gains. Net profits realized from the sale of assets (but not increases in the value of assets that have not been realized through sales).

Capital income. Taxable and tax-exempt interest, dividends paid by corporations (but not dividends from S corporations, which are considered part of business income), rental income, and the share of corporate income taxes borne by capital owners.

Other income sources. Income received in retirement for past services and other nongovernmental sources of income.

Social insurance benefits consist of benefits from Social Security (Old Age, Survivors, and Disability Insurance), Medicare (measured by the average cost to the government of providing those benefits), regular unemployment insurance (but not expanded unemployment compensation), and workers’ compensation.

Means-tested transfers are cash payments and in-kind services provided through federal, state, and local government assistance programs. Eligibility to receive such transfers is determined primarily on the basis of income, which must be below certain thresholds. Means-tested transfers are provided through the following programs: Medicaid and the Children’s Health Insurance Program (measured by the average cost to the federal government and state governments of providing those benefits); the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program); housing assistance programs; Supplemental Security Income; Temporary Assistance for Needy Families and its predecessor, Aid to Families With Dependent Children; child nutrition programs; the Low Income Home Energy Assistance Program; and state and local governments’ general assistance programs. For 2020, CBO included expanded unemployment compensation in means-tested transfers.

Average means-tested transfer rates are calculated as means-tested transfers (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Federal taxes consist of individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Those four sources accounted for 94 percent of federal revenues in fiscal year 2020. Revenue sources not examined in this report include states’ deposits for unemployment insurance, estate and gift taxes, net income of the Federal Reserve System that is remitted to the Treasury, customs duties, and miscellaneous fees and fines.

In this analysis, taxes for a given year are the amount a household owes on the basis of income received in that year, regardless of when the taxes are paid. Those taxes comprise the following four categories:

Individual income taxes. Individual income taxes are levied on income from all sources, except those excluded by law. Individual income taxes can be negative because they include the effects of refundable tax credits (including recovery rebate credits), which can result in net payments from the government. Specifically, if the amount of a refundable tax credit exceeds a filer’s tax liability before the credit is applied, the government pays that excess to the filer. Statutory marginal individual income tax rates are the rates set in law that apply to the last dollar of income.

Payroll taxes. Payroll taxes are levied primarily on wages and salaries. They generally have a single rate and few exclusions, deductions, or credits. Payroll taxes include those that fund the Social Security trust funds, the Medicare trust fund, and unemployment insurance trust funds. The federal portion of the unemployment insurance payroll tax covers only administrative costs for the program; state-collected unemployment insurance payroll taxes are not included in the Congressional Budget Office’s measure of federal taxes (even though they are recorded as revenues in the federal budget). Households can be entitled to future social insurance benefits, including Social Security, Medicare, and unemployment insurance, as a result of paying payroll taxes. In this analysis, average payroll tax rates capture the taxes paid in a given year and do not capture the benefits that households may receive in the future.

Corporate income taxes. Corporate income taxes are levied on the profits of U.S.–based corporations organized as C corporations. In this analysis, CBO allocated 75 percent of corporate income taxes in proportion to each household’s share of total capital income (including capital gains) and 25 percent to households in proportion to their share of labor income.

Excise taxes. Sales of a wide variety of goods and services are subject to federal excise taxes. Most revenues from excise taxes are attributable to the sale of motor fuels (gasoline and diesel fuel), tobacco products, alcoholic beverages, and aviation-related goods and services (such as aviation fuel and airline tickets).

Average federal tax rates are calculated as federal taxes (totaled within an income group) divided by income before transfers and taxes (totaled within an income group).

Income after transfers and taxes is income before transfers and taxes plus means-tested transfers minus federal taxes.

Income groups are created by ranking households by their size-adjusted income before transfers and taxes. A household consists of people sharing a housing unit, regardless of their relationship. The income quintiles (or fifths of the distribution) contain approximately the same number of people but slightly different numbers of households…. Similarly, each full percentile (or hundredth of the distribution) contains approximately the same number of people but a different number of households. If a household has negative income (that is, if its business or investment losses exceed its other income), it is excluded from the lowest income group but included in totals.

NOTE: † See Just Facts’ research on the distribution of the federal tax burden for details about how the Congressional Budget Office determines the share of corporate income taxes borne by workers and owners of capital.

[149] Report: “Concepts and Methods of the U.S. National Income and Product Accounts (Chapter 5).” U.S. Bureau of Economic Analysis, December 2022. <www.bea.gov>

Pages 5-2–5-3:

PCE [personal consumption expenditures] measures the goods and services purchased by “persons”—that is, by households and by nonprofit institutions serving households (NPISHs)—who are resident in the United States. Persons resident in the United States are those who are physically located in the United States and who have resided, or expect to reside, in this country for 1 year or more. PCE also includes purchases by U.S. government civilian and military personnel stationed abroad, regardless of the duration of their assignments, and by U.S. residents who are traveling or working abroad for 1 year or less.3

Table 5.1 shows the kinds of transactions that are included in and excluded from PCE. Most of PCE consists of purchases of new goods and of services by households from private business. In addition, PCE includes purchases of new goods and of services by households from government and government enterprises, the costs incurred by NPISHs in providing services on behalf of households, net purchases of used goods by households, and purchases abroad of goods and services by U.S. residents traveling, working, or attending school in foreign countries. PCE also includes expenditures financed by third-party payers on behalf of households, such as employer-paid health insurance and medical care financed through government programs, and it includes expenses associated with life insurance and with private and government employee pension plans. Finally, PCE includes imputed purchases that keep PCE invariant to changes in the way that certain activities are carried out—for example, whether housing is rented or owned or whether employees are paid in cash or in kind. PCE transactions are valued in market prices, including sales and excise taxes.

In the NIPAs [national income and product accounts], final consumption expenditures by NPISHs is the portion of PCE that represents the services that are provided to households by NPISHs without explicit charge (such as the value of the education services provided by a nonprofit college or university that is over and above the tuition and other costs paid by or for the student’s household). It is equal to their gross output, which is measured as their current operating expenses (not including purchases of buildings and equipment, which are treated as private fixed investment), less their sales to households and to other sectors of the economy (such as sales of education services to employers) and less the value of any investment goods (such as software) that are produced directly by the NPISH. Services that are provided by NPISHs and are paid by or on behalf of households (such as the tuition and other costs) are already accounted for in PCE as purchases by households.

[150] Article: “Why Does GDP Include Imputations?” U.S. Bureau of Economic Analysis, April 23, 2008. <www.bea.gov>

Imputations approximate the price and quantity that would be obtained for a good or service if it was traded in the market place. The largest imputation in the GDP [gross domestic product] accounts is that made to approximate the value of the services provided by owner-occupied housing. That imputation is made so that the treatment of owner-occupied housing in the GDP is comparable to that of tenant-occupied housing, which is valued by rent paid. That practice keeps GDP invariant as to whether a house is owner-occupied or rented. In the GDP, the purchase of a new house is treated as an investment; the ownership of the home is treated as a productive activity; and a service is assumed to flow from the house to the occupant over the economic life of the house. For the homeowner, the value of that service is measured as the income the homeowner could have received if the house had been rented to a tenant. …

In addition to imputations for nonmarket transactions, the GDP accounts redirect certain transactions so that the consumption is attributed to the ultimate recipient of the good or service rather than to the payer. An important example is health care, which is generally paid for by private health insurance (often provided by the employer), by government insurance plans such as Medicare and Medicaid, or by consumer out-of-pocket payments for deductibles, copayments, and uninsured expenses. In the GDP, these health-care transactions are redirected so that they are included in personal consumption expenditures, reflecting the role of households as the final consumers of those health goods and services.

[151] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF):

This paper examines macro and micro sources of information about household income and expenditures. The Bureau of Economic Analysis (BEA) produces macro estimates of personal income and outlays (PI&O) that are part of the U.S. National Income and Product Accounts (NIPAs). The Current Population Survey Annual Statistical and Economic Supplement (CPS–ASEC) from the Census Bureau and the Consumer Expenditure Survey (CE) program from the Bureau of Labor Statistics (BLS) are household surveys used to produce micro estimates of household income and expenditures. The CPS–ASEC collects detailed data on household income and on health insurance coverage. The CE, through the Interview Survey and the Diary Survey, collects data on direct household expenditures, as well as on household income and financial assets. BEA’s estimates of personal income (PI), disposable personal income (DPI), personal outlays (PO), and personal consumption expenditures (PCE) cover the personal sector in the U.S. economy, consisting of resident households and of the nonprofit institutions serving households (NPISHs).

Pages 4–5:

The sources used for the NIPA estimates of personal income and outlays are many and diverse, but can be characterized in general as being based on reports by businesses, which are collected administratively, from trade sources, in sample surveys such as the Census Bureau surveys of retail trade and service industries, and in economic censuses conducted at five-year intervals by the Census Bureau. Estimates of government social benefits included in personal income come from Federal agencies and from State and local governments as reported in annual Census Bureau surveys of government finances. Estimates of Social Security and Medicare taxes are based on data from the Social Security Administration, estimates of Federal income taxes are based on data from the Internal Revenue Service, and estimates of state and local taxes are based on annual Census Bureau surveys of government finance. Use of data from CPS–ASEC and CE is very limited: data on self-employment income from the CPS is used to develop adjustments for tax return nonfilers in the NIPA estimates of proprietors income, and in personal consumption expenditures (PCE), CE data for categories such as motor vehicle leasing are used, constituting less than one-half of one percent of the total PCE value.

NIPA estimates are generally considered more accurate than aggregate values derived from household surveys (CE 2006, 2010, 2011; CPS–ASEC 2000, 2004). Reports from businesses collected in economic censuses, sample surveys, and administratively are more reliable than household surveys, which for the CE Interview Survey and CPS–ASEC have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items. For the CE Diary Survey, there are issues of what is sometimes called “diary fatigue”, which refers to the dropoff in recording of expenditures over time, evidenced by a persistent pattern of lower reported expenditures for the second of the one-week surveys compared to the first (CE 1983, 2003). Businesses are required to account for all of their receipts and expenditures on an ongoing basis. NIPA estimates are not considered “the truth” because the data on which they are based are subject to nonsampling error and, in many instances, to sampling error as well. However, NIPA expenditure estimates are periodically benchmarked to estimates based on the economic censuses, which are not subject to sampling error. For the overall economy, NIPA estimates of gross domestic product (GDP) are conceptually identical to gross domestic income (GDI), which measures the incomes generated and the costs incurred in generating GDP. The GDP and GDI measures are derived independently, and the difference between the two, known as the statistical discrepancy, is an indicator of the imperfections of the data used in generating the estimates. The observed range of the statistical discrepancy has been from minus two percent to plus two percent of GDP over time. If CE estimates of consumer expenditures were substituted for comparable NIPA estimates, the effect on the statistical discrepancy would be about $2 trillion in 2010, or about 13 percent of GDP. Significant differences also exist for a number of income components, in particular for property income.

[152] Webpage: “What We Do.” World Bank. Accessed April 25, 2017 at <www.worldbank.org>

The World Bank Group has set two goals for the world to achieve by 2030:

• End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%

• Promote shared prosperity by fostering the income growth of the bottom 40% for every country

The World Bank is a vital source of financial and technical assistance to developing countries around the world. We are not a bank in the ordinary sense but a unique partnership to reduce poverty and support development. The World Bank Group comprises five institutions managed by their member countries.

[153] “World Development Report 2000/2001: Attacking Poverty.” World Bank, September 2000. <openknowledge.worldbank.org>

Page 17:

The World Bank’s Approach

The World Bank has been estimating global income poverty figures since 1990. The latest round of estimation, in October 1999, used new sample survey data and price information to obtain comparable figures for 1987, 1990, 1993, 1996, and 1998 (the figures for 1998 are preliminary estimates). The method is the same as in past estimates (World Bank 1990, 1996d).

Consumption. Poverty estimates are based on consumption or income data collected through household surveys. Data for 96 countries, from a total of 265 nationally representative surveys, corresponding to 88 percent of the developing world’s people are now available, up from only 22 countries in 1990. Of particular note is the increase in the share of people covered in Africa from 66 to 73 percent, a result of extensive efforts to improve household data in the region.

Consumption is conventionally viewed as the preferred welfare indicator, for practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.

[154] Report: “Eurostat–OECD Methodological Manual on Purchasing Power Parities.” Eurostat and the Organization for Economic Cooperation and Development, 2012. <www.oecd-ilibrary.org>

Pages 20–21:

50. GDP [gross domestic product] is a measure of production but it can also be defined as the sum of all final expenditures incurred by the country’s resident institutional sectors during the accounting period which, in the case of Eurostat and OECD [the Organization for Economic Cooperation and Development] comparisons, is a year. GDP is widely used to compare the economic size of countries and GDP per capita is frequently used to compare the material well-being of their resident households. While GDP is a good indicator of the level of economic activity, it is not an accurate measure of material well-being, when material well-being is defined in terms of individual goods and services consumed by households (that is, the goods and services that households consume to satisfy their individual needs). This is because GDP covers not only individual goods and services but also collective services provided to the community by government, capital goods and net exports.

51. Individual consumption expenditure by households is defined as the final consumption expenditure incurred by households on individual goods and services. In other words, it covers only the goods and services that households purchase to satisfy their individual needs. Even so, it is not a good measure for comparing material well-being between countries because it covers only the purchase of individual services by households and does not include the provision of individual services, particularly health and education services, to households by government and Non-Profit Institutions serving Households (NPISHs).

52. In some countries, government and NPISHs provide the greater part of health and education services and these expenditures are included in the individual consumption expenditure of government and the individual consumption expenditure of NPISHs. In other countries, households purchase nearly all health and education services from market producers and these expenditures are included in the individual consumption expenditure of households. Under these circumstances, individual consumption expenditure by households is not the correct measure with which to compare the volumes of individual goods and services actually consumed by households in different countries. Households in countries where government and NPISHs are the main providers of individual services will appear to consume a smaller volume of goods and services than households in countries where the households themselves pay directly for the bulk of these services. This can be avoided by comparing the actual individual consumption of countries.

53. Actual individual consumption is defined as individual consumption expenditure by households plus individual consumption expenditure by government plus individual consumption expenditure by NPISHs. Of the three national accounting aggregates discussed, it is the best measure of material well-being. This is because it comprises only the goods and services that households actually consume to satisfy their individual needs. It covers all such goods and services irrespective of whether they are purchased by the households themselves or are provided as social transfers in kind by government and NPISHs.

[155] Paper: “Measuring the Well-Being of the Poor Using Income and Consumption.” By Bruce D. Meyer and James X. Sullivan. Journal of Human Resources, June 2003. Pages 1180–1220. <harris.uchicago.edu>

Page 1181:

Consumption is less vulnerable to under-reporting bias, and ethnographic research on poor households in the U.S. suggests that consumption is better reported than income. There are also conceptual and economic reasons to prefer consumption to income because consumption is a more direct measure of material well-being. …

We find substantial evidence that consumption is better measured than income for those with few resources. We also find that consumption performs better as an indicator of low material well-being. These findings favor the examination of consumption data when policymakers are deciding on appropriate benefit amounts for programs such as Food Stamps, just as consumption standards were behind the original setting of the poverty line. Similarly, the results favor using consumption measures to evaluate the effectiveness of transfer programs and general trends in poverty and food spending. Nevertheless, the ease of reporting income favors its use as the main eligibility criteria for transfer programs such as Food Stamps and Temporary Assistance for Needy Families (TANF).

[156] Calculated with data from:

a) Dataset: “Table 2.1. Personal Income and Its Disposition.” U.S. Department of Commerce, Bureau of Economic Analysis. Last revised December 22, 2022. <apps.bea.gov>

Line 29: “Personal Consumption Expenditures”

Line 40: “Population”

b) Dataset: “Table 2.3.4. Price Indexes for Personal Consumption Expenditures by Major Type of Product.” U.S. Department of Commerce, Bureau of Economic Analysis. Last revised January 27, 2022. <apps.bea.gov>

Line 1: “Personal consumption expenditures (PCE)”

NOTE: An Excel file containing the data and calculations is available upon request.

[157] Webpage: “US Business Cycle Expansions and Contractions.” National Bureau of Economic Research. Last updated March 14, 2023. <www.nber.org>

“Contractions (recessions) start at the peak of a business cycle and end at the trough. … Peak Month (Peak Quarter) [=] December 2007 (2007Q4) … Trough Month (Trough Quarter) [=] June 2009 (2009Q2)”

[158] “WHO Director-General’s Opening Remarks at the Media Briefing on Covid-19.” World Health Organization, March 11, 2020. <bit.ly>

[Dr. Tedros Adhanom Ghebreyesus:] …

WHO [World Health Organization] has been assessing this outbreak around the clock and we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction.

We have therefore made the assessment that COVID-19 can be characterized as a pandemic.

[159] Press release: “COVID-19 and Other Global Health Issues.” World Health Organization, May 5, 2023. <www.justfacts.com>

[Dr. Tedros Adhanom Ghebreyesus:] …

Yesterday, the Emergency Committee met for the 15th time and recommended to me that I declare an end to the public health emergency of international concern. I have accepted that advice. It’s therefore with great hope that I declare COVID-19 over as a global health emergency.

[160] Paper: “Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure.” By Bruce D. Meyer and James X. Sullivan. Journal of Economic Perspectives, Summer 2012. Pages 111–136. <harris.uchicago.edu>

Page 117:

Comparisons of income and consumption at the bottom of the distribution provide additional evidence that income is underreported. Reported consumption exceeds reported income at the bottom of the distribution, even for those with little or no assets or debts (Meyer and Sullivan 2003, 2011). For recent years, the 5th percentile of the expenditures distribution in the Consumer Expenditure Survey is more than 40 percent higher than the 5th percentile of the income distribution in the Current Population Survey. For families in the Consumer Expenditure Survey in the bottom 5 percent of the income distribution, expenditures exceed income by more than a factor of seven (Meyer and Sullivan 2011).

[161] Paper: “Alternative Measures of Household Income: Personal Income, CPS [Current Population Survey] Money Income, and Beyond.” By John Ruser, Adrienne Pilot, and Charles Nelson. U.S. Bureau of Economic Analysis, November 2004. <apps.bea.gov>

Page 1: “Two of the most widely used measures of household income are BEA’s [Bureau of Economic Analysis’s] personal income and the Census Bureau’s money income.”

[162] See this chart of consumption versus the Census Bureau’s money income.

[163] Paper: “Alternative Measures of Household Income: Personal Income, CPS [Current Population Survey] Money Income, and Beyond.” By John Ruser, Adrienne Pilot, and Charles Nelson. U.S. Bureau of Economic Analysis, November 2004. <apps.bea.gov>

Page 1: “Two of the most widely used measures of household income are BEA’s [Bureau of Economic Analysis’s] personal income and the Census Bureau’s money income.”

[164] Webpage: “Income: About.” U.S. Census Bureau. Accessed October 27, 2020 at <www.census.gov>

Census money income is defined as income received on a regular basis (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, social security, union dues, medicare deductions, etc. Therefore, money income does not reflect the fact that some families receive part of their income in the form of noncash benefits, such as food stamps, health benefits, subsidized housing, and goods produced and consumed on the farm. In addition, money income does not reflect the fact that noncash benefits are also received by some nonfarm residents which may take the form of the use of business transportation and facilities, full or partial payments by business for retirement programs, medical and educational expenses, etc.

[165] Report: “Income in the United States: 2021.” By Jessica Semega and Melissa Kollar. U.S. Census Bureau, September 2022. <www.census.gov>

Page 13:

Data on income collected in the CPS ASEC by the U.S. Census Bureau cover money income received (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, Social Security, union dues, Medicare deductions, etc. Money income also excludes tax credits such as the Earned Income Tax Credit, the Child Tax Credit, and special COVID-19- related stimulus payments. Money income does not reflect that some families receive noncash benefits such as Supplemental Nutrition Assistance/food stamps, health benefits, and subsidized housing. In addition, money income does not reflect the fact that noncash benefits often take the form of the use of business transportation and facilities, full or partial payments by business for retirement programs, or medical and educational expenses. …

Data users should consider these elements when comparing income levels. Moreover, readers should be aware that for many different reasons there is a tendency in household surveys for respondents to underreport their income. Based on an analysis of independently derived income estimates, the Census Bureau determined that respondents report income earned from wages or salaries more accurately than other sources of income, and that the reported wage and salary income is nearly equal to independent estimates of aggregate income.

Page 56:

Since the CPS ASEC produces thorough and timely estimates of income, the Census Bureau recommends that people use it for national estimates. However, the Census Bureau produces other data that are appropriate for subnational areas and that can be used for longitudinal analysis. The American Community Survey (ACS) and the Small Area Income and Poverty Estimates (SAIPE) program can be used for subnational income estimates, while the Survey of Income and Program Participation (SIPP) provides monthly and longitudinal estimates. …

The ACS is an ongoing survey that collects comprehensive information on social, economic, and housing topics. Due to its large sample size, the ACS provides estimates at many levels of geography and for smaller population groups.

[166] Report: “Poverty in the United States: 2021.” By John Creamer and others. U.S. Census Bureau, September 2022. <www.census.gov>

Page 20:

Data on income collected in the CPS ASEC [Current Population Survey Annual Social and Economic Supplements] by the Census Bureau cover money income received (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, Social Security, union dues, Medicare deductions, etc. Money income also excludes tax credits such as the Earned Income Tax Credit, the Child Tax Credit, and special COVID-19- related stimulus payments. Money income does not reflect that some families receive noncash benefits such as Supplemental Nutrition Assistance/food stamps, health benefits, and subsidized housing. In addition, money income does not reflect the fact that noncash benefits often take the form of the use of business transportation and facilities, full or partial payments by business for retirement programs, or medical and educational expenses, etc. …

Data users should consider these elements when comparing income levels. Moreover, readers should be aware that for many different reasons there is a tendency in household surveys for respondents to underreport their income. Based on an analysis of independently derived income estimates, the Census Bureau determined that respondents report income earned from wages or salaries more accurately than other sources of income, and that the reported wage and salary income is nearly equal to independent estimates of aggregate income.2

Pages 82–83:

Since the CPS ASEC produces thorough and timely estimates of poverty, the Census Bureau recommends that people use it for national estimates. However, the Census Bureau produces other data that are appropriate for subnational areas and that can be used for longitudinal analysis. The American Community Survey (ACS) and the Small Area Income and Poverty Estimates (SAIPE) program can be used for subnational poverty estimates, while the Survey of Income and Program Participation (SIPP) provides monthly and longitudinal estimates. …

The ACS is an ongoing survey that collects comprehensive information on social, economic, and housing topics. Due to its large sample size, the ACS provides estimates at many levels of geography and for smaller population groups.

[167] Report: “Income in the United States: 2021.” By Jessica Semega and Melissa Kollar. U.S. Census Bureau, September 2022. <www.census.gov>

Page 13: “Moreover, readers should be aware that for many different reasons there is a tendency in household surveys for respondents to underreport their income.”

[168] Report: “Poverty in the United States: 2021.” By John Creamer and others. U.S. Census Bureau, September 2022. <www.census.gov>

Page 20: “Moreover, readers should be aware that for many different reasons there is a tendency in household surveys for respondents to underreport their income.”

[169] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF):

The Current Population Survey Annual Statistical and Economic Supplement (CPS–ASEC) from the Census Bureau and the Consumer Expenditure Survey (CE) program from the Bureau of Labor Statistics (BLS) are household surveys used to produce micro estimates of household income and expenditures.

Page 3:

Reports from businesses collected in economic censuses, sample surveys, and administratively are more reliable than household surveys, which for the CE Interview Survey and CPS–ASEC have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items. For the CE Diary Survey, there are issues of what is sometimes called “diary fatigue”, which refers to the dropoff in recording of expenditures over time, evidenced by a persistent pattern of lower reported expenditures for the second of the one-week surveys compared to the first (CE 1983, 2003).

[170] Paper: “Household Surveys in Crisis.” By Bruce D. Meyer, Wallace K.C. Mok, and James X. Sullivan. The Journal of Economic Perspectives, Fall 2015. Pages 199–226. <www.jstor.org>

Page 199:

Large and nationally representative surveys are arguably among the most important innovations in social science research of the last century. … Household surveys are the source of official rates of unemployment, poverty, health insurance coverage, inflation, and other statistics that guide policy. They are also a primary source of data for economic research and are used to allocate government funds.

Page 200:

One productive approach to measuring the degree of bias in household surveys, along with addressing potential bias, is to compare survey results with administrative data. … We examine the quality of household survey data through comparisons with administrative data from nine large programs that receive considerable attention from both the research and policy community. For example, we compare the total dollar value of food stamp benefits reported, by all respondents in a survey to the total dollar value of food stamp benefits awarded as recorded in US Department of Agriculture, Food and Nutrition Service administrative data.

Our results show a sharp rise in the downward bias in household survey estimates of receipt rates and dollars received for most programs. In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major surveys. In particular, this measurement error typically takes the form of underreporting resulting from true program recipients being recorded as non-recipients.

Page 201:

The underreporting of transfer income in surveys has profound implication for our understanding of the low-income population and the effect of government programs for the poor. We point to evidence from linked administrative and survey data that indicates that this underreporting leads to an understatement of incomes at the bottom, the rate of program receipt, and the poverty-reducing effects of government programs—and thus to an overstatement of poverty and inequality.

Pages 209–210:

The top panel of Table 1 presents the average Dollar Bias over the 2000–2012 period for seven programs from five household surveys. With the single exception of Supplemental Security Income in the Survey of Income and Program Participation, the bias is negative, indicating underreporting of dollars of transfer income. The upward bias in reporting of SSI appears to be due to confusion among recipients between SSI, a Social Security Administration program aimed at low-income people who are blind, disabled, or elderly, and Old-Age and Survivors Insurance (OASI), which is what most people mean by Social Security (Huyhn, Rupp, and Sears 2002; Gathright and Crabb 2014). In most cases, the bias reported in Table 1 is large. For our main cash welfare programs, Temporary Aid to Needy Families (combined with General Assistance in two cases), four of five surveys have a bias of 50 percent or more, meaning that less than half of the dollars given out are captured in surveys. Even in the Survey of Income and Program Participation (SIPP), a survey especially designed to capture transfer program income, more than one-third of TANF [Temporary Assistance for Needy Families] dollars are missed.

[171] Calculated with data from the report: “U.S. Summary, FY 2021–2022.” U.S. Department of Agriculture, November 11, 2022. <fns-prod.azureedge.us>

Page 1: “Table 2: Supplemental Nutrition Assistance Program (Excludes Puerto Rico) … FY2021 … Participation1 … Households … Number … Total [=] 21,644,631 … Benefit Cost2 … Dollars Total [=] 108,515,732,135”

CALCULATION: $108,515,732,135 benefits / 21,644,631 households = $5,014 per household

[172] Calculated with data from the report: “Employer Health Benefits: 2021 Annual Survey.” By Gary Claxton and others. Kaiser Family Foundation, November 8, 2021. <files.kff.org>

Page 6: “In 2021, the average annual premiums for employer-sponsored health insurance are $7,739 for single coverage and $22,221 for family coverage….”

Page 8: “Most covered workers make a contribution toward the cost of the premium for their coverage. On average, covered workers contribute 17% of the premium for single coverage and 28% of the premium for family coverage.”

CALCULATION: $7,739 premium – ($7,739 premium × 17% employee contribution) = $6,423 employer-provided coverage

[173] Calculated with data from:

a) Dataset: “Table 3.12. Government Social Benefits [Billions of Dollars].” U.S. Bureau of Economic Analysis. Last revised September 30, 2022. <apps.bea.gov>

“2021 … Medicaid … [=] 735.6”

b) Report: “CMS [Centers for Medicare and Medicaid Services] Fast Facts.” U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, August 2022. <data.cms.gov>

Page 1 (of PDF): “CMS Program Data – Populations1 … Medicaid (avg monthly)3 … Total … FY 2021 [=] 83.5 … 1 Populations are in millions and may not add due to rounding … 3 Projected estimates”

CALCULATION: $735,600,000,000 benefits / 83,500,000 people = $8,810 per person

[174] Calculated with data from the webpage: “Housing Choice Voucher (HCV) Data Dashboard.” U.S. Department of Housing and Urban Development, October 2022. <www.hud.gov>

Page 5: “Housing Choice Voucher – Per Unit Cost (PUC) … Average PUC Year over Year … 2021 [=] $814.56”

CALCULATION: $814.56 monthly cost × 12 (months/year) = $9,775

[175] “Housing Choice Voucher Dashboard User Guide & Data Dictionary.” U.S. Department of Housing and Urban Development. February 10, 2020. <www.hud.gov>

Pages 18–19: “Average Per Unit Cost (PUC) Year over Year … Average Per Unit Cost = Total Housing Assistance Payments (HAP) / Total Units under Lease. For previous years, average PUC is calculated as 12 months HAP Expenditures / 12 months Units Leased.”

[176] Calculated with data from the report: “Head Start Program Facts, Fiscal Year 2021.” U.S. Department of Health & Human Services, Office of Head Start, September 20, 2022. <eclkc.ohs.acf.hhs.gov>

Page 1 (of PDF):

Throughout this fact sheet, unless otherwise specified, “Head Start” refers to the Head Start program as a whole. This includes Head Start preschool services to children primarily ages 3 to 5; Early Head Start services to infants, toddlers, and pregnant people; and services to families provided by American Indian and Alaska Native (AIAN) and Migrant and Seasonal Head Start (MSHS) programs.

“Funded enrollment” (also called “enrollment slots”) refers to the number of children and pregnant people supported by federal Head Start funds in a program at any one time during the program years. This number includes slots funded by state or other funds when used by grant recipients as required nonfederal match. States may provide additional funding to local Head Start programs, which is not included in federal Head Start reporting.

“Cumulative enrollment” refers to the actual number of children and pregnant people Head Start programs serve throughout the entire program year, inclusive of enrollees who left during the program year and the enrollees who filled those empty places. Due to turnover, more children and families may receive Head Start services throughout the program year than is reflected in funded enrollment. All of these enrollees are reported in the Program Information Report (PIR).

Pages 2–3 (of PDF): “Annual Federal Funding and Funded Enrollment … Total … Funding [=] $10,344,077,007 … Enrollment [=] 839,116

CALCULATION: $10,344,077,007 funding / 839,116 enrollees = $12,327 federal funding per enrollee

[177] Calculated with data from:

a) Report: “Baseline Projections: Medicare.” Congressional Budget Office, May 2022. <www.cbo.gov>

Page 2: “By Fiscal Year, Billions of Dollars … Budget Information … Actual, 2021 … Total Benefits [=] 865 … Components of Offsetting Receipts† … Part A Premiums [=] –4 … Part B Premiumsg [=] –114 … Part D Premiumsh [=] –6”

b) Dataset: “Medicare Monthly Enrollment.” U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, July 2022. <data.cms.gov>

“Total Beneficiaries … National … 2021 [=] 63,905,513”

CALCULATION: $865,000,000,000 federal spending / 63,905,513 people = $13,536 benefits per person

NOTE: † Offsetting receipts are funds that the government collects from “ ‘business-like’ activities with the public, such as the sale of products or the rendering of services….” They are deposited in the U.S. Treasury and generally used to pay for mandatory programs such as Medicare and Social Security. Medicare premiums are the largest source of offsetting receipts, and the other “offsetting receipts” referenced above may come from a variety of sources unrelated to Medicare. [Report: “The Congressional Budget Process: An Explanation.” U.S. Senate, Committee on the Budget, 1998. Page 3. <www.congress.gov>]

[178] Calculated with data from the report: “Employer Health Benefits: 2021 Annual Survey.” By Gary Claxton and others. Kaiser Family Foundation, November 8, 2021. <files.kff.org>

Page 6: “In 2021, the average annual premiums for employer-sponsored health insurance are $7,739 for single coverage and $22,221 for family coverage….”

Page 8: “Most covered workers make a contribution toward the cost of the premium for their coverage. On average, covered workers contribute 17% of the premium for single coverage and 28% of the premium for family coverage.”

CALCULATION: $22,221 premium – ($22,221 premium × 27% employee contribution) = $16,221 employer-provided coverage

[179] Report: “Cash and Noncash Benefits for Persons with Limited Income: Eligibility Rules, Recipient and Expenditure Data, FY2002–2004.” By Karen Spar. Congressional Research Service, March 2006. <digital.library.unt.edu>

Page 2 (of PDF): “More than 80 benefit programs provide aid—in cash and noncash form—that is directed primarily to persons with limited or low income. Such programs constitute the public ‘welfare’ system, if welfare is defined as income-tested or need-based benefits. This definition omits social insurance programs like Social Security and Medicare.”

[180] Webpage: “Frequently Asked Questions Related to the Poverty Guidelines and Poverty.” U.S. Department of Health and Human Services. Accessed March 4, 2023 at <aspe.hhs.gov>

The HHS [Department of Health & Human Services] poverty guidelines, or percentage multiples of them (such as 125 percent, 150 percent, or 185 percent), are used as an eligibility criterion by a number of federal programs, including those listed below. For examples of major means-tested programs that do not use the poverty guidelines, see the end of this response.

• Department of Health and Human Services:

– Community Services Block Grant

– Head Start

– Low-Income Home Energy Assistance Program (LIHEAP)

– PARTS of Medicaid (31 percent of eligibles in Fiscal Year 2004)

– Hill-Burton Uncompensated Services Program

– AIDS Drug Assistance Program

– Children’s Health Insurance Program

– Medicare – Prescription Drug Coverage (subsidized portion only)

– Community Health Centers

– Migrant Health Centers

– Family Planning Services

– Health Professions Student Loans—Loans for Disadvantaged Students

– Health Careers Opportunity Program

– Scholarships for Health Professions Students from Disadvantaged Backgrounds

– Job Opportunities for Low-Income Individuals

– Assets for Independence Demonstration Program

• Department of Agriculture:

– Supplemental Nutrition Assistance Program (SNAP) (formerly Food Stamp Program)

– Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)

– National School Lunch Program (for free and reduced-price meals only)

– School Breakfast Program (for free and reduced-price meals only)

– Child and Adult Care Food Program (for free and reduced-price meals only)

– Expanded Food and Nutrition Education Program

• Department of Energy:

– Weatherization Assistance for Low-Income Persons

• Department of Labor:

– Job Corps

– National Farmworker Jobs Program

– Senior Community Service Employment Program

– Workforce Investment Act Youth Activities

• Department of the Treasury:

– Low-Income Taxpayer Clinics

• Corporation for National and Community Service:

– Foster Grandparent Program

– Senior Companion Program

• Legal Services Corporation:

– Legal Services for the Poor

[181] Report: “Federal Student Loans: Actions Needed to Improve Oversight of Schools’ Default Rates.” U.S. Government Accountability Office, April 2018. <www.gao.gov>

Page 12: “Pell Grants are awarded to undergraduate students with financial need to help finance their postsecondary education.”

[182] Report: “Additional Action Needed to Address Significant Risks in FCC’s Lifeline Program.” U.S. Government Accountability Office, May 2017. <www.gao.gov>

Page 1:

Over the past two decades, telecommunications carriers and their customers have paid over $100 billion to support the federal policy of “universal service.” Universal service is the principle that all Americans should have access to communications services. The Federal Communications Commission (FCC) carries out this policy through four programs, including the Lifeline program (Lifeline).1 Lifeline was created in the mid-1980s to promote telephone subscribership among low-income households. In the mid-2000s, such service came to include wireless communications, and, in December 2016, FCC also began including broadband service. Average Lifeline enrollment as of the 4th quarter of calendar year 2016 was approximately 12.3 million subscribers.

To participate in Lifeline, households must either have an income that is at or below 135 percent of the Federal Poverty Guidelines or participate in one of several qualifying assistance programs, such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP).

1 The other three programs are (1) the High-Cost Program, which assists telecommunications carriers serving high-cost, rural, or insular areas; (2) the Schools and Libraries Program, which assists eligible schools and libraries in procuring telecommunications services, Internet access services, internal connections, and basic maintenance of internal connections; and (3) the Rural Health Care Program, which provides support to eligible health-care providers through discounts for broadband and telecommunications services.

[183] United States Code Title 42, Chapter 7, Subchapter XVIII, Part E, Section 1395dd: “Examination and Treatment for Emergency Medical Conditions and Women in Labor.” Accessed January 12, 2023 at <www.law.cornell.edu>

(a) Medical Screening Requirement

In the case of a hospital that has a hospital emergency department, if any individual (whether or not eligible for benefits under this subchapter) comes to the emergency department and a request is made on the individual’s behalf for examination or treatment for a medical condition, the hospital must provide for an appropriate medical screening examination within the capability of the hospital’s emergency department, including ancillary services routinely available to the emergency department, to determine whether or not an emergency medical condition (within the meaning of subsection (e)(1)) exists.

(b) Necessary Stabilizing Treatment for Emergency Medical Conditions and Labor

(1) In General

If any individual (whether or not eligible for benefits under this subchapter) comes to a hospital and the hospital determines that the individual has an emergency medical condition, the hospital must provide either—

(A) within the staff and facilities available at the hospital, for such further medical examination and such treatment as may be required to stabilize the medical condition, or

(B) for transfer of the individual to another medical facility in accordance with subsection (c). …

(e) Definitions

In this section:

(1) The term “emergency medical condition” means—

(A) a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in—

(i) placing the health of the individual (or, with respect to a pregnant woman, the health of the woman or her unborn child) in serious jeopardy,

(ii) serious impairment to bodily functions, or

(iii) serious dysfunction of any bodily organ or part; or

(B) with respect to a pregnant woman who is having contractions—

(i) that there is inadequate time to effect a safe transfer to another hospital before delivery, or

(ii) that transfer may pose a threat to the health or safety of the woman or the unborn child.

(2) The term “participating hospital” means a hospital that has entered into a provider agreement under section 1395cc of this title.

(3)

(A) The term “to stabilize” means, with respect to an emergency medical condition described in paragraph (1)(A), to provide such medical treatment of the condition as may be necessary to assure, within reasonable medical probability, that no material deterioration of the condition is likely to result from or occur during the transfer of the individual from a facility, or, with respect to an emergency medical condition described in paragraph (1)(B), to deliver (including the placenta).

[184] Report: “EMTALA: Access to Emergency Medical Care.” By Edward C. Liu. Congressional Research Service, July 1, 2010. <www.everycrsreport.com>

Page 2 (of PDF):

The Emergency Medical Treatment and Active Labor Act (EMTALA) ensures universal access to emergency medical care at all Medicare participating hospitals with emergency departments. Under EMTALA, any person who seeks emergency medical care at a covered facility, regardless of ability to pay, immigration status, or any other characteristic, is guaranteed an appropriate screening exam and stabilization treatment before transfer or discharge. Failure to abide by these requirements can subject hospitals or physicians to civil monetary sanctions or exclusion from Medicare. Hospitals may also be subject to civil liability under the statute for personal injuries resulting from the violation.

Page 1:

Only hospitals that (1) participate in Medicare and (2) maintain an emergency department are required to screen patients under EMTALA.7

7 … Although the screening and stabilization requirements are phrased such that they apply to “hospitals” generally, enforcement of EMTALA is only authorized against hospitals that have entered into a Medicare provider agreement.

[185] Report: “Underpayment by Medicare and Medicaid.” American Hospital Association, February 2022. <www.aha.org>

Page 1: “[A]s a condition for receiving federal tax exemption for providing health care to the community, not-for-profit hospitals are required to care for Medicare and Medicaid beneficiaries. Also, Medicare and Medicaid account for more than 60 percent of all care provided by hospitals. Consequently, very few hospitals can elect not to participate in Medicare and Medicaid.”

[186] Webpage: “Giving Statistics.” Charity Navigator. Accessed December 2, 2020 at <bit.ly>

Charitable giving continued its upward trend in 2017, as an estimated $410.02 billion was given to charitable causes. For the third year in a row, total giving reached record levels. This increase and the overall size of charitable contributions is further testament to the integral role charities play in our society, a role which continues to grow. …

Where do the donations go? …

• Donations to Human Services charities were up 5.1% to $50.06 billion (12% of all donations).

NOTE: “Human Services charities provide networks of direct services to people in need. They feed our hungry, strengthen our communities, shelter our homeless, care for our elderly, and nurture our young. We classify Human Services charities into six Causes: Children’s and Family Services … Food Banks, Food Pantries, and Food Distribution … Homeless Services … Multipurpose Human Service Organizations … Rescue Missions … Social Services.” Webpage: “Human Services.” Charity Navigator. Accessed December 2, 2020 at <www.charitynavigator.org>

[187] Calculated with data from the footnote above and the report: “Income and Poverty in the United States: 2019.” By Jessica Semega and others. U.S. Census Bureau, September 2020. <www.census.gov>

Page 1:

This report presents data on income and poverty in the United States based on information collected in the 2020 and earlier Current Population Survey Annual Social and Economic Supplements (CPS ASEC) conducted by the Census Bureau.1

• The official poverty rate in 2019 was 10.5 percent, down 1.3 percentage points from 11.8 percent in 2018. This is the fifth consecutive annual decline in poverty.

• The number of people in poverty in 2019 was 34.0 million, approximately 4.2 million fewer than 2018.

Page 20: “The income and poverty estimates shown in this report are based solely on money income before taxes and do not include the value of noncash benefits such as those provided by the Supplemental Nutrition Assistance Program, Medicare, Medicaid, public housing, or employer-provided fringe benefits.”

Page 21:

The CPS [Current Population Survey] is the longest-running survey conducted by the Census Bureau. The CPS is a household survey primarily used to collect employment data. The sample universe for the basic CPS consists of the resident civilian, noninstitutionalized population of the United States. …

The CPS ASEC [Annual Social and Economic Supplement] collects data in February, March, and April each year, asking detailed questions categorizing income into over 50 sources. The key purpose of the survey is to provide timely and comprehensive estimates of income, poverty, and health insurance and to measure change in these national-level estimates. The survey is the official source of national poverty estimates….

CALCULATION: $50,000,000,000 / 34,000,000 = $1,471

NOTE: Like all Census Bureau measures of “money” income or other common measures of income, this dataset doesn’t include noncash benefits like subsidized housing, food stamps, charitable services, and government or employer-provided health benefits. Also, the data are collected via government surveys, and low-income households substantially underreport their income on such surveys.

[188] Article: “Volunteer Opportunities: Donations Needed for Upcoming Holidays.” Houston Chronicle, November 17, 2005. <www.chron.com>

In preparation for Thanksgiving and Christmas, volunteers and donations of goods are needed to support Bay Area families in need.

Help prepare or serve meals at Thanksgiving and throughout the holiday season at Ronald McDonald House in Galveston, the Salvation Army in Pasadena and Galveston, New Horizon Family Center in Baytown, Twin Oaks Community Center in Pasadena, Bay Area Turning Point in Webster, and Communities in Schools or Habitat for Humanity locations in the Bay Area.

Groups will accept donations of food

Many organizations are seeking donations of nonperishable food.

Bay Area Turning Point accepts food and grocery gift certificates to help victims of domestic violence. Bay Area Meals on Wheels is seeking individual-sized drinks, snacks, crackers and candy bars to deliver with meals to shut-ins.

Boys and Girls Harbor, a children’s shelter in La Porte, needs nonperishable food for breakfast, lunch and dinner for children.

Communities in Schools is a charity that partners with local schools and needs food or grocery gift certificates to provide to needy children and their families. Hope Village in Friendswood needs food to provide more than 300 meals each day.

Neighborhood Centers in Pasadena and Clear Lake welcome food and paper goods for seniors. The Christus-Our Daily Bread soup kitchen in Galveston welcomes grocery cards to offer to needy individuals.

Food pantries in need of more donations

Food pantries such as Interfaith Caring Ministries in League City, Christian Helping Hands in Pearland, M.I. Lewis Social Services in Dickinson, Southeast Area Ministries in South Houston and the Salvation Army in Galveston are in great need of nonperishable meat, vegetables, fruit, rice and cereal.

[189] Article: “How Well Do Human Services Organizations Do at Fundraising, Compared to Other Charities?” By Nathan Dietz and Kimberly Hawkins. Giving USA, August 11, 2016. <givingusa.org>

“Human Services organizations (HSOs)—food banks, homeless shelters, youth services, sports organizations, family and legal services—are the organizations that many people think of when they think about the nonprofit sector.”

[190] Pamphlet: “Where Did the Generosity Come From? Contributions by Source.” Giving USA, June 10, 2022. <givingusa.org>

“In 2021, Americans gave $484.85 billion to charity, a 4.0% increase over 2020. … [up] 2.2% … $65.33 billion to Human Services … percentage of the total contributions [=] 13%”

[191] Webpage: “Giving Statistics.” Charity Navigator. Accessed December 2, 2020 at <bit.ly>

Charitable giving continued its upward trend in 2017, as an estimated $410.02 billion was given to charitable causes. For the third year in a row, total giving reached record levels. This increase and the overall size of charitable contributions is further testament to the integral role charities play in our society, a role which continues to grow. …

Where do the donations go?

• Giving to Education charities was up 6.2% to $58.9 billion (14% of all donations).

[192] Calculated with data from the footnote above and the report: “Income and Poverty in the United States: 2019.” By Jessica Semega and others. U.S. Census Bureau, September 2020. <www.census.gov>

Page 1:

This report presents data on income and poverty in the United States based on information collected in the 2020 and earlier Current Population Survey Annual Social and Economic Supplements (CPS ASEC) conducted by the Census Bureau.1

• The official poverty rate in 2019 was 10.5 percent, down 1.3 percentage points from 11.8 percent in 2018. This is the fifth consecutive annual decline in poverty.

• The number of people in poverty in 2019 was 34.0 million, approximately 4.2 million fewer than 2018.

Page 20: “The income and poverty estimates shown in this report are based solely on money income before taxes and do not include the value of noncash benefits such as those provided by the Supplemental Nutrition Assistance Program, Medicare, Medicaid, public housing, or employer-provided fringe benefits.”

Page 21:

The CPS [Current Population Survey] is the longest-running survey conducted by the Census Bureau. The CPS is a household survey primarily used to collect employment data. The sample universe for the basic CPS consists of the resident civilian, noninstitutionalized population of the United States. …

The CPS ASEC [Annual Social and Economic Supplement] collects data in February, March, and April each year, asking detailed questions categorizing income into over 50 sources. The key purpose of the survey is to provide timely and comprehensive estimates of income, poverty, and health insurance and to measure change in these national-level estimates. The survey is the official source of national poverty estimates….

CALCULATION: $58,900,000,000 / 34,000,000 = $1,732

NOTE: Like all Census Bureau measures of “money” income or other common measures of income, this dataset doesn’t include noncash benefits like subsidized housing, food stamps, charitable services, and government or employer-provided health benefits. Also, the data are collected via government surveys, and low-income households substantially underreport their income on such surveys.

[193] Webpage: “Giving Statistics.” Charity Navigator. Accessed December 2, 2020 at <bit.ly>

Charitable giving continued its upward trend in 2017, as an estimated $410.02 billion was given to charitable causes. For the third year in a row, total giving reached record levels. This increase and the overall size of charitable contributions is further testament to the integral role charities play in our society, a role which continues to grow. …

Where do the donations go? …

• Health charities experienced an increase of 15.5% to $38.27 billion (9% of all donations).

[194] Calculated with data from the footnote above and the report: “Income and Poverty in the United States: 2019.” By Jessica Semega and others. U.S. Census Bureau, September 2020. <www.census.gov>

Page 1:

This report presents data on income and poverty in the United States based on information collected in the 2020 and earlier Current Population Survey Annual Social and Economic Supplements (CPS ASEC) conducted by the Census Bureau.1

• The official poverty rate in 2019 was 10.5 percent, down 1.3 percentage points from 11.8 percent in 2018. This is the fifth consecutive annual decline in poverty.

• The number of people in poverty in 2019 was 34.0 million, approximately 4.2 million fewer than 2018.

Page 20: “The income and poverty estimates shown in this report are based solely on money income before taxes and do not include the value of noncash benefits such as those provided by the Supplemental Nutrition Assistance Program, Medicare, Medicaid, public housing, or employer-provided fringe benefits.”

Page 21:

The CPS [Current Population Survey] is the longest-running survey conducted by the Census Bureau. The CPS is a household survey primarily used to collect employment data. The sample universe for the basic CPS consists of the resident civilian, noninstitutionalized population of the United States. …

The CPS ASEC [Annual Social and Economic Supplement] collects data in February, March, and April each year, asking detailed questions categorizing income into over 50 sources. The key purpose of the survey is to provide timely and comprehensive estimates of income, poverty, and health insurance and to measure change in these national-level estimates. The survey is the official source of national poverty estimates….

CALCULATION: $38,270,000,000 / 34,000,000 = $1,126

NOTE: Like all Census Bureau measures of “money” income or other common measures of income, this dataset doesn’t include noncash benefits like subsidized housing, food stamps, charitable services, and government or employer-provided health benefits. Also, the data are collected via government surveys, and low-income households substantially underreport their income on such surveys.

[195] Article: “Free and Charitable Clinics Increase Amid Possible Cuts to Healthcare for the Poor.” By Tony Pugh. Miami Herald, June 14, 2017. <www.miamiherald.com>

Unlike Community Health Centers that are federally funded, free and charitable clinics rely mainly on volunteer medical providers and private philanthropic funding. Typical supporters include local churches, businesses, hospitals, universities, foundations and other community organizations.

The clinics mainly serve the uninsured, underinsured and those with trouble accessing primary and specialty care, including undocumented immigrants.

[196] Paper: “Using Linked Survey and Administrative Data to Better Measure Income: Implications for Poverty, Program Effectiveness, and Holes in the Safety Net.” By Bruce D. Meyer and Nikolas Mittag. American Economic Journal: Applied Economics, April 2019. Pages 176–204. <www.aeaweb.org>

Page 176:

We examine the consequences of survey underreporting of transfer programs for prototypical analyses of low-income populations. We link administrative data for four transfer programs to the [Census Bureau’s] CPS [Current Population Survey] to correct its severe understatement of transfer dollars received. Using survey data sharply understates the income of poor households, distorts our understanding of program targeting, and greatly understates the effects of anti-poverty programs. …

Survey data are used for many purposes and are one of the most important sources of information for policymakers and researchers. A large share of the empirical research in economics and other social sciences relies on survey data, as indicated by the hundreds of thousands of citations to the Current Population Survey (CPS).

Pages 181–182:

In our analyses below, we aggregate TANF [Temporary Assistance For Needy Families] and General Assistance [both provide cash welfare†] to public assistance because the two programs have the same benefits in New York and cases are allocated to the programs in significant part to satisfy federal rules rather than based on other distinctions. …

Table 1 reports the false-negative rates, i.e., the share of true recipients who do not report receipt in the survey. In the full sample, the false-negative rate is 43, 63, and 36 percent for SNAP, public assistance, and housing assistance, respectively.

Page 196:

While our specific results pertain to New York, a large and important state, over a four-year period, it is very likely that our results are more general. As Table 5 shows, New York is similar demographically to the rest of the United States in terms of age, education, race, and the share Hispanic. The poverty rate in New York and the generosity of its welfare system are higher than in the nation as a whole. The most striking difference between New York and the rest of the United States is the frequency of public housing receipt. Our results on the importance of underreporting of housing assistance receipt and the understatement of the value of the assistance almost certainly overstate these problems for the rest of the “United States.”25

25 There is a bias in the other direction, though, since we do not have information on the substantial non-HUD housing programs, we understate the differences between the survey and complete administrative data.

NOTE: † See next footnote.

[197] Working paper: “SNAP Misreporting on the CPS: Does It Affect Poverty Estimates?” By Julie Parker. U.S. Census Bureau, September 2011. <www.census.gov>

Pages 1–2:

This paper examines the misreporting of nutritional assistance on the CPS [Current Population Survey] received by Supplement Nutrition Assistance Program (SNAP), formerly known as food stamps.1 In addition, the paper assesses the difference between the SNAP self-reported amount and the administrative amount in relation to the official poverty measure. This research is conducted using probabilistic record linkage techniques on 2005 Texas, Illinois, and Maryland SNAP administrative data and the CPS 2006 Annual Social and Economic Supplement (CPS ASEC).

II. Literature Review

Data from national surveys are used for a variety of reasons. One common use is to assess the effectiveness of social safety net programs and their take-up rates. If these data are incomplete or misreported, then these estimates could be biased and convey false information that could affect public policy. More specifically, the US Census Bureau, with the help of the Bureau of Labor Statistics, is creating a Supplemental Poverty Measure. This new measure of poverty will include many noncash benefits as near-money. A few noncash benefits come from programs such as the National School Lunch Program, housing subsidy, and Supplemental Nutritional Assistance Program. These programs are considered near-money, or in-kind benefits, because they are considered a cash equivalent. This distinction is designed to guarantee that recipients will use public assistance in a specified way.

Previous research has shown that program receipt is often underreported on surveys. These studies have included programs such as the Earned Income Tax Credit,2 Medicaid,3 and Supplemental Nutritional Assistance Program4 (SNAP). This paper will assess how many households misreport SNAP receipt and whether or not the self-reported SNAP amount understates or overstates poverty estimates.

Page 6: “According to the administrative data, 12% of TX, MD, and IL households received SNAP benefits in the 2006 CPS ASEC. About 50% of these households did not report receipt. This suggests that SNAP receipt is underreported in the 2006 CPS ASEC for TX, MD, and IL.10

[198] Paper: “Using Linked Survey and Administrative Data to Better Measure Income: Implications for Poverty, Program Effectiveness, and Holes in the Safety Net.” By Bruce D. Meyer and Nikolas Mittag. American Economic Journal: Applied Economics, April 2019. Pages 176–204. <www.aeaweb.org>

Page 183:

Table 1—Survey Errors in Transfer-Receipt Reporting, CPS New York, 2008–2011

Error Type

Sample

Full Sample

SNAP

Public Assistance

Housing Assistance

False negatives

True recipients

42.8%

63.3%

35.6%

False positives

True recipients

1.9%

0.7%

2.8%

Mean of true amount (annual)

Recipients who report

$3,389

$5,213

$12,000

Mean of reported amount (annual)

Recipients who report

$3,170

$3,152

$3,081

Excess of reported amount (annual) †

Recipients who report

7%

65%

289%

NOTES:

  • † Calculated by Just Facts
  • An Excel file containing the data and calculations is available upon request.

[199] Report: “Tax Gap Estimates for Tax Years 2014–2016.” Internal Revenue Service, August 2022. <www.irs.gov>

Page 1:

This report presents estimates of the tax gap for the Tax Year (TY) 2014–2016 timeframe and tax gap projections for TY 2017–2019. It also provides revised estimates for TY 2011–2013 that incorporate data that were not yet available when the estimates were initially released. The tax gap is a measure of the level of overall noncompliance in the context of Internal Revenue Code (IRC) provisions in effect at the time. The estimates provide the Internal Revenue Service (IRS) with periodic appraisals of the nature and extent of noncompliance for use in formulating tax administration strategies. The word “tax” in the phrase “tax gap” is used broadly to encompass both tax and refundable and nonrefundable tax credits.

Page 2:

Consistent with findings from earlier tax gap analyses, compliance is higher when amounts are subject to information reporting and even higher when also subject to withholding. The extent of coverage by information reporting and/or withholding is called “visibility” because incomes that are reported to the IRS are more “visible” to both the IRS and taxpayers. Misreporting of income amounts subject to substantial information reporting and withholding is 1 percent of income. For amounts subject to substantial information reporting but not withholding, it is 6 percent; and for income amounts subject to little or no information reporting, such as nonfarm sole proprietor income, it is 55 percent.

[200] Calculated with data from the report: “Tax Gap Estimates for Tax Years 2014–2016.” Internal Revenue Service, August 2022. <www.irs.gov>

Page 1:

The gross tax gap is the amount of true tax liability that is not paid voluntarily and timely. The estimated annual gross tax gap for Tax Years (TY) 2014–2016 is $496 billion. The voluntary compliance rate (VCR) is a ratio measure of relative compliance and is defined as the amount of “tax paid voluntarily and timely” divided by “total true tax”, expressed as a percentage. The estimated VCR is 85.0 percent.

The gross tax gap comprises three components:

• Nonfiling (tax not paid on time by those who do not file required returns on time, $39 billion),

• Underreporting (tax understated on timely filed returns, $398 billion), and

• Underpayment (tax that was reported on time, but not paid on time, $59 billion).

The net tax gap is the gross tax gap less tax that subsequently will be paid, either voluntarily but late or collected through IRS administrative and enforcement activities. The net tax gap is the portion of the gross tax gap that will not be paid. An estimated $68 billion of the gross tax gap eventually will be paid, resulting in a TY 2014–2016 net tax gap of $428 billion. The Net Compliance Rate (NCR) is defined as the sum of “tax paid voluntarily and timely” and “enforced and other late payments” divided by “total true tax”, expressed as a percentage. The estimated NCR is 87.0 percent.

The tax gap estimates are also segmented by type of tax. The individual income tax makes up the largest component of the tax gap, contributing $357 billion to the gross tax gap and $306 to the net tax gap. The second and third largest components involve employment tax, which includes self-employment, FICA and FUTA tax, and corporation income tax.

CALCULATION: 100% – 87.0% = 13.0%

[201] Calculated with data from:

a) Report: “Tax Gap Estimates for Tax Years 2014–2016.” Internal Revenue Service, August 2022. <www.irs.gov>

Page 8: “Figure 1. TY [Tax Year] 2014–2016 Tax Gap Map … Net Tax Gap (Tax Not Collected) [=] $428 [billions]”

b) Dataset: “HH-1. Households by Type: 1940 to Present.“ U.S. Census Bureau, November 2022. <www.census.gov>

“Total Households [Numbers in Thousands] … 2016 [=] 125,819”

c) “CPI Inflation Calculator.” Bureau of Labor Statistics. Accessed January 13, 2023 at <www.bls.gov>

“$428 [billion] in January 2016 has the same buying power as $536.18 [billion] in December 2022”

CALCULATION: $536,180,000,000 tax gap / 125,819,000 households = $4,262 / household

[202] Paper: “Household Surveys in Crisis.” By Bruce D. Meyer, Wallace K.C. Mok, and James X. Sullivan. Journal of Economic Perspectives, Fall 2015. Pages 199–226. <www.jstor.org>

Page 199:

Large and nationally representative surveys are arguably among the most important innovations in social science research of the last century. … Household surveys are the source of official rates of unemployment, poverty, health insurance coverage, inflation, and other statistics that guide policy. They are also a primary source of data for economic research and are used to allocate government funds.

Page 200:

One productive approach to measuring the degree of bias in household surveys, along with addressing potential bias, is to compare survey results with administrative data. … We examine the quality of household survey data through comparisons with administrative data from nine large programs that receive considerable attention from both the research and policy community. For example, we compare the total dollar value of food stamp benefits reported, by all respondents in a survey to the total dollar value of food stamp benefits awarded as recorded in US Department of Agriculture, Food and Nutrition Service administrative data.

Our results show a sharp rise in the downward bias in household survey estimates of receipt rates and dollars received for most programs. In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major surveys. In particular, this measurement error typically takes the form of underreporting resulting from true program recipients being recorded as non-recipients. (Throughout this paper we use underreporting as a synonym for understatement or under-recording, since it is likely due to errors by both interviewers and interviewees.) We argue that although all three threats to survey quality are important, in the case of transfer program reporting and amounts, measurement error rather than unit nonresponse or item nonresponse appears to contribute the most bias.

Page 201:

The underreporting of transfer income in surveys has profound implication for our understanding of the low-income population and the effect of government programs for the poor. We point to evidence from linked administrative and survey data that indicates that this underreporting leads to an understatement of incomes at the bottom, the rate of program receipt, and the poverty-reducing effects of government programs—and thus to an overstatement of poverty and inequality.

[203] Report: “Effects of Unauthorized Immigration on the Actuarial Status of the Social Security Trust Funds.” By Stephen Goss and others. U.S. Social Security Administration, Office of the Chief Actuary, April 2013. <www.ssa.gov>

Page 2:

The Census Bureau estimates that the number of people living in the U.S. who were foreign born and not U.S. citizens was 21.7 million in January 2009. Of these, 12.6 million individuals were not legal permanent residents of the U.S. We refer to this group as other immigrants (other than legal permanent resident immigrants). Of this number, about 10.8 million resided in the U.S. in an unauthorized status. The remaining other immigrants resided in the U.S. in a temporary authorized status (for example students and workers with temporary visas).

… Finally, OCACT [Office of the Chief Actuary] estimates 3.9 million other immigrants worked in the underground economy in 2010.

[204] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF):

This paper examines macro and micro sources of information about household income and expenditures. The Bureau of Economic Analysis (BEA) produces macro estimates of personal income and outlays (PI&O) that are part of the U.S. National Income and Product Accounts (NIPAs). … BEA’s estimates of personal income (PI), disposable personal income (DPI), personal outlays (PO), and personal consumption expenditures (PCE) cover the personal sector in the U.S. economy, consisting of resident households and of the nonprofit institutions serving households (NPISHs). … The integrated estimates are developed for the years 2006 through and 2010.

Pages 1–2:

Though the NIPA estimates of household income and expenditures are generally considered to be more accurate than estimates derived from the household surveys and are broader measures, they have no distributional information. A proposed solution, and the approach followed in this paper, is to reconcile the differences in these estimates through the integration of micro data from household surveys with national accounts data.1 This results in measures of income distribution and of other breakdowns of household income and consumption that are consistent with national accounts values and definitions. This is consistent with recommendations made in the “Report by the Commission on the Measurement of Economic Performance and Social Progress,” which stated that “distributional measures should be compatible in scope with average measures from the national accounts” (Stiglitz-Sen-Fitoussi, I.43).

1 BEA and its predecessor agency, the Office of Business Economics, periodically published estimates of the size distribution of national accounts personal income in the U.S. from the 1950s to the 1970s using CPS, Internal Revenue Service, and Federal Reserve Board data, and such estimates were published as part of the National Income and Product Accounts from 1959 to 1964. More recently, the Expert Group on Disparities in National Accounts, sponsored by the Organization for Economic Cooperation and Development (OECD) and Eurostat, has been working to develop internationally comparable estimates of the breakdown of household income and consumption on a national accounts basis, and Fixler and Johnson have done work to account for the distribution of income in the U.S. National Accounts.

[205] Chart constructed with data from:

a) Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 36: “Table 6. Household Consumption Expenditures by Quintiles”

b) Report: “Income, Poverty, and Health Insurance Coverage in the United States: 2010.” By Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith. U.S. Census Bureau, September 2011. <www2.census.gov>

Page 2: “The income and poverty estimates shown in this report are based solely on money income before taxes and do not include the value of noncash benefits, such as nutritional assistance, Medicare, Medicaid, public housing, and employer-provided fringe benefits.”

Page 41: “Table A-3. Selected Measures of Household Income Dispersion: 1967 to 2010”

NOTES:

  • Like all Census Bureau measures of “money” income or other common measures of income, this dataset doesn’t include noncash benefits like subsidized housing, food stamps, charitable services, and government or employer-provided health benefits. Also, the data are collected via government surveys, and low-income households substantially underreport their income on such surveys.
  • See the next footnote for methodological details about the data.

[206] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF):

This paper examines macro and micro sources of information about household income and expenditures. The Bureau of Economic Analysis (BEA) produces macro estimates of personal income and outlays (PI&O) that are part of the U.S. National Income and Product Accounts (NIPAs). The Current Population Survey Annual Statistical and Economic Supplement (CPS–ASEC) from the Census Bureau and the Consumer Expenditure Survey (CE) program from the Bureau of Labor Statistics (BLS) are household surveys used to produce micro estimates of household income and expenditures. The CPS–ASEC collects detailed data on household income and on health insurance coverage. The CE, through the Interview Survey and the Diary Survey, collects data on direct household expenditures, as well as on household income and financial assets. BEA’s estimates of personal income (PI), disposable personal income (DPI), personal outlays (PO), and personal consumption expenditures (PCE) cover the personal sector in the U.S. economy, consisting of resident households and of the nonprofit institutions serving households (NPISHs). The income and consumption estimates are integrated using BEA estimates of household income and outlays (HI&O), which exclude NPISHs. BEA estimates of HI&O are adjusted to match the civilian noninstitutional population covered in CE and CPS–ASEC. Data from CPS–ASEC and the CES are used to distribute the adjusted BEA values by household type, primary source of income, and income quintiles. The integrated estimates are developed for the years 2006 through and 2010. The results of the integration are discussed and the distribution of household income is compared to results from the CPS and Internal Revenue Service (IRS).

Pages 4–5:

The sources used for the NIPA estimates of personal income and outlays are many and diverse, but can be characterized in general as being based on reports by businesses, which are collected administratively, from trade sources, in sample surveys such as the Census Bureau surveys of retail trade and service industries, and in economic censuses conducted at five-year intervals by the Census Bureau. Estimates of government social benefits included in personal income come from Federal agencies and from State and local governments as reported in annual Census Bureau surveys of government finances. Estimates of Social Security and Medicare taxes are based on data from the Social Security Administration, estimates of Federal income taxes are based on data from the Internal Revenue Service, and estimates of state and local taxes are based on annual Census Bureau surveys of government finance. Use of data from CPS–ASEC and CE is very limited: data on self-employment income from the CPS is used to develop adjustments for tax return nonfilers in the NIPA estimates of proprietors income, and in personal consumption expenditures (PCE), CE data for categories such as motor vehicle leasing are used, constituting less than one-half of one percent of the total PCE value.

NIPA estimates are generally considered more accurate than aggregate values derived from household surveys (CE 2006, 2010, 2011; CPS–ASEC 2000, 2004). Reports from businesses collected in economic censuses, sample surveys, and administratively are more reliable than household surveys, which for the CE Interview Survey and CPS–ASEC have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items. For the CE Diary Survey, there are issues of what is sometimes called “diary fatigue”, which refers to the dropoff in recording of expenditures over time, evidenced by a persistent pattern of lower reported expenditures for the second of the one-week surveys compared to the first (CE 1983, 2003). Businesses are required to account for all of their receipts and expenditures on an ongoing basis. NIPA estimates are not considered “the truth” because the data on which they are based are subject to nonsampling error and, in many instances, to sampling error as well. However, NIPA expenditure estimates are periodically benchmarked to estimates based on the economic censuses, which are not subject to sampling error. For the overall economy, NIPA estimates of gross domestic product (GDP) are conceptually identical to gross domestic income (GDI), which measures the incomes generated and the costs incurred in generating GDP. The GDP and GDI measures are derived independently, and the difference between the two, known as the statistical discrepancy, is an indicator of the imperfections of the data used in generating the estimates. The observed range of the statistical discrepancy has been from minus two percent to plus two percent of GDP over time. If CE estimates of consumer expenditures were substituted for comparable NIPA estimates, the effect on the statistical discrepancy would be about $2 trillion in 2010, or about 13 percent of GDP. Significant differences also exist for a number of income components, in particular for property income.

[207] Webpage: “Consumer Expenditure Surveys: Glossary.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified February 13, 2015. <www.bls.gov>

Expenditures consist of the transaction costs, including excise and sales taxes, of goods and services acquired during the interview or recordkeeping period. Expenditure estimates include expenditures for gifts, but exclude purchases or portions of purchases directly assignable to business purposes. Periodic credit or installment payments on goods or services already acquired are also excluded. The full cost of each purchase is recorded, even though full payment may not have been made at the date of purchase. The order of the expenditures listed here follows the order of presentation in published CE [Consumer Expenditure Surveys] tables.

The major expenditure categories are:

• Food

• Housing

• Apparel and Services

• Transportation

• Healthcare

• Entertainment

• Other Expenditures

[208] Webpage: “Consumer Expenditures and Income: Overview.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified September 12, 2022. <www.bls.gov>

The Consumer Expenditure Surveys (CE) are nationwide household surveys conducted by the U.S. Bureau of Labor Statistics (BLS) to study how U.S. consumers spend their money. The surveys are the only federal government data collection effort to obtain information on the complete range of consumers’ expenditures, income, and demographic characteristics, in the same survey, directly from consumers. BLS publishes 12-month estimates of consumer expenditures annually, with the estimates summarized by various income levels and demographic characteristics. BLS also produces annual public use microdata files and an online database to help researchers analyze the data in more detail.

The CE consists of two separate surveys, the Interview Survey and the Diary Survey. BLS designs the Interview Survey to collect data on large and/or recurring expenditures that respondents can be expected to recall for a period of 3 months or longer. In general, expenditures reported in the Interview Survey are either relatively large, such as those for property, automobiles, and major appliances, or recur on a regular basis, such as for rent, utilities, or insurance. BLS designed the Diary Survey to collect data on frequently purchased items, which can be difficult to recall even a few weeks later. These items include food and beverage expenditures at home and in eating places; housekeeping supplies and services; nonprescription drugs; and most personal care products and services. Together, the data from the two surveys cover the complete range of consumer unit expenditures. The U.S. Census Bureau collects CE data for BLS.

[209] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 3:

The Diary Survey includes about 7,100 households per year. Each household completes two one-week diaries, so that there are about 14,200 diaries per year. The Diary Survey is designed to collect data on small, frequently purchased items which are difficult to recall. Diaries are spread evenly through all 52 weeks of the year.

Though there are items unique to the Interview Survey and to the Diary Survey, there is considerable overlap in the coverage of the two surveys. The published CE [Consumer Expenditure Survey ] estimates combine data from the Interview and Diary surveys. When data are covered in both surveys, the more reliable of the two based on statistical criteria are used.

[210] Webpage: “Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

How Are the Consumer Expenditure Surveys Used?

Data from the Consumer Expenditure Surveys are used in a number of different ways by a variety of users. … Government and private agencies use the data to study the welfare of particular segments of the population, such as those consumer units with a reference person aged 65 and older or under age 25, or for low-income consumer units (see the response to question 29 for the definition of a reference person). Economic policymakers use the data to study the impact of policy changes on the welfare of different socioeconomic groups. Researchers use the data in a variety of studies, including those that focus on the spending behavior of different family types, trends in expenditures on various expenditure components including new types of goods and services, gift-giving behavior, consumption studies, and historical spending trends.

[211] Email from the U.S. Bureau of Labor Statistics to Just Facts, August 8, 2017.

Thank you for your interest in the Consumer Expenditure Surveys. You are correct that we treat SSI [Supplemental Security Income] payments and SNAP [Supplemental Nutrition Assistance Program ] benefits as regular income. You are also correct that we track out of pocket expenditures only. We do not collect consumption data that would include benefits received from Medicare and Medicaid.

[212] Article: “Use with Caution: Interpreting Consumer Expenditure Income Group Data.” By Veri Crain and Taylor J. Wilson. Bureau of Labor Statistics, May 5, 2017. <www.bls.gov>

When measuring the well-being of the households in each quintile, analysts should know what CE [Consumer Expenditure Survey] excludes from the definition of income as well as what it includes. The CE excludes noncash benefits such as housing subsidies, women, infants and children (WIC) benefits, school lunch subsidies, gifts received, waived tuition or fees, and professional services or medical benefits received from any source outside the household are not accounted for or identified anywhere in the survey and are not elements of pre-tax income. Owned assets and accumulated wealth are not considered pre-tax income, but these data are collected as part of the CE to provide a more complete picture of household wealth.

[213] Webpage: “Consumer Expenditures and Income: Overview.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified February 25, 2016. <www.bls.gov>

The Consumer Expenditure Survey (CE) is a nationwide household survey conducted by the U.S. Bureau of Labor Statistics (BLS) to find out how Americans spend their money. It is the only federal government survey that provides information on the complete range of consumers’ expenditures as well as their incomes and demographic characteristics. …

The CE consists of estimates derived from two separate surveys, the Interview Survey and the Diary Survey. The Quarterly Interview Survey is designed to collect data on large and recurring expenditures that consumers can be expected to recall for a period of 3 months or longer, such as rent and utilities, and the Diary Survey is designed to collect data on small, frequently purchased items, including most food and clothing. Together, the data from the two surveys cover the complete range of consumers’ expenditures. CE data are collected for BLS by the U.S. Census Bureau.

[214] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF):

The Current Population Survey Annual Statistical and Economic Supplement (CPS–ASEC) from the Census Bureau and the Consumer Expenditure Survey (CE) program from the Bureau of Labor Statistics (BLS) are household surveys used to produce micro estimates of household income and expenditures.

Page 3:

Reports from businesses collected in economic censuses, sample surveys, and administratively are more reliable than household surveys, which for the CE Interview Survey and CPS–ASEC have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items. For the CE Diary Survey, there are issues of what is sometimes called “diary fatigue”, which refers to the dropoff in recording of expenditures over time, evidenced by a persistent pattern of lower reported expenditures for the second of the one-week surveys compared to the first (CE 1983, 2003).

[215] Paper: “Household Surveys in Crisis.” By Bruce D. Meyer, Wallace K.C. Mok, and James X. Sullivan. The Journal of Economic Perspectives, Fall 2015. Pages 199–226. <www.jstor.org>

Page 199:

Large and nationally representative surveys are arguably among the most important innovations in social science research of the last century. … Household surveys are the source of official rates of unemployment, poverty, health insurance coverage, inflation, and other statistics that guide policy. They are also a primary source of data for economic research and are used to allocate government funds.

Page 200:

One productive approach to measuring the degree of bias in household surveys, along with addressing potential bias, is to compare survey results with administrative data. … We examine the quality of household survey data through comparisons with administrative data from nine large programs that receive considerable attention from both the research and policy community. For example, we compare the total dollar value of food stamp benefits reported, by all respondents in a survey to the total dollar value of food stamp benefits awarded as recorded in US Department of Agriculture, Food and Nutrition Service administrative data.

Our results show a sharp rise in the downward bias in household survey estimates of receipt rates and dollars received for most programs. In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major surveys. In particular, this measurement error typically takes the form of underreporting resulting from true program recipients being recorded as non-recipients. (Throughout this paper we use underreporting as a synonym for understatement or under-recording, since it is likely due to errors by both interviewers and interviewees.) We argue that although all three threats to survey quality are important, in the case of transfer program reporting and amounts, measurement error rather than unit nonresponse or item nonresponse appears to contribute the most bias.

Page 201:

The underreporting of transfer income in surveys has profound implication for our understanding of the low-income population and the effect of government programs for the poor. We point to evidence from linked administrative and survey data that indicates that this underreporting leads to an understatement of incomes at the bottom, the rate of program receipt, and the poverty-reducing effects of government programs—and thus to an overstatement of poverty and inequality.

[216] Calculated with data from the: “2021 Consumer Expenditure Survey.” Bureau of Labor Statistics, September 2022. <www.bls.gov>

“Table 1110. Deciles of Income Before Taxes: Annual Expenditure Means, Shares, Standard Errors, and Coefficients of Variation.” <www.bls.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[217] Article: “Use with Caution: Interpreting Consumer Expenditure Income Group Data.” By Veri Crain and Taylor J. Wilson. Bureau of Labor Statistics, May 5, 2017. <www.bls.gov>

Thirteen percent of the reference persons in the lowest 20 percent quintile identified themselves as college students.3 An additional 33 percent of the reference persons reported that they were retirees. … The lowest quintile reports 38 percent as homeowners, with 27 percent of the total reporting as homeowners without a mortgage. Given the proportion of college students and retirees, who are assigned to the lowest 20 percent, one can assume that not all households within the lowest quintile represent the usual image of a “poor” household. …

… The lowest 20 percent has an average of 0.5 earners per household, while the highest 20 percent has an average of 2.0 earners per household. Because income quintiles are based on household income, one might assume that households with more earners would report more income than households that have fewer earners.

[218] Webpage: “Consumer Expenditure Survey, Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

Why Do Average Annual Expenditures Exceed Income for Some of the Demographic Groups? How Can Consumer Units Spend More Than They Earn?

Data users may notice that average annual expenditures presented in the income tables sometimes exceed income before taxes for the lower income groups. Consumer units whose members experience a spell of unemployment may draw on their savings to maintain their expenditures. Self-employed consumers may experience business losses that result in low or even negative incomes, but are able to maintain their expenditures by borrowing or relying on savings. Students may get by on loans while they are in school, and retirees may rely on drawing down savings and investments.

[219] Article: “CE Data: Quintiles of Income Versus Quintiles of Outlays.” By John M. Rogers and Maureen B. Gray. U.S. Department of Labor, Bureau of Labor Statistics Monthly Labor Review, December 1994. <www.bls.gov>

Page 33:

Results from the CE [Consumer Expenditure] Survey have typically shown that when the data are classified by income quintile, the expenditures-to-income ratio is quite high for the lowest income quintile. Table 1 shows the relationship between expenditures and income for 1992, using data from the interview component of the CE Survey. The trend in the expenditures-to-income ratios from the first to the fifth quintile is decreasing, as expected, with expenditures exceeding income in the first and second quintiles. That expenditures exceed income in these quintiles is not unreasonable, given consumers’ access to savings, borrowing, and credit, mentioned earlier. However, the degree by which expenditures exceed income—a factor greater than 2 for the lowest quintile—seems extreme. Indeed, one of the most commonly asked questions about CE Survey data pertains to expenditures exceeding income for the lower income classes.

Page 37:

The article also shows that consumer units in the lowest income quintile are not necessarily the same consumer units in the lowest outlays quintile. Indeed, some consumer units in the lowest income quintile have expenditures that are more typical of upper-income consumers.

[220] Calculated with data from:

a) “Consumer Expenditure Surveys, 1984–2021.” Bureau of Labor Statistics. <www.bls.gov>

“Table 1. Quintiles of Income Before Taxes: Average Annual Expenditures and Characteristics.” Consumer Expenditure Survey, 1984–2011. <www.bls.gov>

“Table 1101. Quintiles of Income Before Taxes: Annual Expenditure Means, Shares, Standard Errors, and Coefficients of Variation.” Consumer Expenditure Survey, 2012–2021. <www.bls.gov>

b) Dataset: “Table 2.3.4. Price Indexes for Personal Consumption Expenditures by Major Type of Product.” U.S. Department of Commerce, Bureau of Economic Analysis. Last revised January 27, 2022. <apps.bea.gov>

Line 1: “Personal consumption expenditures (PCE)”

NOTE: An Excel file containing the data and calculations is available upon request.

[221] Webpage: “Consumer Expenditure Survey, Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

What Is a Consumer Unit?

A consumer unit consists of any of the following:

1. All members of a particular household who are related by blood, marriage, adoption, or other legal arrangements.

2. A person living alone or sharing a household with others or living as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent.

3. Two or more persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by spending behavior with regard to the three major expense categories: housing, food, and other living expenses. To be considered financially independent, the respondent must provide at least two of the three major expenditure categories, either entirely or in part.

The terms consumer unit, family, and household are often used interchangeably for convenience. However, the proper technical term for purposes of the CE [consumer expenditure] data is consumer unit.

[222] Calculated with data from:

a) Dataset: “Table 1. Quintiles of Income Before Taxes: Average Annual Expenditures and Characteristics.” Consumer Expenditure Survey 1984. Bureau of Labor Statistics. Accessed May 10, 2019 at <www.bls.gov>

b) “2021 Consumer Expenditure Surveys.” Bureau of Labor Statistics, September 2022. <www.bls.gov>

“Table 1101. Quintiles of Income Before Taxes: Annual Expenditure Means, Shares, Standard Errors, and Coefficients of Variation.” <www.bls.gov>

c) Dataset: “Table 2.3.4. Price Indexes for Personal Consumption Expenditures by Major Type of Product.” U.S. Department of Commerce, Bureau of Economic Analysis. Last revised January 27, 2022. <apps.bea.gov>

Line 1: “Personal consumption expenditures (PCE)”

NOTE: An Excel file containing the data and calculations is available upon request.

[223] Webpage: “Consumer Expenditure Survey, Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

What Is a Consumer Unit?

A consumer unit consists of any of the following:

1. All members of a particular household who are related by blood, marriage, adoption, or other legal arrangements.

2. A person living alone or sharing a household with others or living as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent.

3. Two or more persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by spending behavior with regard to the three major expense categories: housing, food, and other living expenses. To be considered financially independent, the respondent must provide at least two of the three major expenditure categories, either entirely or in part.

The terms consumer unit, family, and household are often used interchangeably for convenience. However, the proper technical term for purposes of the CE [consumer expenditure] data is consumer unit.

[224] Report: “100 Years of U.S. Consumer Spending.” U.S. Department of Labor, Bureau of Labor Statistics, August 2006. <www.bls.gov>

Page 1:

The clearest indicators of an improved standard of living are income levels and household expenditures. Between 1901 and 2003, the average U.S. household’s income increased 67-fold, from $750 to $50,302. During the same period, household expenditures increased 53-fold, from $769 to $40,748. Equally dramatic is that the $40,748 would have bought more than $2,000 worth of goods in 1901 prices, indicating a tripling of purchasing power.

One significant effect of this upsurge was the change to a consumer goods-oriented U.S. economy. Mass consumption, spurred by advertising and consumer credit, has become a distinguishing characteristic of modern society. Today, consumer spending has become the largest component of U.S. gross domestic product.1

As a result, household expenditure and income data constitute a valuable resource in assessing the health and vitality of the U.S. economy, as well as those of individual households or families.2 While no two families spend money in exactly the same manner, indicators suggest that families allocate their expenditures with some regularity and predictability. Consumption patterns indicate the priorities that families place on the satisfaction of the following needs: Food, clothing, housing, heating and energy, health, transportation, furniture and appliances, communication, culture and education, and entertainment.3

1 See Valentino Piana, “Consumption,” at <www.economicswebinstitute.org> (visited February 14, 2005).

2 The terms “households” and “families” are used interchangeably in this report.

3 Valentino Piana, “Consumption.”

[225] Calculated with data from the: “2021 Consumer Expenditure Surveys.” Bureau of Labor Statistics, September 2022. <www.bls.gov>

“Table 1101. Quintiles of Income Before Taxes: Annual Expenditure Means, Shares, Standard Errors, and Coefficients of Variation.” <www.bls.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[226] Webpage: “Consumer Expenditure Survey, Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

What Is a Consumer Unit?

A consumer unit consists of any of the following:

1. All members of a particular household who are related by blood, marriage, adoption, or other legal arrangements.

2. A person living alone or sharing a household with others or living as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent.

3. Two or more persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by spending behavior with regard to the three major expense categories: housing, food, and other living expenses. To be considered financially independent, the respondent must provide at least two of the three major expenditure categories, either entirely or in part.

The terms consumer unit, family, and household are often used interchangeably for convenience. However, the proper technical term for purposes of the CE [consumer expenditure] data is consumer unit.

[227] Calculated with data from:

a) Report: “100 Years of U.S. Consumer Spending.” U.S. Department of Labor, Bureau of Labor Statistics, August 2006. <www.bls.gov>

Page 6: “Chart 4. Expenditure shares, United States, New York, and Massachusetts, 1901.”

Page 13: “Chart 8. Expenditure shares, United States, New York, and Massachusetts, 1918–19.”

Page 20: “Chart 12. Expenditure shares, United States, New York, and Massachusetts, 1934–36.”

Page 26: “Chart 16. Expenditure shares, United States, New York, and Massachusetts, 1950.”

Page 32: “Chart 20. Expenditure shares, United States, New York, and Massachusetts, 1960–61.”

Page 39: “Chart 24. Expenditure shares, United States, New York, and Massachusetts, 1972–73.”

Page 47: “Chart 28. Expenditure shares, United States, New York, and Massachusetts, 1984–85.”

Page 55: “Chart 32. Expenditure shares, United States, New York, and Massachusetts, 1996–97.”

Page 62: “Chart 36. Expenditure shares, United States, New York, and Massachusetts, 2002–03.”

b) “2021 Consumer Expenditure Surveys.” Bureau of Labor Statistics, September 2022. <www.bls.gov>

“Table 1101. Quintiles of Income Before Taxes: Annual Expenditure Means, Shares, Standard Errors, and Coefficients of Variation.” <www.bls.gov>

NOTE: An Excel file containing the data is available upon request.

[228] Webpage: “Consumer Expenditure Survey, Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

What Is a Consumer Unit?

A consumer unit consists of any of the following:

1. All members of a particular household who are related by blood, marriage, adoption, or other legal arrangements.

2. A person living alone or sharing a household with others or living as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent.

3. Two or more persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by spending behavior with regard to the three major expense categories: housing, food, and other living expenses. To be considered financially independent, the respondent must provide at least two of the three major expenditure categories, either entirely or in part.

The terms consumer unit, family, and household are often used interchangeably for convenience. However, the proper technical term for purposes of the CE [consumer expenditure] data is consumer unit.

[229] Webpage: “Consumer Expenditure Survey, Frequently Asked Questions.” U.S. Department of Labor, Bureau of Labor Statistics. Last modified June 9, 2022. <www.bls.gov>

Are Historical Data From the Consumer Expenditure Surveys Available?

Yes. Prior to 1980, the Consumer Expenditure surveys were conducted about every 10 years. Since that time, it has been an ongoing survey. Online data tables are available for 1961, 1972–73, and later surveys. For information about the availability of any CE [consumer expenditure surveys] data, including historical data, contact the Division of Consumer Expenditure Survey.

Caution should be used in comparing data from the current surveys with those gathered before the 1972–73 surveys, or even during the first few years of the current survey, due to changes in concepts and definitions. For example, integrated data from the Diary and Interview Surveys have been published for 1972–73 and from 1984 onward; prior to 1972–73, data from each survey were published separately. The Consumer Expenditure Surveys have electronic versions of integrated tables for 1972–73 and annually from 1984 onward. Also prior to 1972–73, published data covered only the urban portion of the population. Beginning in 1972–73 and from 1984 onward, the published data are for the total population, urban and rural.

[230] Report: “100 Years of U.S. Consumer Spending.” U.S. Department of Labor, Bureau of Labor Statistics, August 2006. <www.bls.gov>

Page 70:

Perhaps as revealing as the shift in consumer expenditure shares over the past 100 years is the wide variety of consumer items that had not been invented during the early decades of the 20th century but are commonplace today. In the 21st century, households throughout the country have purchased computers, televisions, iPods, DVD players, vacation homes, boats, planes, and recreational vehicles. They have sent their children to summer camps; contributed to retirement and pension funds; attended theatrical and musical performances and sporting events; joined health, country, and yacht clubs; and taken domestic and foreign vacation excursions. These items, which were unknown and undreamt of a century ago, are tangible proof that U.S. households today enjoy a higher standard of living.

[231] Calculated with data from the “2020 Residential Energy Consumption Survey.” U.S. Energy Information Administration. May 2022. <www.eia.gov>

“Table HC7.5 Air Conditioning in U.S. Homes, by Household Income, 2020.” <www.eia.gov>

“Table HC3.5 Appliances in U.S. Homes, by Household Income, 2020.” <www.eia.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[232] Calculated with data from the “2020 Residential Energy Consumption Survey.” U.S. Energy Information Administration. May 2022. <www.eia.gov>

“Table HC4.5 Electronics in U.S. Homes by Household Income, 2020.” <www.eia.gov>

NOTE: An Excel file containing the data and calculations is available upon request.

[233] News release: “Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, Third Quarter 2022.” Bureau of Economic Analysis, December 22, 2022. <www.bea.gov>

Page 6:

Gross domestic product (GDP), or value added, is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

[234] Book: Economics: Principles and Policy (12th edition). By William Baumol and Alan Blinder. South-Western Cengage Learning, 2011.

Page 491:

To sharpen the point, observe that real GDP is, by definition, the product of the total hours of work in the economy times the amount of output produced per hour—what we have just called labor productivity:

GDP = Hours of work × Output per hour = Hours worked × Labor productivity

For example, in the United States today, in round numbers, GDP is about $15 trillion and total hours of work per year are about 230 billion. Thus labor productivity is roughly $15 trillion/230 billion hours, or about $65 per hour.

[235] Textbook: Macroeconomics for Today (6th edition). By Irvin B. Tucker. South-Western Cengage Learning, 2010.

Page 530: “GDP [gross domestic product] per capita provides a general index of a country’s standard of living. Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.”

[236] Calculated with the dataset: “Real Gross Domestic Product Per Capita, Chained 2012 Dollars, 1947–2021.” Federal Reserve Bank of St. Louis, December 22, 2022 <fred.stlouisfed.org>

CALCULATION: $59,027 GDP in 2021 / $14,128 GDP in 1947 = 4.2

NOTE: An Excel file containing the data and calculation is available upon request.

[237] Dataset: “Real Gross Domestic Product Per Capita, Chained 2012 Dollars, 1947–2021.” Federal Reserve Bank of St. Louis, December 22, 2022 <fred.stlouisfed.org>

[238] Webpage: “US Business Cycle Expansions and Contractions.” National Bureau of Economic Research. Last updated March 14, 2023. <www.nber.org>

“Contractions (recessions) start at the peak of a business cycle and end at the trough. … Peak Month (Peak Quarter) [=] December 2007 (2007Q4) … Trough Month (Trough Quarter) [=] June 2009 (2009Q2)”

[239] “WHO Director-General’s Opening Remarks at the Media Briefing on Covid-19.” World Health Organization, March 11, 2020. <www.who.int>

[Dr. Tedros Adhanom Ghebreyesus:] …

WHO [World Health Organization] has been assessing this outbreak around the clock and we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction.

We have therefore made the assessment that COVID-19 can be characterized as a pandemic.

[240] Press release: “COVID-19 and Other Global Health Issues.” World Health Organization, May 5, 2023. <www.justfacts.com>

[Dr. Tedros Adhanom Ghebreyesus:] …

Yesterday, the Emergency Committee met for the 15th time and recommended to me that I declare an end to the public health emergency of international concern. I have accepted that advice. It’s therefore with great hope that I declare COVID-19 over as a global health emergency.

[241] Dataset: “Real Gross Domestic Product Per Capita, Percent Change from Year Ago, 1948–2021.” Federal Reserve Bank of St. Louis, December 22, 2022. <fred.stlouisfed.org>

[242] Webpage: “US Business Cycle Expansions and Contractions.” National Bureau of Economic Research. Last updated March 14, 2023. <www.nber.org>

“Contractions (recessions) start at the peak of a business cycle and end at the trough. … Peak Month (Peak Quarter) [=] December 2007 (2007Q4) … Trough Month (Trough Quarter) [=] June 2009 (2009Q2)”

[243] “WHO Director-General’s Opening Remarks at the Media Briefing on Covid-19.” World Health Organization, March 11, 2020. <www.who.int>

[Dr. Tedros Adhanom Ghebreyesus:] …

WHO [World Health Organization] has been assessing this outbreak around the clock and we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction.

We have therefore made the assessment that COVID-19 can be characterized as a pandemic.

[244] Press release: “COVID-19 and Other Global Health Issues.” World Health Organization, May 5, 2023. <www.justfacts.com>

[Dr. Tedros Adhanom Ghebreyesus:] …

Yesterday, the Emergency Committee met for the 15th time and recommended to me that I declare an end to the public health emergency of international concern. I have accepted that advice. It’s therefore with great hope that I declare COVID-19 over as a global health emergency.

[245] Paper: “Public Debt Overhangs: Advanced-Economy Episodes Since 1800.” By Carmen M. Reinhart (University of Maryland), Kenneth S. Rogoff (Harvard University), and Vincent R. Reinhart (chief U.S. economist at Morgan Stanley). Journal of Economic Perspectives, Summer 2012. Pages 69–86. <online.wsj.com>

Page 70:

In this paper, we use the long-dated cross-country data on public debt developed by Reinhart and Rogoff (2009) to examine the growth and interest rates associated with prolonged periods of exceptionally high public debt, defined as episodes where public debt to GDP exceeded 90 percent for at least five years. (The basic results here are reasonably robust to choices other than 90 percent as the critical threshold, as in Reinhart and Rogoff 2010a, b).1 Over the years 1800–2011, we find 26 such episodes across the advanced economies. While data limitations may have prevented us from including every episode of high public debt in advanced economies since 1800, we are confident that this list encompasses the preponderance of such episodes. To focus on the association between high debt and long-term growth, we only cursorily treat shorter episodes lasting under five years, of which there turn out to be only a few. The long length of typical public debt overhang episodes suggests that even if such episodes are originally caused by a traumatic event such as a war or financial crisis, they can take on a self-propelling character.

Consistent with a small but growing body of research, we find that the vast majority of high debt episodes—23 of the 26—coincide with substantially slower growth. On average across individual countries, debt/GDP levels above 90 percent are associated with an average annual growth rate 1.2 percent lower than in periods with debt below 90 percent debt; the average annual levels are 2.3 percent during the periods of exceptionally high debt versus 3.5 percent otherwise.

CALCULATION: (3.5 – 2.3) / 3.5 = 34.3%

[246] Calculated with data from:

a) Webpage: “Debt to the Penny.” U.S. Department of the Treasury, Bureau of the Fiscal Service. Accessed January 18, 2023 at <fiscaldata.treasury.gov>

“Record Date [=] 12/30/2022 … Total Public Debt Outstanding [=] $31,419,689,421,557.90”

b) Dataset: “Table 1.1.5. Gross Domestic Product.” U.S. Bureau of Economic Analysis. Last revised February 23, 2023. <apps.bea.gov>

“[Billions of dollars] Seasonally adjusted at annual rates … Gross Domestic Product … 2022 [=] 25,464.5”

CALCULATION: $31,419,689,421,558 debt / $25,464,500,000,000 GDP = 123%

[247] Calculated with data from the working paper: “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff.” By Thomas Herndon, Michael Ash, and Robert Pollin. Political Economy Research Institute, April 15, 2013. Revised 4/22/13. <www.peri.umass.edu>

Page 21: “Table 3: Published and replicated average real GDP growth, by public debt/GDP category”

NOTE: An Excel file containing the data and calculations is available here. See the tab entitled “HAP results.”

[248] Report: “Concepts and Methods of the U.S. National Income and Product Accounts (Chapter 5).” U.S. Bureau of Economic Analysis, December 2022. <www.bea.gov>

Pages 5-2–5-3:

PCE [personal consumption expenditures] measures the goods and services purchased by “persons”—that is, by households and by nonprofit institutions serving households (NPISHs)—who are resident in the United States. Persons resident in the United States are those who are physically located in the United States and who have resided, or expect to reside, in this country for 1 year or more. PCE also includes purchases by U.S. government civilian and military personnel stationed abroad, regardless of the duration of their assignments, and by U.S. residents who are traveling or working abroad for 1 year or less.3

Table 5.1 shows the kinds of transactions that are included in and excluded from PCE. Most of PCE consists of purchases of new goods and of services by households from private business. In addition, PCE includes purchases of new goods and of services by households from government and government enterprises, the costs incurred by NPISHs in providing services on behalf of households, net purchases of used goods by households, and purchases abroad of goods and services by U.S. residents traveling, working, or attending school in foreign countries. PCE also includes expenditures financed by third-party payers on behalf of households, such as employer-paid health insurance and medical care financed through government programs, and it includes expenses associated with life insurance and with private and government employee pension plans. Finally, PCE includes imputed purchases that keep PCE invariant to changes in the way that certain activities are carried out—for example, whether housing is rented or owned or whether employees are paid in cash or in kind. PCE transactions are valued in market prices, including sales and excise taxes.

In the NIPAs [national income and product accounts], final consumption expenditures by NPISHs is the portion of PCE that represents the services that are provided to households by NPISHs without explicit charge (such as the value of the education services provided by a nonprofit college or university that is over and above the tuition and other costs paid by or for the student’s household). It is equal to their gross output, which is measured as their current operating expenses (not including purchases of buildings and equipment, which are treated as private fixed investment), less their sales to households and to other sectors of the economy (such as sales of education services to employers) and less the value of any investment goods (such as software) that are produced directly by the NPISH. Services that are provided by NPISHs and are paid by or on behalf of households (such as the tuition and other costs) are already accounted for in PCE as purchases by households.

[249] Article: “Why Does GDP Include Imputations?” U.S. Bureau of Economic Analysis, April 23, 2008. <www.bea.gov>

Imputations approximate the price and quantity that would be obtained for a good or service if it was traded in the market place. The largest imputation in the GDP [gross domestic product] accounts is that made to approximate the value of the services provided by owner-occupied housing. That imputation is made so that the treatment of owner-occupied housing in the GDP is comparable to that of tenant-occupied housing, which is valued by rent paid. That practice keeps GDP invariant as to whether a house is owner-occupied or rented. In the GDP, the purchase of a new house is treated as an investment; the ownership of the home is treated as a productive activity; and a service is assumed to flow from the house to the occupant over the economic life of the house. For the homeowner, the value of that service is measured as the income the homeowner could have received if the house had been rented to a tenant. …

In addition to imputations for nonmarket transactions, the GDP accounts redirect certain transactions so that the consumption is attributed to the ultimate recipient of the good or service rather than to the payer. An important example is health care, which is generally paid for by private health insurance (often provided by the employer), by government insurance plans such as Medicare and Medicaid, or by consumer out-of-pocket payments for deductibles, copayments, and uninsured expenses. In the GDP, these health-care transactions are redirected so that they are included in personal consumption expenditures, reflecting the role of households as the final consumers of those health goods and services.

[250] Webpage: “What We Do.” World Bank. Accessed April 25, 2017 at <www.worldbank.org>

The World Bank Group has set two goals for the world to achieve by 2030:

• End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%

• Promote shared prosperity by fostering the income growth of the bottom 40% for every country

The World Bank is a vital source of financial and technical assistance to developing countries around the world. We are not a bank in the ordinary sense but a unique partnership to reduce poverty and support development. The World Bank Group comprises five institutions managed by their member countries.

[251] “World Development Report 2000/2001: Attacking Poverty.” World Bank, September 2000. <openknowledge.worldbank.org>

Page 17:

The World Bank’s Approach

The World Bank has been estimating global income poverty figures since 1990. The latest round of estimation, in October 1999, used new sample survey data and price information to obtain comparable figures for 1987, 1990, 1993, 1996, and 1998 (the figures for 1998 are preliminary estimates). The method is the same as in past estimates (World Bank 1990, 1996d).

Consumption. Poverty estimates are based on consumption or income data collected through household surveys. Data for 96 countries, from a total of 265 nationally representative surveys, corresponding to 88 percent of the developing world’s people are now available, up from only 22 countries in 1990. Of particular note is the increase in the share of people covered in Africa from 66 to 73 percent, a result of extensive efforts to improve household data in the region.

Consumption is conventionally viewed as the preferred welfare indicator, for practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.

[252] Report: “Eurostat–OECD Methodological Manual on Purchasing Power Parities.” Eurostat and the Organization for Economic Cooperation and Development, 2012. <www.oecd-ilibrary.org>

Pages 20–21:

50. GDP [gross domestic product] is a measure of production but it can also be defined as the sum of all final expenditures incurred by the country’s resident institutional sectors during the accounting period which, in the case of Eurostat and OECD [the Organization for Economic Cooperation and Development] comparisons, is a year. GDP is widely used to compare the economic size of countries and GDP per capita is frequently used to compare the material well-being of their resident households. While GDP is a good indicator of the level of economic activity, it is not an accurate measure of material well-being, when material well-being is defined in terms of individual goods and services consumed by households (that is, the goods and services that households consume to satisfy their individual needs). This is because GDP covers not only individual goods and services but also collective services provided to the community by government, capital goods and net exports.

51. Individual consumption expenditure by households is defined as the final consumption expenditure incurred by households on individual goods and services. In other words, it covers only the goods and services that households purchase to satisfy their individual needs. Even so, it is not a good measure for comparing material well-being between countries because it covers only the purchase of individual services by households and does not include the provision of individual services, particularly health and education services, to households by government and Non-Profit Institutions serving Households (NPISHs).

52. In some countries, government and NPISHs provide the greater part of health and education services and these expenditures are included in the individual consumption expenditure of government and the individual consumption expenditure of NPISHs. In other countries, households purchase nearly all health and education services from market producers and these expenditures are included in the individual consumption expenditure of households. Under these circumstances, individual consumption expenditure by households is not the correct measure with which to compare the volumes of individual goods and services actually consumed by households in different countries. Households in countries where government and NPISHs are the main providers of individual services will appear to consume a smaller volume of goods and services than households in countries where the households themselves pay directly for the bulk of these services. This can be avoided by comparing the actual individual consumption of countries.

53. Actual individual consumption is defined as individual consumption expenditure by households plus individual consumption expenditure by government plus individual consumption expenditure by NPISHs. Of the three national accounting aggregates discussed, it is the best measure of material well-being. This is because it comprises only the goods and services that households actually consume to satisfy their individual needs. It covers all such goods and services irrespective of whether they are purchased by the households themselves or are provided as social transfers in kind by government and NPISHs.

[253] Webpage: “Where: Global Reach.” Organization for Economic Cooperation and Development. Accessed January 18, 2023 at <www.oecd.org>

Today, our 38 Member countries span the globe.…

Australia, Austria, Belgium, Canada, Chile, Columbia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, [South] Korea, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States …

The most recent countries to join the OECD [Organization for Economic Cooperation and Development] were Colombia, in April 2020, and Costa Rica, in May 2021. On 25 January 2022, the Council decided to take the first step in accession discussions with six candidate countries to OECD Membership – Argentina, Brazil, Bulgaria, Croatia, Peru and Romania. Accession Roadmaps for Brazil, Bulgaria, Croatia, Peru and Romania were adopted at the Council meeting at Ministerial level on 10 June 2022. Conversations regarding the next steps with Argentina are on-going.

[254] Book: Beyond Economic Growth: An Introduction to Sustainable Development (2nd edition). By Tatyana P. Soubbotina. World Bank, 2004. <documents.worldbank.org>

Pages 132–133:

Developed countries (industrial countries, industrially advanced countries). High-income countries, in which most people have a high standard of living. Sometimes also defined as countries with a large stock of physical capital, in which most people undertake highly specialized activities. … Depending on who defines them, developed countries may also include middle-income countries with transition economies, because these countries are highly industrialized. Developed countries contain about 15 percent of the world’s population. They are also sometimes referred to as “the North.”

Page 141:

Organisation for Economic Cooperation and Development (OECD). An organization that coordinates policy mostly among developed countries. OECD member countries exchange economic data and create unified policies to maximize their countries’ economic growth and help nonmember countries develop more rapidly. The OECD arose from the Organisation for European Economic Cooperation (OEEC), which was created in 1948 to administer the Marshall Plan in Europe. In 1960, when the Marshall Plan was completed, Canada, Spain, and the United States joined OEEC members to form the OECD.

[255] Calculated with data from:

a) Dataset: “Household and NPISHs Final Consumption Expenditure Per Capita (Constant 2010 US$).” World Bank, March 1, 2023. <data.worldbank.org>

b) Dataset: “Price Level Ratio of PPP Conversion Factor (GDP) to Market Exchange Rate.” World Bank, March 1, 2023. <data.worldbank.org>

c) Dataset: “PPP Conversion Factor, Private Consumption (LCU Per International $).” World Bank, March 1, 2023. <data.worldbank.org>

d) Dataset: “Official Exchange Rate (LCU Per US$, Period Average).” World Bank, March 1, 2023. <data.worldbank.org>

NOTE: An Excel file containing the data and calculations is available upon request.

[256] Working paper: “The Redistributive Capacity of Services in the EU [European Union].” By Gerlinde Verbist and Manos Matsaganis. Amsterdam Institute for Advanced Labour Studies, July 2012. <gini-research.org>

Page 7:

Welfare states provide social benefits in cash and in kind. Cash benefits are income transfers, such as retirement pensions, family and unemployment benefits and social assistance. Benefits in kind are commodities directly transferred to recipients at zero or below-market prices (Barr 2012).

In Europe, benefits in kind are usually services, such as health, education, child care and care for the elderly. For example, hospital care in most countries is provided either free of charge or at near-zero prices (at the point of use). User fees are even rarer in the case of primary and secondary education: enrolment is compulsory up to a certain age, while tuition is provided free of charge to all children attending publicly funded schools, irrespective of family income. Moreover, child care is often heavily subsidised; kindergartens are run by the state (most commonly local governments) or government-supervised private organisations, while user fees, where applicable, are usually income-related (in the sense that higher-income families pay higher fees, while lower-income ones pay less or are fully exempted). Elderly care may also be available on similar terms; besides, several countries have developed long-term care insurance schemes, to cater for the future needs of an ageing population.

Benefits in kind in the form of goods (rather than services) are rather uncommon in Europe. Housing is a partial exception: in some countries council flats are allocated at subsidised rents (or free of charge) to eligible families. Nevertheless, in many countries rent subsidies and the direct provision of social housing have been phased out in favour of means-tested housing allowances in cash, except for emergency accommodation which remains available for selected groups in acute need (i.e. the homeless, refugees, victims of family abuse and so on). Furthermore, even though food parcels may be handed out by charities and soup kitchens may be organised by municipalities, these are sporadic, or are limited to emergencies, or cater for the needs of marginal groups such as the homeless.1

1 Outside Europe, the direct provision of food to the poor as a matter of course (i.e. not only in the case of famine relief and other emergencies) is still quite common in the USA and some Latin American countries (examples are Programa Apoyo Alimentario (PAL) in Mexico or Food Stamps programs in the USA.

[257] Webpage: “Glossary of Statistical Terms: Purchasing Power Parities (PPPs).” Organization for Economic Cooperation and Development, September 25, 2001. Last updated 6/11/13. <bit.ly>

Purchasing power parities (PPPs) are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries.

[258] Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 1 (of PDF):

This paper examines macro and micro sources of information about household income and expenditures. The Bureau of Economic Analysis (BEA) produces macro estimates of personal income and outlays (PI&O) that are part of the U.S. National Income and Product Accounts (NIPAs). … BEA’s estimates of personal income (PI), disposable personal income (DPI), personal outlays (PO), and personal consumption expenditures (PCE) cover the personal sector in the U.S. economy, consisting of resident households and of the nonprofit institutions serving households (NPISHs). … The integrated estimates are developed for the years 2006 through and 2010.

Pages 1–2:

Though the NIPA estimates of household income and expenditures are generally considered to be more accurate than estimates derived from the household surveys and are broader measures, they have no distributional information. A proposed solution, and the approach followed in this paper, is to reconcile the differences in these estimates through the integration of micro data from household surveys with national accounts data.1 This results in measures of income distribution and of other breakdowns of household income and consumption that are consistent with national accounts values and definitions. This is consistent with recommendations made in the “Report by the Commission on the Measurement of Economic Performance and Social Progress,” which stated that “distributional measures should be compatible in scope with average measures from the national accounts” (Stiglitz-Sen-Fitoussi, I.43).

1 BEA and its predecessor agency, the Office of Business Economics, periodically published estimates of the size distribution of national accounts personal income in the U.S. from the 1950s to the 1970s using CPS, Internal Revenue Service, and Federal Reserve Board data, and such estimates were published as part of the National Income and Product Accounts from 1959 to 1964. More recently, the Expert Group on Disparities in National Accounts, sponsored by the Organization for Economic Cooperation and Development (OECD) and Eurostat, has been working to develop internationally comparable estimates of the breakdown of household income and consumption on a national accounts basis, and Fixler and Johnson have done work to account for the distribution of income in the U.S. National Accounts.

[259] Calculated with data from:

a) Dataset: “Household Final Consumption Expenditure Per Capita (Constant 2010 US$).” World Bank, January 19, 2018. <data.worldbank.org>

b) Dataset: “Price Level Ratio of PPP Conversion Factor (GDP) to Market Exchange Rate.” World Bank, January 19, 2018. <data.worldbank.org>

c) Dataset: “PPP Conversion Factor, Private Consumption (LCU Per International $).” World Bank, July 10, 2019. Accessed July 24, 2019 at <data.worldbank.org>

d) Dataset: “Official Exchange Rate (LCU Per US$, Period Average).” World Bank, July 10, 2019. Accessed July 24, 2019 at <data.worldbank.org>

e) Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 36: “Table 6. Household Consumption Expenditures by Quintiles”

f) Dataset: “The Distribution of Household Income, 2016.” Congressional Budget Office, July 2019. <www.cbo.gov>

“Table 1. Demographics, by Income Group, 1979 to 2016 (Millions)”

NOTE: An Excel file containing the data and calculations is available upon request.

[260] Working paper: “The Redistributive Capacity of Services in the EU [European Union].” By Gerlinde Verbist and Manos Matsaganis. Amsterdam Institute for Advanced Labour Studies, July 2012. <gini-research.org>

Page 7:

Welfare states provide social benefits in cash and in kind. Cash benefits are income transfers, such as retirement pensions, family and unemployment benefits and social assistance. Benefits in kind are commodities directly transferred to recipients at zero or below-market prices (Barr 2012).

In Europe, benefits in kind are usually services, such as health, education, child care and care for the elderly. For example, hospital care in most countries is provided either free of charge or at near-zero prices (at the point of use). User fees are even rarer in the case of primary and secondary education: enrolment is compulsory up to a certain age, while tuition is provided free of charge to all children attending publicly funded schools, irrespective of family income. Moreover, child care is often heavily subsidised; kindergartens are run by the state (most commonly local governments) or government-supervised private organisations, while user fees, where applicable, are usually income-related (in the sense that higher-income families pay higher fees, while lower-income ones pay less or are fully exempted). Elderly care may also be available on similar terms; besides, several countries have developed long-term care insurance schemes, to cater for the future needs of an ageing population.

Benefits in kind in the form of goods (rather than services) are rather uncommon in Europe. Housing is a partial exception: in some countries council flats are allocated at subsidised rents (or free of charge) to eligible families. Nevertheless, in many countries rent subsidies and the direct provision of social housing have been phased out in favour of means-tested housing allowances in cash, except for emergency accommodation which remains available for selected groups in acute need (i.e. the homeless, refugees, victims of family abuse and so on). Furthermore, even though food parcels may be handed out by charities and soup kitchens may be organised by municipalities, these are sporadic, or are limited to emergencies, or cater for the needs of marginal groups such as the homeless.1

1 Outside Europe, the direct provision of food to the poor as a matter of course (i.e. not only in the case of famine relief and other emergencies) is still quite common in the USA and some Latin American countries (examples are Programa Apoyo Alimentario (PAL) in Mexico or Food Stamps programs in the USA.

[261] Webpage: “Glossary of Statistical Terms: Purchasing Power Parities (PPPs).” Organization for Economic Cooperation and Development, September 25, 2001. Last updated 6/11/13. <bit.ly>

Purchasing power parities (PPPs) are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries.

[262] Calculated with data from:

a) Dataset: “Household Final Consumption Expenditure Per Capita (Constant 2010 US$).” World Bank, January 19, 2018. <data.worldbank.org>

b) Dataset: “Price Level Ratio of PPP Conversion Factor (GDP) to Market Exchange Rate.” World Bank, January 19, 2018. <data.worldbank.org>

c) Dataset: “PPP Conversion Factor, Private Consumption (LCU Per International $).” World Bank, July 10, 2019. Accessed July 24, 2019 at <data.worldbank.org>

d) Dataset: “Official Exchange Rate (LCU Per US$, Period Average).” World Bank, July 10, 2019. Accessed July 24, 2019 at <data.worldbank.org>

e) Paper: “Integration of Micro and Macro Data on Consumer Income and Expenditures.” By Clinton P. McCully. U.S. Bureau of Economic Analysis, October 23, 2012. <www.justfacts.com>

Page 36: “Table 6. Household Consumption Expenditures by Quintiles”

f) Dataset: “The Distribution of Household Income, 2016.” Congressional Budget Office, July 2019. <www.cbo.gov>

“Table 1. Demographics, by Income Group, 1979 to 2016 (Millions)”

NOTE: An Excel file containing the data and calculations is available upon request.

[263] Webpage: “Glossary of Statistical Terms: Purchasing Power Parities (PPPs).” Organization for Economic Cooperation and Development, September 25, 2001. Last updated 6/11/13. <bit.ly>

Purchasing power parities (PPPs) are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries.

[264] News release: “Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, Third Quarter 2022.” Bureau of Economic Analysis, December 22, 2022. <www.bea.gov>

Page 6:

Gross domestic product (GDP), or value added, is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

[265] Book: Economics: Principles and Policy (12th edition). By William Baumol and Alan Blinder. South-Western Cengage Learning, 2011.

Page 491:

To sharpen the point, observe that real GDP is, by definition, the product of the total hours of work in the economy times the amount of output produced per hour—what we have just called labor productivity:

GDP = Hours of work × Output per hour = Hours worked × Labor productivity

For example, in the United States today, in round numbers, GDP is about $15 trillion and total hours of work per year are about 230 billion. Thus labor productivity is roughly $15 trillion/230 billion hours, or about $65 per hour.

[266] Report: “International Comparisons of GDP Per Capita and Per Hour, 1960–2011.” U.S. Department of Labor, Bureau of Labor Statistics, November 7, 2012. <www.bls.gov>

Page 1: “GDP per capita, when converted to U.S. dollars using purchasing power parities, is the most widely used income measure for international comparisons of living standards.”

Page 2:

Gross Domestic Product (GDP) is defined as the value of all market and some nonmarket goods and services produced within a country’s geographic borders. As such, it is the most comprehensive measure of a country’s economic output that is estimated by statistical agencies. GDP per capita may therefore be viewed as a rough indicator of a nation’s economic well-being, while GDP per hour worked can provide a general picture of a country’s productivity.

[267] Textbook: Macroeconomics for Today (6th edition). By Irvin B. Tucker. South-Western Cengage Learning, 2010.

Page 530: “GDP [gross domestic product] per capita provides a general index of a country’s standard of living. Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.”

[268] Dataset: “GDP Per Capita, PPP (Constant 2017 International $).” World Bank, December 22, 2022. <data.worldbank.org>

NOTE: An Excel file containing the data is available upon request.

[269] Dataset: “Level of GDP Per Capita, Purchasing Power Parity, 2021.” Organization for Economic Cooperation and Development. Accessed January 20, 2023 at <stats.oecd.org>

NOTE: An Excel file containing the data is available upon request.

[270] Webpage: “Who We Are.” Organization for Economic Cooperation and Development. Accessed January 19, 2023 at <www.oecd.org>

The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works to build better policies for better lives. Our goal is to shape policies that foster prosperity, equality, opportunity and well-being for all. We draw on 60 years of experience and insights to better prepare the world of tomorrow.

Together with governments, policy makers and citizens, we work on establishing evidence-based international standards and finding solutions to a range of social, economic and environmental challenges. From improving economic performance and creating jobs to fostering strong education and fighting international tax evasion, we provide a unique forum and knowledge hub for data and analysis, exchange of experiences, best-practice sharing, and advice on public policies and international standard-setting. …

The OECD is at the heart of international co-operation. Our Member countries work with other countries, organisations and stakeholders worldwide to address the pressing policy challenges of our time. …

We collaborate daily with representatives from governments, parliaments, international organisations, business and labour, civil society, as well as citizens from across the globe.

[271] Webpage: “Household Disposable Income.” Organization for Economic Cooperation and Development. Accessed January 19, 2023 at <data.oecd.org>

Disposable income is closest to the concept of income as generally understood in economics. Household disposable income is income available to households such as wages and salaries, income from self-employment and unincorporated enterprises, income from pensions and other social benefits, and income from financial investments (less any payments of tax, social insurance contributions and interest on financial liabilities). “Gross” means that depreciation costs are not subtracted. For gross household disposable income per capita, growth rates (percentage change from previous period) are presented; these are “real” growth rates adjusted to remove the effects of price changes. Information is also presented for gross household disposable income including social transfers in kind, such as health or education provided for free or at reduced prices by governments and not-for-profit organisations. This indicator is in US dollars per capita at current prices and PPPs [price purchasing parities]. In the System of National Accounts, household disposable income including social transfers in kind is referred to as “adjusted household disposable income.” All OECD [Organization for Economic Cooperation and Development] countries compile their data according to the 2008 System of National Accounts (SNA 2008).

[272] Webpage: “Household Disposable Income.” Organization for Economic Cooperation and Development. Accessed January 19, 2023 at <data.oecd.org>

Disposable income is closest to the concept of income as generally understood in economics. Household disposable income is income available to households such as wages and salaries, income from self-employment and unincorporated enterprises, income from pensions and other social benefits, and income from financial investments (less any payments of tax, social insurance contributions and interest on financial liabilities). “Gross” means that depreciation costs are not subtracted. For gross household disposable income per capita, growth rates (percentage change from previous period) are presented; these are “real” growth rates adjusted to remove the effects of price changes. Information is also presented for gross household disposable income including social transfers in kind, such as health or education provided for free or at reduced prices by governments and not-for-profit organisations. This indicator is in US dollars per capita at current prices and PPPs [price purchasing parities]. In the System of National Accounts, household disposable income including social transfers in kind is referred to as “adjusted household disposable income.” All OECD [Organization for Economic Cooperation and Development] countries compile their data according to the 2008 System of National Accounts (SNA 2008).

[273] News release: “Personal Income and Outlays, November 2022.” U.S. Department of Commerce, Bureau of Economic Analysis, December 23, 2022. <www.bea.gov>

Personal income is the income received by, or on behalf of, all persons from all sources: from participation as laborers in production, from owning a home or business, from the ownership of financial assets, and from government and business in the form of transfers. It includes income from domestic sources as well as the rest of world. It does not include realized or unrealized capital gains or losses.

Disposable personal income is the income available to persons for spending or saving. It is equal to personal income less personal current taxes.

[274] Webpage: “Glossary of Statistical Terms” Organization for Economic Co-operation and Development (OECD). Accessed January 20, 2023 at <bit.ly>

a) “Wages and Salaries – SNA [System of National Accounts].” OECD, September 25, 2001. Last updated 7/19/2002. <bit.ly>

Definition:

Wages and salaries consist of the sum of wages and salaries in cash and wages and salaries in kind.

Context:

Wages and salaries include the values of any social contributions, income taxes, etc., payable by the employee even if they are actually withheld by the employer for administrative convenience or other reasons and paid directly to social insurance schemes, tax authorities, etc., on behalf of the employee. Wages and salaries may be paid in various ways, including goods or services provided to employees for remuneration in kind instead of, or in addition to, remuneration in cash (SNA 7.32–7.42).

b) “Mixed Income.” OECD, September 25, 2001. Last updated 11/15/2001. <bit.ly>

Definition:

Mixed income is the surplus or deficit accruing from production by unincorporated enterprises owned by households; it implicitly contains an element of remuneration for work done by the owner, or other members of the household, that cannot be separately identified from the return to the owner as entrepreneur but it excludes the operating surplus coming from owner-occupied dwellings.

c) “Property Income.” OECD, September 25, 2001. Last updated 2/11/2002. <bit.ly>

Definition:

Property income is the income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to or putting the tangible non-produced asset at the disposal of, another institutional unit; it consists of interest, the distributed income of corporations (i.e. dividends and withdrawals from income of quasi-corporations), reinvested earnings on direct foreign investment, property income attributed to insurance policy holders, and rent.

d) “Current Transfers – SNA [System of National Accounts].” System of National Accounts, 2008. OECD, September 25, 2001. Last updated 4/22/2013. <bit.ly>

Definition:

Current transfers consist of all transfers that are not transfers of capital; they directly affect the level of disposable income and should influence the consumption of goods or services.

On the contrary see: Capital transfers.

Context:

A current transfer reduces the income and consumption possibilities of the first party and increases the income and consumption possibilities of the second party. Current transfers are therefore not linked to, or conditional on, the acquisition or disposal of assets by one or both parties to the transaction.

e) “Capital Transfers.” OECD, September 25, 2001. Last updated 4/22/2013. <bit.ly>

Definition:

Capital transfers are unrequited transfers where either the party making the transfer realizes the funds involved by disposing of an asset (other than cash or inventories), by relinquishing a financial claim (other than accounts receivable) or the party receiving the transfer is obliged to acquire an asset (other than cash or inventories) or both conditions are met. Capital transfers are often large and irregular but neither of these are necessary conditions for a transfer to be considered a capital rather than a current transfer.

f) “Current Transfers Between Households.” OECD, September 25, 2001. Last updated 4/22/2013. <bit.ly>

Definition:

Current transfers between households consist of all current transfers made, or received, by resident households to or from other resident or non-resident households.

g) “Social Benefits.” OECD, September 25, 2001. Last updated 11/22/2001. <bit.ly>

Definition:

Social benefits are current transfers received by households intended to provide for the needs that arise from certain events or circumstances, for example, sickness, unemployment, retirement, housing, education or family circumstances.

h) “Social Transfers in Kind.” OECD, September 25, 2001. Last updated 3/13/2003. <bit.ly>

Definition:

Social transfers in kind consist of individual goods and services provided as transfers in kind to individual households by government units (including social security funds) and non-profit institutions serving households (NPISHs), whether purchased on the market or produced as non-market output by government units or NPISHs.

The items included are:

(a) social security benefits, reimbursements,

(b) other social security benefits in kind,

(c) social assistance benefits in kind, and

(d) transfers of individual non-market goods or services.

[275] Dataset: “Average Household Disposable Income (Real Purchasing Power Parity), 2021.” Organization for Economic Cooperation and Development. Accessed January 19, 2023 at <data.oecd.org>

Disposable income is closest to the concept of income as generally understood in economics. Household disposable income is income available to households such as wages and salaries, income from self-employment and unincorporated enterprises, income from pensions and other social benefits, and income from financial investments (less any payments of tax, social insurance contributions and interest on financial liabilities). “Gross” means that depreciation costs are not subtracted. For gross household disposable income per capita, growth rates (percentage change from previous period) are presented; these are “real” growth rates adjusted to remove the effects of price changes. Information is also presented for gross household disposable income including social transfers in kind, such as health or education provided for free or at reduced prices by governments and not-for-profit organisations. This indicator is in US dollars per capita at current prices and PPPs [price purchasing parities]. In the System of National Accounts, household disposable income including social transfers in kind is referred to as “adjusted household disposable income.” All OECD [Organization for Economic Cooperation and Development] countries compile their data according to the 2008 System of National Accounts (SNA 2008).

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