A Guide to Statistics on Historical Trends in Income Inequality

By Chad StoneHannah ShawDanilo Trisi and Arloc Sherman ||

Some very interesting data compiled by the Center on Budget and Policy Priorities….

The broad facts of income inequality over the past six decades are easily summarized:

  • The years from the end of World War II into the 1970s were ones of substantial economic growth and broadly shared prosperity.
    • Incomes grew rapidly and at roughly the same rate up and down the income ladder, roughly doubling in inflation-adjusted terms between the late 1940s and early 1970s.
    • The income gap between those high up the income ladder and those on the middle and lower rungs — while substantial — did not change much during this period.
  • Beginning in the 1970s, economic growth slowed and the income gap widened.
    • Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly.
    • The concentration of income at the very top of the distribution rose to levels last seen more than 80 years ago (during the “Roaring Twenties”).
  • Wealth (the value of a household’s property and financial assets net of the value of its debts) is much more highly concentrated than income, although the wealth data do not show a dramatic increase in concentration at the very top the way the income data do.

Data from a variety of sources contribute to this broad picture of strong growth and shared prosperity for the immediate postwar generation, followed by slower growth and growing inequality since the 1970s. Within these broad trends, however, different data tell slightly different parts of the story, and no single source of data is better for all purposes than the others.

This guide consists of four sections. The first describes the commonly used sources and statistics on income and discusses their relative strengths and limitations in understanding trends in income and inequality. The second provides an overview of the trends revealed in those key data sources. The third and fourth sections supply additional information on wealth, which complements the income data as a measure of how the most well-off Americans are doing; and poverty, which measures how the least well-off Americans are doing.

I. The Census Survey and IRS Income Data

The most widely used sources of data and statistics on household income and its distribution are the annual survey of households conducted as part of the Census Bureau’s Current Population Survey (CPS) and the Statistics of Income (SOI) data compiled by the Internal Revenue Service (IRS) from a large sample of individual income tax returns. The Census Bureau publishes an annual report on income, poverty, and health insurance coverage in the United States based on the CPS data,[1] and the IRS publishes an annual report on individual income tax returns based on the SOI.[2]

Both agencies produce their own tables and statistics and make a public-use file of the underlying data available to other researchers who want to compile their own measures and statistics. In addition, the Congressional Budget Office (CBO) has developed a model that combines CPS and SOI data to estimate household income both before and after taxes, as well as average taxes paid by income group back to 1979. [3] Economists Thomas Piketty and Emmanuel Saez have used SOI data to construct estimates of the concentration of income at the top of the distribution back to 1913.[4] CBO and Piketty-Saez release annual reports reflecting the latest tax data available.

Concepts of Income Measured in Census and IRS Data

Census Money Income

The Census Bureau bases its report on income, poverty, and health insurance coverage on an annual survey of about 76,000 households (drawn from a sample of about 100,000 addresses) conducted through the Annual Social and Economic Supplement (ASEC) to the monthly Current Population Survey, which is the primary source of data for estimating the unemployment rate and other household employment statistics. [5] The ASEC, also called the March CPS, provides information about the total resources available to families — including income from earnings, dividends, and cash benefits (such as Social Security), as well as the value of tax credits such as the Earned Income Tax Credit (EITC) and non-cash benefits such as nutritional assistance, Medicare, Medicaid, public housing, and employer-provided fringe benefits.

The “income” presented in the Census report is money income[6] before taxes. In addition, Census publishes statistics based on alternative definitions of income that incorporate estimates of taxes and non-cash benefits. [7]

The Census report features annual statistics on both household and family income. The latest data, for 2010, were released in September 2011. The statistics on household income are available from 1967. The statistics on familyincome go back to 1947, but because Census defines a “family” as two or more people living in a household who are related by birth, marriage, or adoption, those statistics exclude people who live alone or with others to whom they are not related.

Census’s standard income statistics do not adjust for the size and composition of households. Two households with $40,000 of income rank at the same place on the distributional ladder, even if one is a couple with two children and one is a single individual. An alternative preferred by many analysts is to make an equivalence adjustment based on household size and composition so that the adjusted income of a single person with a $40,000 income is larger than the adjusted income of a family of four with the same income. Equivalence adjustment takes into account the fact that larger families need more total income but less per capita income than smaller families because they can share resources and take advantage of economies of scale. In its latest report, Census supplements its measures of income inequality based on money income with estimates based on equivalence-adjusted income.[8]

For reasons having to do with small sample size, data reporting and processing restrictions, and confidentiality considerations, Census provides more limited information about incomes at the very top of the income distribution than it does for incomes elsewhere in the distribution (for example, Census does not collect information about earnings over $999,999 for any given job; earnings above that level are recorded in Census data as $999,999).[9]

Income Tax Data

The income tax data used in distributional analysis come from a large sample of tax returns compiled by the IRS’s Statistics of Income Division. For 2010, the preliminary sample consisted of about 240,000 returns scientifically selected from the roughly 143 million returns filed that year. For the population that files tax returns and for the categories of income that get reported, these administrative data are generally more accurate and more complete than survey data, such as the CPS, which is prone to underreporting of some kinds of income.

However, not all people are required to file tax returns, and tax returns do not reflect all sources of income. Those who do not file returns are likely to have limited incomes; hence tax data do not provide a representative view of low-income households (the mirror image of inadequate coverage of high-income households in the CPS). Like Census money income, income reported on tax returns excludes non-cash benefits such as food stamps, housing subsidies, Medicare, Medicaid, and non-taxable employer-provided fringe benefits.

The exclusion of non-filers is a major limitation of the tax data for distributional analysis. A further complication is that the data are available only for “tax-filing units,” not by household or family (members of the same family or household may file separate tax returns).

SOI tax data are also less timely than Census data.  Preliminary statistics for tax year 2010 were released in March 2012.

Key Historical Series Constructed from Census and IRS Data

Congressional Budget Office Average Federal Taxes by Income Group

The Congressional Budget Office produces annual estimates of the distribution of household income and taxes that combine information from the CPS and the SOI. Thus, these estimates have the relative richness of information about very high-income households and taxes paid (the strengths of the SOI), as well as the relative richness of information about low-income households and information on income and non-cash benefits (the strengths of the CPS).

CBO uses a broader measure of income than either Census money income or measures that can be constructed from tax return data alone. CBO’s measure of before-tax comprehensive income includes all cash income (including non-taxable income not reported on tax returns, such as child support), taxes paid by businesses,[10] employees’ contributions to 401(k) retirement plans, and the estimated value of in-kind income received from various sources (such as food stamps, Medicare and Medicaid, and employer-paid health insurance premiums). [11] CBO after-tax income is computed by subtracting estimated federal individual and corporate income taxes, social insurance (payroll) taxes, and excise taxes from before-tax income.[12]

CBO also makes a simple equivalence adjustment based on household size: each household’s income is divided by the square root of the number of people in the household. Thus, the adjusted household income of a single person with $20,000 of income is equivalent to that of a household of four with $40,000.

CBO’s distributional tables are constructed by ranking people by their adjusted household income and constructing five income groups (quintiles) each containing an equal number of people.[13] This procedure results in quintiles that contain slightly different numbers of households, depending on the average household size at different points in the income distribution. [14]

The latest CBO report on average federal taxes by income group was released in June 2010 and includes data for 1979-2007 on before- and after-tax income and taxes paid for each quintile, as well as for the top 1, 5, and 10 percent of households. Because of the effort involved in preparing these analyses, CBO’s annual updates tend to lag about two years behind the publication of the necessary SOI data. CBO has not yet released an update incorporating 2008 and 2009 tax data, but it did issue a special report in October 2011 on trends in the distribution of household income based on the 1979-2007 data.[15]

Piketty-Saez Data on Income Concentration

Economists Thomas Piketty and Emmanuel Saez have constructed income statistics based on IRS data that go back to 1913 to provide a long-term perspective on trends in the concentration of income within the top 10 percent of the distribution. [16]

Because they have no direct data on non-filers and because only about 10 to 15 percent of potential tax units had to file an income tax return prior to World War II, Piketty and Saez focus on the share of income received at the top of the distribution.

Their income concept is market income before individual income taxes. Market income is defined as the sum of all income sources reported on tax returns (including realized capital gains[17] and taxable Social Security and unemployment compensation).[18] However, other non-taxable non-cash income sources, such as nutrition assistance and employer-provided health care benefits, are not included.

Some people with market income are not required to file income tax returns,[19] hence they do not show up in the population of tax filers and their income does not show up in the total income reported on tax returns. Piketty and Saez address these omissions by estimating the number of non-filers and their income and adding these to the population of tax filers and their market income calculated from the income tax data.[20] They compute the total income as all market income reported on tax returns plus their estimate of market income for non-filers.[21] The top 10 percent, top 1 percent, etc. are defined with respect to this total income and the population of potential tax units (filers plus non-filers). Piketty and Saez make no adjustment for family size in their analysis.

The primary advantage of the Piketty-Saez data is that they provide the longest historical series of annual data on income at the top of the distribution. The key limitation is that they are based exclusively on tax return data. As a result, they do not include data for individual non-filers (and therefore provide no information about the distribution of income among non-filers); nor do they account for government cash transfers or for public and private non-cash benefits (such as government health and nutrition assistance benefits and employer-paid health insurance benefits).

The share of personal income coming from the public and private non-cash benefits that are missing from the Piketty-Saez income measure has increased over the years.[22] As a result, total income as computed by Piketty and Saez has accounted for a decreasing share of personal income in the national income and product accounts over time.[23] This could distort their estimates of what share of the growth of total income has come at the top of the distribution. For example, employer-sponsored health insurance benefits are most likely a much smaller fraction of income for the top 1 percent than for the vast majority of middle-income tax units; excluding them could understate income growth in the middle of the distribution relative to growth at the top.

II. Broad Trends in Income Inequality

Because each individual source of readily available data on income distribution has different advantages and limitations, no single source illustrates all of the major trends in inequality over the past six decades or so. Ideally, we would look at a comprehensive measure of income that covers a long time span, allows us to compare before- and after-tax income at different points in the income distribution, and accounts for changes in the size and composition of households. CBO data satisfy most of these criteria but only go back to 1979; the historical Census family income data series and Piketty-Saez income concentration data cover a longer time span but use less-comprehensive measures of income and do not adjust for changes in the size and composition of households.

The Loss of Shared Prosperity

Census family income data show that from the late 1940s to the early 1970s, incomes across the income distribution grew at nearly the same pace. Figure 1 indexes the level of income at several points on the distribution to its 1973 level. It shows that real (inflation-adjusted) family income roughly doubled over that period at the 95th percentile (the level of income separating the 5 percent of families with the highest income from the remaining 95 percent), the median (the level of income separating the richer half of families from the poorer half), and the 20th percentile (the level of income separating the poorest fifth of families from the remaining 80 percent). Beginning in the 1970s, income disparities began to widen, with income growing much faster at the top of the ladder than in the middle or bottom.

While the Census family income data are useful for illustrating that the widening of income inequality began in the 1970s, other data are superior for assessing more recent trends.

Widening Inequality Since the 1970s

Census family income data show that the era of shared prosperity ended in the 1970s and illustrate the divergence in income that has emerged since that time. CBO data allow us to look at what has happened to comprehensive income since 1979 — both before and after taxes — and offer a better view of what has happened at the top of the distribution.

As Figure 2 shows, between 1979 and 2007, average income after taxes in the top 1 percent of the distribution rose 277 percent, meaning that it nearly quadrupled.[24] That compares with increases of about 40 percent in the middle 60 percent of the distribution and 18 percent in the bottom fifth.

Federal Taxes and Transfers Are Progressive But Have Modest Effect on Income Concentration

The chart below shows that U.S. federal taxes and transfers are progressive.  In 2007 the share of income afterfederal taxes and transfers received by the top 20 percent of households was modestly smaller than their share of income before federal taxes and transfers, while the opposite is true for households in the remaining 80 percent of the distribution.

Both measures of income were highly concentrated.  In 2007, the top 1 percent of households received 21 percent of income before taxes and transfers and 17.1 percent of income after federal taxes and transfers, while the bottom 80 percent of households received less than half of income both before and after taxes and transfers (41 and 48 percent, respectively).

Moreover, as CBO’s latest analysis of trends in income distribution from 1979 to 2007 has shown, federal taxes and transfers had a smaller effect in reducing before-tax inequality in 2007 than they did in 1979.

Trends in before-tax income growth look very similar. Because average tax rates have fallen for all income groups since 1979, growth in after-tax income has been somewhat larger than growth in pre-tax income, which was “only” about 240 percent for the top 1 percent, 20 percent for the middle fifth, and 10 percent for the bottom fifth.[25] (See the box above for more on the effect of taxes on income.)

When CBO updates its analysis to include 2009 and 2010 data, that analysis will most likely show a large decline in income at the top resulting from the financial crisis. As Figure 2 illustrates, though income at the top fell substantially following the “dot-com” collapse in the early 2000s, it rebounded quickly. Data from other sources suggest that income at the top has begun to bounce back in the wake of the financial crisis; for example, the stock market has risen and corporate profits have grown strongly since 2009. [26]

Income Concentration Returned to 1920s Levels in the Past Decade

The Piketty-Saez data put the increasing concentration of income at the top of the distribution into a longer-term historical context. As Figure 3 shows, the share of before-tax income received by the richest 1 percent of households has been rising since the late 1970s, and in the past decade has climbed to levels last seen in the 1920s. The vast majority of the increase is accounted for by the rising share of before-tax income going to the top 0.5 percent of households.[27]

The increase in income concentration since the 1970s reverses the prior, long-term downward trend in concentration. After peaking in 1928, the share of income held by households at the very top of the income ladder declined through the 1930s, 1940s, and 1950s. Consistent with the shared prosperity found in the Census data on average family income, the share of income received by those at the very top changed little over the 1950s, 1960s, and 1970s. The sharp rise in income concentration at the top of the distribution since the 1970s was interrupted briefly by the dot-com collapse in the early 2000s and again in 2008 with the onset of the financial crisis and deep recession. The latest Piketty-Saez data show an uptick in concentration at the top in 2010, the first full year of the current recovery;  if the experience following the dot-com collapse is any guide, incomes at the top of the distribution may well continue to grow in the coming years.





III. The Distribution of Wealth

A family’s income is the flow of money coming in over the course of a year. Its wealth (sometimes referred to as “net worth”) is the stock of assets it has as a result of inheritance and saving, net of liabilities.[28] Wealth is much more highly concentrated than income, although the concentration of wealth is not increasing as much as income is.

The main source of data for the distribution of household wealth is the Survey of Consumer Finances (SCF) conducted every three years and published by the Federal Reserve. SCF data go back to 1983; the latest published data are for 2007. The SCF is based on a sample of about 4,500 families. The data sources discussed in the preceding sections on income distribution are superior to the SCF for measuring income distribution, but no other source has comparable data for looking at the distribution of wealth.

The Federal Reserve publishes detailed statistics on wealth and income based on the SCF once the data have been processed. [29] The Fed has also published working papers by staff member Arthur B. Kennickell examining the trends in income and wealth inequality in the SCF data.[30] Edward N. Wolff of the Levy Economics Institute of Bard College has produced similar estimates.[31]

Figure 4 shows Wolff’s estimates of the distribution of income and wealth, based on the SCF data. As the chart illustrates, wealth is much more concentrated than income. (While there is considerable overlap, the top 1 percent of the income distribution does not contain the identical group of people as the top 1 percent of the wealth distribution.) Wolff found that the top 1 percent of the income distribution received a little more than a quarter of all income in 2007 (according to the SCF data), while the top 1 percent of the wealth distribution held more than a third of all wealth. Similarly, the top 10 percent of the income distribution received a little less than half of all income, while the top 10 percent of the wealth distribution held almost three-quarters of all wealth.

IV. Poverty

The official U.S. poverty measure was developed in the 1960s. The Census Bureau uses money income (as described above) to determine a person’s poverty status. Each family or unrelated individual in the population is assigned a money income threshold based on the size of the family and age of its members.[32] A person is defined as living in poverty if his or her family income is below the threshold for that family size and composition (the threshold for a couple with two children was $22,113 in 2010). Thresholds are adjusted each year to reflect changes in the consumer price index. The poverty rate is the percentage of people living in poverty.

The official poverty statistics show a sharp decline in the poverty rate between 1959 and 1969 but little real change since then, apart from fluctuations due to the business cycle. For a number of reasons, however, the official measure is an unreliable guide to trends in poverty since 1970 and significantly understates progress in reducing poverty since then. The official measure is based on Census money income, which includes cash assistance but excludes non-cash assistance like food stamps, housing assistance, and refundable tax credits. Since 1970, cash public assistance for households that are not elderly or disabled has declined sharply,[33] while non-cash assistance has increased substantially. The official poverty measure reflects only the decline in cash assistance.

Over the years, researchers have raised a number of serious conceptual and measurement concerns about how the official poverty rate is calculated. Following the publication of an important National Academy of Sciences (NAS) report on poverty measurement in 1995, [34] the Census Bureau has explored a number of experimental measures reflecting NAS recommendations. These more comprehensive poverty measures use a broader definition of income that includes non-cash benefits and tax credits. They also subtract income and payroll taxes and out-of-pocket medical expenditures and work expenses such as child care, and use a modernized poverty line that varies with local housing costs.[35] Most experts regard the alternative measures as better indicators of poverty because they better reflect the role of public benefit programs and taxes on poverty and give a fuller picture of the income available to a family to meet necessities.

Researchers seeking to understand poverty trends and the effectiveness of the safety net over time have adopted many of the NAS recommendations in order to construct a consistent poverty time trend. A 2011 National Bureau of Economic Research (NBER) study followed some of the NAS procedures, such as the inclusion of non-cash benefits, and found that the poverty rate declined between 1984 and 1993 from 15.3 percent to 13.1 percent and then increased slightly to 13.5 percent by 2004.[36] A 2008 Bureau of Labor Statistics (BLS) working paper similarly found an overall increase in the NAS-based poverty rate between 1996 and 2005, but found a decline in child poverty over that period from 22.8 to 21.1 percent.[37] We, too, have conducted an analysis and have similarly concluded that child poverty rates fell from 1995 to 2005 under an NAS-based measure. [38] Both our analysis and the NBER study also find that a measure of deep poverty (the percentage of the population below half of the poverty line) increased during these periods; this appears to be due largely to the substantial declines in cash public assistance that occurred during this period, after adjustment for inflation.

In addition, the NBER study found a large decline in the percentage of families below 150 percent of the poverty line, from 36.3 percent in 1984 to 25.3 percent in 2004. While this is primarily due to a reduction over this period in the percentage of families below 150 percent of the poverty line before transfers are taken into account, the NBER study also shows that the effectiveness of government programs in raising people above 150 percent of poverty grew markedly over this period, in substantial part as a result of the expansion of the Earned Income Tax Credit and the creation of the Child Tax Credit, including its partially refundable component.

Census recently unveiled the newest refinement of the NAS-based measures, called the Supplemental Poverty Measure (SPM). This measure reflects suggestions from an interagency technical panel that drew on the NAS report and subsequent research. [39]

Like the official poverty figures released in September, the SPM and other NAS-based measures show that poverty increased in 2010. Unlike the official measure, these measures enable analysts to identify the ameliorating effects on poverty of a number of anti-poverty programs, including tax credits, non-cash benefits like nutrition assistance, and certain temporary measures enacted as part of the 2009 Recovery Act.

For example, the NAS measures show a much smaller increase in poverty in 2009 than the official poverty measure does. That’s both because various non-cash safety net programs expanded automatically in response to the severe economic downturn, helping a growing number of people who lost their jobs and incomes, and because various temporary Recovery Act provisions kept a substantial additional number of people above the poverty line.[40] The SPM and other NAS measures show that poverty continued to rise as the economy worsened in 2010, but that six initiatives enacted during 2009 and 2010 kept nearly 7 million people above the NAS poverty line in 2010. [41]

End Notes:

[1] http://www.census.gov/hhes/www/poverty/data/incpovhlth/index.html

[2] Internal Revenue Service, “SOI Tax State — Individual Income Tax Returns Publication 1304,” multiple years available,http://www.irs.gov/taxstats/indtaxstats/article/0,,id=134951,00.html .

[3] Congressional Budget Office, “Average Federal Taxes By Income Group,” June 2010,http://www.cbo.gov/publications/collections/collections.cfm?collect=13 .

[4]Emmanuel Saez, “Striking it Richer: The Evaluation of Top Incomes in the United States,” University of California, March 2, 2012,http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf.

[5] Census also collects data on income, poverty, and health insurance coverage through the American Community Survey (ACS), which has replaced the long-form decennial census questionnaire. For its more limited set of categories, the ACS provides better data at the state and local level than the CPS, but Census advises that the CPS data provide the best annual estimates of income, poverty, and health insurance coverage at the national level.

[6] Examples of money income — sometimes referred to as “cash income” — include: wages and salaries; income from dividends; earnings from self-employment; rental income; child support and alimony payments; Social Security, disability, and unemployment benefits; cash welfare assistance; and pensions and other retirement income.

[7] The latest data online are available for 2009: http://www.census.gov/hhes/www/cpstables/032010/rdcall/toc.htm. The ASEC (formerly known as the “March Supplement”) has included questions about non-cash benefit receipt since 1980 but does not collect data about taxes. Census estimates taxes paid by households using IRS data and a simulation model.

[8] Census uses a three-parameter scale for equivalence adjustment that takes into account family size and composition (so that, for example, a two-adult, one-child family has a different adjustment than a one-adult, two-child family).

[9] This is generally referred to as “top-coding” and is done to preserve confidentiality. In addition, earnings well below this limit are suppressed and replaced with group average values in the public-use data files of the ASEC made available to researchers.

[10] CBO includes the imputed value of taxes paid by businesses when estimating before-tax income because it assumes that households would have higher incomes in the absence of those taxes.

[11] CBO estimates the “fungible value” of in-kind benefits by determining the cash equivalent of the in-kind payment. For example, to estimate the value of Medicare and Medicaid, CBO determines the amount of household resources freed up for other uses by the services provided (these estimates are capped at the average cost of those services — the total cost to the government of providing the service divided by the number of participants). CBO estimates the value of food stamps as the costs that recipients would pay to buy the goods themselves.

[12] CBO does not subtract other federal taxes (such as estate and gift taxes) or state and local taxes. CBO’s estimate of after-tax income is higher than the estimate of before-tax income for some low-income households due to the impact of refundable tax credits.

[13] Households with negative income are excluded from the lowest income category but are included in the totals.

[14] In 2007, CBO estimated that there were about 117 million households in the United States. The bottom quintile contained about 25 million households, the second quintile had about 22 million, the middle and fourth quintiles each had 23 million, and the top quintile had about 24 million.

[15] Congressional Budget Office, “Trends in the Distribution of Income Between 1979 and 2007,” October 2011,http://www.cbo.gov/doc.cfm?index=12485. This report uses the same underlying data as CBO’s report “Average Federal Tax Rates and Income, by Income Category (1979-2007),” released in June 2010, but because of slight differences in methodology and presentation, some calculations and figures differ slightly between the reports.

The new report presents three concepts of income: “market income,” “market income plus transfers,” and “market income plus transfers minus federal taxes.” The before-tax income concept used in the annual report on average federal taxes is equivalent to “market income plus transfers.”

CBO defines “market income” as labor income (wages, salaries, benefits, and the employer’s share of payroll taxes), business income (net income from business and farms owned solely by their owners, partnership income, and income from S corporations), realized capital gains, other capital income (dividends, rental income, and imputed corporate income taxes), and income from other sources. Note that this definition of “market income” is not the same as the market income concept used in the Piketty-Saez analysis discussed below.

[16] For details on their methods, see Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States: 1913-1998,”Quarterly Journal of Economics, February 2003, or, for a less technical summary, see http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf.  Their most recent estimates are available at http://elsa.berkeley.edu/~saez/TabFig2010.xls.

[17] Piketty and Saez make available three different data series, each of which treats capital gains slightly differently and therefore yields somewhat different estimates of the share of income going to each group.  (For example, estimates of the share of income going to the top 1 percent in 2010 range from 17.42 percent in one series to 18.80 percent in a second series to 19.77 percent in the series we rely on here.)  We follow the income concept in Saez’s most recent report and focus on the series that includes capital gains income both in ranking households and in measuring the income that households receive.

[18] More technically, Piketty and Saez calculate market income by taking the Adjusted Gross Income reported on tax returns and then adding back all adjustments to gross income (such as deductions for health savings accounts, student loan interest, self-employment tax, and IRAs).

Note that this definition of market income is not the same as the “market income” concept used in the recent CBO report described above.

[19] People with income below certain thresholds are not required to file personal income tax returns. Thresholds are determined according to age and filing status. For example, in 2010, the filing threshold for a non-elderly married couple was $18,700; the threshold for an elderly single person was $10,750. Many people who are not required to file tax returns nonetheless pay considerable federal taxes, such as payroll and excise taxes, as well as state and local taxes.

[20] They estimate the total number of potential filers from Census data by summing the total of married men, widowed or divorced men and women, and single men and women over the age of 20. The number of non-filing tax units in their analysis is the difference between their estimated total and the number of returns actually reported in the IRS data. This methodology requires an additional adjustment for years when the number of wives filing separately is not negligible.

[21] For 1913-1928, total income is set equal to 80 percent of total personal income (less transfers) estimated by the economist Simon Kuznets; for 1929-1943, it is 80 percent of total personal income (less transfers) reported in the National Income and Product Accounts. The total income of non-filers is the difference between estimated total income and income reported on tax returns. For the years since 1943, non-filers are assigned an income equal to 20 percent of the average income of filers (except in 1944-45, when the percentage is 50 percent).

[22] According to data from the Bureau of Economic Analysis, about 80 percent of employee compensation was received through wages and salaries in 2010; the remainder was provided through supplemental benefits such as contributions to health and retirement plans. In 1980, 83 percent of compensation came through wages and 17 percent through benefits; in 1950, 95 percent came through wages and 5 percent through benefits.

[24] When income increases by 100 percent, it doubles. When it increases by 300 percent, it quadruples.

[25] Note that these figures are calculated from the rounded income figures presented in the June 2010 CBO report. Identical calculations with unrounded numbers and for the middle 60 percent of the distribution are not available.

[26] Corporate profits are currently at their highest level on record, both in dollar terms and as a share of the economy. The stock market has also risen substantially from the lows reached in early 2009.

[27] In the Piketty-Saez data, the average income for the top 1 percent in 2010 was about $1.0 million.  The average income for the top 0.5 percent was about $1.6 million.

[28] Assets include such things as savings, stocks, vehicles, homes, and business and financial assets. Liabilities include such things as credit card debt, mortgages, and past-due bills.

[29] Brian Bucks, Arthur Kennickell, and Kevin Moore, “Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Surveys of Consumer Finances,” Federal Reserve Board, February 2009, http://federalreserve.gov/econresdata/scf/scf_2007.htm.

[30] Arthur Kennickell, “Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007,” Federal Reserve Board staff working paper, 2009, http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf .

[31] Edward N. Wolff, “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze — and Update to 2007,” Levy Economics Institute of Bard College, March 2010, http://www.levyinstitute.org/pubs/wp_589.pdf.

[32] There are 48 official poverty thresholds. These thresholds reflect an equivalence adjustment, but not the same three-parameter scale Census uses when it equivalence-adjusts household income. CBO uses another equivalence adjustment, based on the square root of the number of household members.

[33] Cash public assistance here refers to Temporary Assistance for Needy Families, Aid to Families with Dependent Children (which TANF replaced) and General Assistance.

[34] Constance Citro and Robert Michael, eds., “Measuring Poverty: A New Approach,” Committee on National Statistics, National Research Council, 1995, http://www.nap.edu/openbook.php?isbn=0309051282

[35] Census publishes eight experimental NAS-based poverty rates in addition to the official poverty rate, each calculated using a slightly different methodology. Estimates of these alternative poverty rates are available for each year from 1999 through 2010. The latest tables are available here: http://www.census.gov/hhes/povmeas/data/nas/tables/2010/index.html .

NAS measures also use a three-parameter equivalence scale to adjust for family size and composition. For the purpose of measuring poverty, the NAS report recommended against treating the value of medical benefits as income, noting ways in which medical benefits do not serve the same role as cash. Instead, the report recommended subtracting out-of-pocket medical expenditures from income, since money spent on medical needs would not be available to meet the basic needs of food, clothing, shelter, and utilities upon which the NAS poverty threshold is based.

[36] Adopting additional NAS recommendations — including subtracting out-of-pocket medical and work expenses and using a modernized poverty threshold — raised the poverty rate to 20 percent in 2004, the authors found. Yonatan Ben-Shalom, Robert A. Moffitt, and John Karl Scholz, “An Assessment of the Effectiveness of Anti-Poverty Programs in the United States,” NBER Working Paper, May 2011, http://papers.nber.org/papers/w17042.

[37] Thesia I. Garner and Kathleen S. Short, “Creating a Consistent Poverty Measure Over Time Using NAS Procedures: 1996-2005,” BLS Working Paper, April 2008, http://www.bls.gov/osmr/abstract/ec/ec080030.htm.

[38] Arloc Sherman, “Safety Net Effective at Fighting Poverty But Has Weakened For The Very Poorest,” Center on Budget and Policy Priorities, July 6, 2009, http://www.cbpp.org/files/7-6-09pov.pdf.

[39] For more detail, please see Kathleen Short, “The Research Supplemental Poverty Measure: 2010,” U.S. Census Bureau, November 2011, http://www.census.gov/hhes/povmeas/methodology/supplemental/research/Short_ResearchSPM2010.pdf.

[40] Arloc Sherman, “Public Benefits, the Recovery Act, and the NAS Poverty Measure in 2009: Why the Poverty Rate Stayed Down,” Center on Budget and Policy Priorities, prepared for the Association for Public Policy Analysis and Management Fall Research Conference, November 4, 2011, http://buyersguide.ascendmedia.com/APPAMSessions/PDF/PAPER2284.pdf.

[41] Arloc Sherman, “Poverty and Financial Distress Would Have Been Substantially Worse in 2010 Without Government Action, New Census Data Show,” Center on Budget and Policy Priorities, November 7, 2011, www.cbpp.org/files/11-7-11pov.pdf.

This analysis used a poverty measure that closely followed NAS recommendations. (The Supplemental Poverty Measure, or SPM, could not itself be used because the Census Bureau had not yet released the detailed data needed for reproducing the SPM, and because the measure is not available for years before 2009.) The measure used here is the NAS-based measure (other than the SPM) that most closely corresponds to the original NAS recommendations issued in 1995. This measure is referred to in Census tables as “MSI-GA-CE,” which stands for Medical-out-of-pocket expenditures Subtracted from Income, with Geographic Adjustment of the poverty threshold and with year-to-year updating of the poverty line using Consumer Expenditure data on basic needs expenditures of typical households rather than the Consumer Price Index.

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