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Congressional Budget Office
The Distribution of Household Income, Federal Taxes, and Government Spending
Presentation to the Society of Government Economists
June 18, 2015
Kevin Perese, Principal Analyst Tax Analysis Division
This presentation provides information on the material published in The Distribution of Household Income and Federal Taxes, 2011 (November, 2014) and The Distribution of Federal Spending and Taxes in 2006 (November, 2013). See www.cbo.gov/publication/49440 and www.cbo.gov/publication/44698.
C O N G R E S S I O N A L B U D G E T O F F I C E
Two CBO Reports
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Household Income and Federal Taxes, 2011
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Household Income and Federal Taxes, 2011
Five Main Points:
■ Income is highly skewed toward the top.
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Market Income, by Market Income Group, 2011
Social Security
0
100
200
300
Thousands of Dollars
$8
$31
$55
$90
$241
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Market Income, Top Income Quintile, 2011
Social Security
0
500
1,000
1,500
96th to 99th Top 1 91st to 95th 81st to 90th
$132
$1,447
$181
$293
Thousands of Dollars
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Market Income, by Market Income Group, 2011
Social Security
0
500
1,000
1,500
Thousands of Dollars
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
Top 1 Percent
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Household Income and Federal Taxes, 2011
Five Main Points:
■ Income is highly skewed toward the top.
■ Income inequality has been increasing over time.
C O N G R E S S I O N A L B U D G E T O F F I C E
Cumulative Growth in Average Inflation-Adjusted Market Income, by Market Income Group, 1979 to 2011
Social Security
-100
0
100
200
300
400
1980 1985 1990 1995 2000 2005 2010
Percent
Top 1 Percent
Middle Three Quintiles (21st to 80th Percentiles)
Lowest Quintile
81st to 99th Percentiles
174
56
16 16
C O N G R E S S I O N A L B U D G E T O F F I C E
Trend in Gini Indexes, 1979 to 2011
Social Security
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1980 1985 1990 1995 2000 2005 2010
0.48
Note: A Gini Index is a measure of income inequality that ranges from zero (the most equal distribution) to one (the least equal distribution).
Gini Index
0.59 Based on Market Income
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Household Income and Federal Taxes, 2011
Five Main Points:
■ Income is highly skewed toward the top.
■ Income inequality has been increasing over time.
■ The federal tax system is progressive.
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Federal Tax Rates, by Before-Tax Income Group and Source, 2011
Social Security
-10
-5
0
5
10
15
Percent
Lowest Quintile
Highest Quintile
Middle Quintile
Second Quintile
Fourth Quintile
Individual Income Taxes
Payroll Taxes
Corporate Income Taxes
Excise Taxes
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Federal Tax Rates, by Before-Tax Income Group, 2011
Social Security
0
5
10
15
20
25
30
Percent Top
1 Percent
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
81
st t
o 9
0th
Per
cen
tile
s
91
st t
o 9
5th
Per
cen
tile
s
96
th t
o 9
9th
Per
cen
tile
s
C O N G R E S S I O N A L B U D G E T O F F I C E
Shares of Before-Tax Income and Federal Taxes, by Before-Tax Income Group, 2011
Social Security
0
20
40
60
80
Percent
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
Top 1 Percent
81st to 99th Percentiles
Before-Tax Income
Federal Taxes
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Household Income and Federal Taxes, 2011
Five Main Points:
■ Income is highly skewed toward the top.
■ Income inequality has been increasing over time.
■ The federal tax system is progressive.
■ Average rates are near the lowest they’ve been for more than thirty years.
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Federal Tax Rates, by Income Group, 1979 to 2011, and Projected Under 2013 Law
Social Security
0
10
20
30
40
1980 1985 1990 1995 2000 2005 2010
33
22
13
3
Percent
29
21
12
2
Top 1 Percent
Middle Three Quintiles (21st to 80th Percentiles)
Lowest Quintile
81st to 99th Percentiles
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Household Income and Federal Taxes, 2011
Five Main Points:
■ Income is highly skewed toward the top.
■ Income inequality has been increasing over time.
■ The federal tax system is progressive.
■ Average rates are near the lowest they’ve been for more than thirty years.
■ The tax-and-transfer system has ameliorated income inequality, especially during recent economic downturns.
C O N G R E S S I O N A L B U D G E T O F F I C E
Trends in Gini Indexes, 1979 to 2011
Social Security
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1980 1985 1990 1995 2000 2005 2010
Note: A Gini Index is a measure of income inequality that ranges from zero (the most equal distribution) to one (the least equal distribution).
Gini Index
Based on Market Income
Based on After-Tax Income
Based on Before-Tax Income
0.48
0.40
0.36
0.59
0.47
0.44
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Federal Spending and Taxes in 2006
C O N G R E S S I O N A L B U D G E T O F F I C E
Overview
■ Extends prior CBO distributional analyses by including more detailed analysis of federal spending
■ Snapshot of a single year, calendar year 2006
■ Types of household
– Elderly
– Nonelderly with children
– Nonelderly without children
■ Income groups among the nonelderly
– Market income quintiles
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Federal Spending and Taxes in 2006
Three Main Points:
■ Examining the distributional consequences of both taxes and spending is important.
C O N G R E S S I O N A L B U D G E T O F F I C E
Allocated Federal Spending and Revenues, 2006
Federal Spending
$2.4 Trillion
$2.3 Trillion
Federal Revenues
CBO analyzed the distribution of most federal spending (88 percent), and virtually all federal taxes (98 percent) in calendar year 2006.
C O N G R E S S I O N A L B U D G E T O F F I C E
Categories of Federal Spending, 2006
Social Security
Cash Transfers
• Social Security (Old-Age and Survivors’ Insurance and Disability Insurance)
• Refundable Tax Credits
• Supplemental Security Income (SSI)
• Unemployment Insurance (UI)
• Temporary Assistance for Needy Families (TANF)
• Means-Tested Veterans’ Benefits
• Black Lung Disability Benefits
Near-Cash Transfers
• Supplemental Nutrition Assistance Program (SNAP)
• Housing Assistance
• Pell Grants
• Child Nutrition Programs
• Special Supplemental Nutrition Program for Women, Infants and Children (WIC)
• The Low Income Home Energy Assistance Program (LIHEAP)
Cash and Near-Cash
Transfers $785 Billion
C O N G R E S S I O N A L B U D G E T O F F I C E
Categories of Federal Spending, 2006
Social Security
Medicare
Medicare Medicaid and Children’s Health Insurance Program (CHIP) Means-Tested Veterans’ Health Benefits
Cash and Near-Cash
Transfers $785 Billion
$481 Billion Health Care
Transfers
C O N G R E S S I O N A L B U D G E T O F F I C E
Categories of Federal Spending, 2006
$1,080 Billion
National Defense
Social Security
Medicare
National Defense Other Health and Human Services (HHS) Education Office of Personnel Management (OPM) Transportation
Other Veterans Affairs Agriculture Justice Energy Other
Cash and Near-Cash
Transfers $785 Billion
$481 Billion Health Care
Transfers
Other Goods and
Services
C O N G R E S S I O N A L B U D G E T O F F I C E
Categories of Federal Spending, 2006
Social Security
National Defense
Medicare
Interest on Debt
$1,080 Billion
Cash and Near-Cash
Transfers $785 Billion
$481 Billion Health Care
Transfers
Other Goods and
Services
Unallocated Spending
$312 Billion Total Spending: $2.7 Trillion
Interest on Debt
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Federal Spending and Taxes in 2006
Three Main Points:
■ Examining the distributional consequences of both taxes and spending is important.
■ In a given year, elderly households receive significantly more in federal spending than they pay in federal taxes.
C O N G R E S S I O N A L B U D G E T O F F I C E
Spending on Cash and Near-Cash Transfers, by Type of Household, 2006
0
100
200
300
400
500
Elderly Nonelderly Without Children
Nonelderly With Children
Billions of Dollars
Other
Social Security
C O N G R E S S I O N A L B U D G E T O F F I C E
Spending on Health Care Transfers, by Type of Household, 2006
0
100
200
300
400
500
Elderly Nonelderly Without Children
Nonelderly With Children
Medicaid and Other
Medicare
Billions of Dollars
C O N G R E S S I O N A L B U D G E T O F F I C E
Federal Taxes, by Type of Household, 2006
0
400
800
1,200
Elderly Nonelderly Without Children
Nonelderly With Children
Billions of Dollars
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Transfers, Taxes, and Transfers Minus Taxes, by Type of Household, 2006
-20,000
-10,000
0
10,000
20,000
30,000
Dollars per Household
Elderly Nonelderly Without Children
Nonelderly With Children
Transfers Minus Taxes Taxes
Transfers
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Market Income Plus Transfers Minus Taxes, by Type of Household, 2006
0
20,000
40,000
60,000
80,000
100,000
120,000
Up 25%
Down 17%
Down 20%
Dollars per Household
Elderly Nonelderly Without Children
Nonelderly With Children
C O N G R E S S I O N A L B U D G E T O F F I C E
Distribution of Federal Spending and Taxes in 2006
Three Main Points:
■ Examining the distributional consequences of both taxes and spending is important.
■ In a given year, elderly households receive significantly more in federal spending than they pay in federal taxes.
■ Allocating the value of public goods to households is challenging but important.
C O N G R E S S I O N A L B U D G E T O F F I C E
Federal Spending, 2006
Unallocated Spending
Cash and Near-Cash Transfers
Health Care Transfers
Other Goods and
Services
Total Spending: $2.7 Trillion
$785 Billion
$481 Billion
$312 Billion
$1,080 Billion
C O N G R E S S I O N A L B U D G E T O F F I C E
Federal Spending on Other Goods and Services, by Type of Household, 2006
0
200
400
600
Billions of Dollars
Elderly Nonelderly Without Children
Nonelderly With Children
Allocated by Share of Market Income
Allocated by Share of the Population
C O N G R E S S I O N A L B U D G E T O F F I C E
Average Spending Minus Taxes, by Type of Household, 2006
-20,000
-10,000
0
10,000
20,000
30,000
Dollars per Household
Elderly Nonelderly Without Children
Nonelderly With Children
Transfers, Plus Other Goods and Services by Share of Population, Minus Taxes
Transfers, Plus Other Goods and Services by Share of Market Income, Minus Taxes
Transfers Minus Taxes
C O N G R E S S I O N A L B U D G E T O F F I C E
Summary
■ Income is highly skewed toward the top.
■ Income inequality has been increasing over time.
■ The federal tax system is progressive.
■ Average rates are near the lowest they have been for more than thirty years.
■ The tax-and-transfer system has ameliorated income inequality, especially during recent economic downturns.
■ Examining the distributional consequences of both taxes and spending is important.
■ In a given year, elderly households receive significantly more in federal spending than they pay in federal taxes.
■ Allocating the value of public goods to households is challenging but important.
