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The Distribution of Household Income, Federal Taxes, and Government Spending

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Presentation by Kevin Perese, a principal analyst in CBO's Tax Analysis Division, to the Society of Government Economists.

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The Distribution of Household Income, Federal Taxes, and Government Spending

  1. 1. 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.
  2. 2. 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
  3. 3. 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
  4. 4. 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.
  5. 5. 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
  6. 6. 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 191st to 95th81st to 90th $132 $1,447 $181 $293 Thousands of Dollars
  7. 7. 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
  8. 8. 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.
  9. 9. 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
  10. 10. 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
  11. 11. 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.
  12. 12. 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
  13. 13. 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 81stto90thPercentiles 91stto95thPercentiles 96thto99thPercentiles
  14. 14. 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
  15. 15. 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.
  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 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
  17. 17. 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.
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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.
  22. 22. 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.
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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.
  28. 28. 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
  29. 29. 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
  30. 30. 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
  31. 31. 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 TaxesTaxes Transfers
  32. 32. 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
  33. 33. 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.
  34. 34. 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
  35. 35. 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 Allocatedby Share of Market Income Allocatedby Share of the Population
  36. 36. 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 MinusTaxes
  37. 37. 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.

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