1.
Congressional Budget Office
Presentation to the Bureau of Economic Analysis Advisory Committee
May 15, 2020
Bilal Habib
Tax Analysis Division
How CBO Adjusts for Underreporting of
Means-Tested Transfers in Its
Distributional Analyses

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CBO
Background

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CBO
Market income consists of labor income, business income, capital income (including realized capital gains), income received in retirement for past services, and income from other
nongovernmental sources. Social insurance benefits consist of benefits provided through Social Security, Medicare, unemployment insurance, and workers’ compensation.
CBO’s Income Measures
Market
Income
Social
Insurance
Benefits
Income
Before
Transfers
and Taxes

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CBO
Market income consists of labor income, business income, capital income (including realized capital gains), income received in retirement for past services, and income from other
nongovernmental sources. Social insurance benefits consist of benefits provided through Social Security, Medicare, 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 on income, which must be below certain thresholds. Federal taxes consist of individual income taxes, payroll taxes, corporate income taxes, and excise taxes.
CBO’s Income Measures (Continued)
Income
Before
Transfers
and Taxes
Means-
Tested
Transfers
Federal
Taxes
Income
After
Transfers
and Taxes
Market
Income
Social
Insurance
Benefits
Income
Before
Transfers
and Taxes

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CBO
CBO’s distributional analyses are based on annual, cross-sectional data, which
are drawn from two sources.
Statistics of Income (SOI) give information about
 Market income and Social Security for tax filers and
 Federal taxes.
The annual March supplement of the Current Population Survey (CPS) gives
information about
 Means-tested transfers,
 Medicare, and
 Market income and Social Security for nonfilers.
Data Sources

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CBO
CBO makes adjustments to administrative totals to make them compatible with how data are reported in the CPS. For details on how those adjustments are made, see Bilal Habib,
How CBO Adjusts for Survey Underreporting of Transfer Income in Its Distributional Analyses, Working Paper 2018-07 (Congressional Budget Office, July 2018),
www.cbo.gov/publication/54234.
In 2018, CBO made two key changes to its distributional method.
 It updated the base income measure from “before-tax income” to “income before
transfers and taxes.” (CBO uses base income to rank households and as the
denominator in average tax rate calculations.)
 It adjusted CPS data for underreporting in four means-tested transfer programs.
Recent Changes to CBO’s Method
Program Total Benefits in 2018
(Billions of dollars)
Medicaid and the Children’s Health Insurance Program (CHIP) 528
Supplemental Nutrition Assistance Program (SNAP) 58
Supplemental Security Income (SSI) 55
Housing Assistance (Including rental assistance and public housing) 41

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CBO
The shaded vertical bars indicate periods of recession.
Cumulative Growth in Average Income, by Income Group,
1979 to 2016

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CBO
Adjustments to Means-Tested
Transfers

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CBO
Housing Assistance
0
20
40
60
80
100
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Percent
CBO makes adjustments to administrative totals to make them compatible with how data are reported in the CPS. For details on how those adjustments are made, see Bilal Habib,
How CBO Adjusts for Survey Underreporting of Transfer Income in Its Distributional Analyses, Working Paper 2018-07 (Congressional Budget Office, July 2018),
www.cbo.gov/publication/54234.
Recipients Reporting Means-Tested Transfers in the CPS as a
Share of Recipients in the Administrative Data, 1979 to 2018
MedicaidSSI
SNAP
Overreporting
Underreporting

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CBO
1. Use administrative data to set targets that reflect the CPS sampling frame.
– Subtract program participants who are institutionalized.
– Convert average monthly or point-in-time receipt to “ever-on” receipt.
– Convert fiscal-year spending levels to calendar-year targets.
2. Use CPS data on reporting units to estimate the probability of receipt for
all units.
– Run probit regressions for each year and population subgroup.
– Independent variables include income level and composition, labor force
participation, demographics, and household characteristics.
3. Impute transfer receipt on the basis of estimated probabilities until the target
is reached.
– An algorithm assigns receipt to units in proportion to their predicted
probability of receipt.
CBO’s Regression-Based Imputation Method

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CBO
Share of Households Receiving SNAP Benefits, by Income, 2018
0
10
20
30
40
50
60
70
80
0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 400 425 450
Household Income as a Percentage of the Federal Poverty Level (FPL)
CBO (Imputed Plus Reported)
CPS (Reported Only)
Percent

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CBO
After recipients match the administrative targets, each unit is assigned a benefit
amount.
 SNAP and SSI: CBO derives the average benefit per recipient on the basis of
income and demographic groups and assigns those averages to new
recipients.
 Medicaid: CBO derives the average cost to the government per recipient from
administrative data (by eligibility category) and assigns those averages to all
recipients.
 Housing assistance: CBO estimates benefits for each reporting unit on the
basis of location, household size and structure, and fair-market rents
determined by the Department of Housing and Urban Development. (No
additional households are imputed to be recipients.)
Assigning Benefit Amounts

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CBO
These results differ from those published in CBO’s Distribution of Household Income reports because they use CPS data only, whereas those reports use a combination of CPS and
SOI data.
Income Inequality, 1979 to 2018
0.36
0.38
0.4
0.42
0.44
0.46
0.48
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Gini Index
Income Before
Transfers and Taxes
(Base income)
Base Income Plus
Imputed Means-Tested
Transfers
Base Income Plus
Reported Means-Tested
Transfers

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CBO
CBO released a working paper in 2018 describing its method for imputing
means-tested transfers. It included CPS extracts and Stata code to allow
researchers to replicate CBO’s results for 1979 through 2016.
In May 2020, CBO released a new version of the data and code with the
following updates:
 Imputations added for 2017 and 2018,
 Imputed values added for housing assistance benefits,
 Estimates of Medicaid and CHIP benefits improved by accounting for variations
in the amount of time enrolled in the program,
 Recipient and benefit target values updated for 1979 through 2016, and
 GitHub used as the repository.
Public Release of CBO’s Means-Tested Transfer Imputations

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CBO
Congressional Budget Office, Projected Changes in the Distribution of Household
Income, 2016 to 2021 (December 2019), www.cbo.gov/publication/55941.
Congressional Budget Office, The Distribution of Household Income, 2016
(July 2019), www.cbo.gov/publication/55413.
Bilal Habib, How CBO Adjusts for Survey Underreporting of Transfer Income in Its
Distributional Analyses, Working Paper 2018-07 (Congressional Budget Office,
July 2018), www.cbo.gov/publication/54234.
Kevin Perese, CBO’s New Framework for Analyzing the Effects of Means-Tested
Transfers and Federal Taxes on the Distribution of Income,
Working Paper 2017-09 (Congressional Budget Office, December 2017),
www.cbo.gov/publication/53345.
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