Congressional Budget Office June 18, 2015 The Distribution of - - PowerPoint PPT Presentation

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

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

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

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

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

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

5 10 15 20 25 30 Percent Top 1 Percent Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile 81st to 90th Percentiles 91st to 95th Percentiles 96th 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

Shares of Before-Tax Income and Federal Taxes, by Before-Tax Income Group, 2011

Social Security

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

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

• n 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

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

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

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

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

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

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

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.