Congressional Budget Office June 18, 2015 The Distribution of Household Income, Federal Taxes, and Government Spending Presentation to the Society of Government Economists 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.
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 Thousands of Dollars 300 $241 200 $90 100 Social $55 Security $31 $8 0 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 Thousands of Dollars 1,500 $1,447 1,000 500 Social $293 Security $181 $132 0 81st to 90th 91st to 95th 96th to 99th Top 1 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 Thousands of Dollars 1,500 Top 1 Percent 1,000 500 Social Security 0 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
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 Percent 400 300 Top 1 Percent 200 174 100 81st to 99th Percentiles 56 16 Social 16 0 Middle Three Quintiles Security (21st to 80th Percentiles) Lowest Quintile -100 1980 1985 1990 1995 2000 2005 2010 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 Gini Index 0.7 0.6 Based on Market Income 0.59 0.5 0.48 0.4 0.3 0.2 Social 0.1 Security 0.0 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). 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 Percent Highest Quintile 15 10 Fourth Quintile 5 Middle Quintile 0 Second Quintile -5 Social Security Lowest Quintile -10 Individual Corporate Payroll Excise Taxes Income Taxes Income Taxes 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 Percent Top 30 1 Percent 25 20 15 96th to 99th Percentiles 81st to 90th Percentiles 91st to 95th Percentiles 10 Social 5 Security 0 Highest Quintile Lowest Quintile Second Quintile Middle Quintile Fourth 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
Shares of Before-Tax Income and Federal Taxes, by Before-Tax Income Group, 2011 Percent 80 Federal Taxes 60 Before-Tax Top 1 Income Percent 40 81st to 99th Percentiles 20 Social Security 0 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
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 Percent 40 Top 1 Percent 33 30 29 81st to 99th Percentiles 22 Middle Three Quintiles 21 20 (21st to 80th Percentiles) 13 12 10 Lowest Quintile Social Security 3 2 0 1980 1985 1990 1995 2000 2005 2010 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 Gini Index 0.7 Based on 0.6 0.59 Market Income Based on 0.48 0.5 Before-Tax Income 0.47 0.44 0.40 0.4 Based on After-Tax Income 0.36 0.3 0.2 Social 0.1 Security 0.0 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). 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 CBO analyzed the distribution of most federal spending (88 percent), and virtually all federal taxes (98 percent) in calendar year 2006. Federal $2.3 Spending Trillion Federal $2.4 Revenues Trillion 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 Cash and Near-Cash Social Security $785 Billion Transfers Cash Transfers Near-Cash Transfers • • Social Security (Old- Age and Survivors’ Supplemental Nutrition Insurance and Disability Insurance) Assistance Program (SNAP) • • Refundable Tax Credits Housing Assistance • • Supplemental Security Income (SSI) Pell Grants • • Unemployment Insurance (UI) Child Nutrition Programs • • Temporary Assistance for Needy Special Supplemental Nutrition Families (TANF) Program for Women, Infants and Children (WIC) • Means- Tested Veterans’ Benefits • The Low Income Home Energy • Black Lung Disability Benefits Assistance Program (LIHEAP) 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 Cash and Near-Cash Social Security $785 Billion Transfers Health Care Medicare $481 Billion Transfers Medicare Medicaid and Children’s Health Insurance Program (CHIP) Means-Tested Veterans ’ Health Benefits 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 Cash and Near-Cash Social Security $785 Billion Transfers Health Care Medicare $481 Billion Transfers Other $1,080 Goods and National Defense Billion Services National Defense Other Veterans Affairs Other Health and Human Services (HHS) Agriculture Education Justice Office of Personnel Management (OPM) Energy Transportation Other 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 Cash and Near-Cash Social Security $785 Billion Transfers Health Care Medicare $481 Billion Transfers Other $1,080 National Defense Goods and Billion Services Unallocated Interest Total Spending: $312 Billion Spending on Debt $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 Billions of Dollars 500 400 Other 300 Social Security 200 100 0 Elderly Nonelderly Nonelderly With Children Without 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
Spending on Health Care Transfers, by Type of Household, 2006 Billions of Dollars 500 400 300 Medicaid and Other 200 Medicare 100 0 Elderly Nonelderly Nonelderly With Children Without 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
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