Measuring the effects of benefits and taxes on income and poverty

Abstract

Household income statistics produced by the V.S. Census Bureau have traditionally been based on a calendar-year, pre-tax, post-transfer income measure. This definition has three major weak points: (1) it fails to account for the effect of government non-cash programmes which provide medical, housing and food assistance; (2) it fails to reflect the effect of income and payroll taxes on the distribution of income; and (3) it fails to include private sector non-cash benefits, such as employer–provided health insurance.

This paper describes efforts at the Census Bureau over the last ten years to expand the definition of income beyond the original pre-tax, post-transfer concept. This effort began with a series of exploratory reports that focused on the effect of government non-cash benefits on the number of families and persons living in poverty. A second series of studies examined the effect of taxes on the distribution of income. Research efforts were expanded and integrated in the late-1980s to create a new series of reports that have provided a comprehensive picture of the effect of taxes and non-cash benefits on income distributional measures and the prevalence of poverty. The annual release of these estimates is now a permanent part of the Census Bureau's statistical programme.