Consumer Income & Expenditures: Integrating Micro & Macro Data Clinton P. McCully BEA Advisory Committee Meeting November 16, 2012

2 Divergent Macro vs. Micro Income Trends Real income 2000 = 100 Per capita disposable personal income (BEA) Median household income (CPS)

3 Why Has Macro Income Grown Faster? ▪ Rapid growth in non-cash income in National accounts--not captured in micro measures  Supplements to wages and salaries: Employer contributions for pensions and insurance  In-kind government social benefits ▪ National accounts data fails to capture changes in distribution of income  National accounts use average (per capita) measures  Median & quintile data used in micro measures

4 Wages & Salaries vs. Supplements

5 Cash vs. In-Kind Social Benefits

6 Integration Steps ▪ Remove nonprofit institutions serving households (NPISHs) from personal income & outlays ▪ Adjust scope of household income and outlays to match population coverage of household surveys ▪ Control micro income & consumption estimates to NIPA income and outlays  Scale matched micro income and consumption components  Use indicators for macro components with no micro counterparts ▪ Integrated estimates reflect all NIPA definitions and classifications

7 Order of Discussion ▪ Data sources ▪ Micro and macro income and consumption measures ▪ Scope adjustments ▪ Matched & non-matched values ▪ Income and consumption distributions ▪ Results ▪ Issues

8 Sources ▪ Micro—Household surveys  Money income = Current Population Survey Annual Social and Economic Supplement (CPS-ASEC)  Consumer expenditures = Consumer Expenditure Survey (CE)  Interview Survey  Diary Survey ▪ Macro  Household income and outlays = National Income and Product Accounts (NIPAs)  Excludes nonprofit institutions serving households (NPISHs) from personal income and outlays

9 Household Income Measures  CPS Money income  A measure of cash income  Includes pension income (disbursements)  NIPA household income  Includes employer pension contributions & property income earned on pension assets—Pension assets owned by households  Excludes pension disbursements—Intrasectoral transfers  Includes non-cash and imputed income  Employer insurance contributions  In-kind government social benefits  In-kind earnings  Imputed income  Interest  Owner-occupied housing—subtracts interest & other expenses from rental value

10 Household Expenditure Measures ▪ CE Consumer expenditures  Measures household out-of-pocket expenditures  Purchases of goods & services  Interest (including mortgage)  Other owner-occupied housing expenses  Pension contributions & life insurance premiums  Money provided to other households ▪ NIPA household outlays  Pension plan and life insurance company expenses = service charges  Imputed rental value of owner-occupied housing—expenses included in rental value  Imputed financial services  Imputed employee food, clothing, lodging & farm food  Securities services  Services paid for by employers & gov’t

11 Scope Adjustments to NIPA Income & Outlays ▪ Institutional—Nursing homes, prisons, others ▪ Decedent—Those who died in reference year ▪ Residency—Exclude those not physically resident in U.S. and include those who are physically resident ▪ Domestic military on post—In noninstitutional group quarters; excluded from civilian population

Household Income Adjustments in billions of dollars Household income Scope adjustments Value after scope adjustments 2010 in billions of dollars Decedents Institutionalized Residency Domestic military on post

13 Institutional & Decedent Adjustments 2010 in billions of dollars Medicare & Medicaid More than one-fourth of all Medicare & Medicaid expenditures are for those in the last year of life Combined with (non-deceased) nursing home inhabitants, these expenditures accounted for nearly 30 % of all Medicare & Medicaid expenditures All other institutional/decedent expenditures

14 Income Coverage Ratios  Ratio of CPS-ASEC values to adjusted NIPA monetary income values for selected estimates Wages & salaries Social Security Rents & royalties Proprietors’ income Dividends & interest 2010

15 Interest Comparison  Household monetary interest in the NIPAs includes monetary interest received by pension plans & other entities holding household assets  Accounts for part of gap between NIPA & CPS interest Received by pension plans All other Household Monetary Inte rest 2010 in billions of dollars CPSHousehold Interest Household monetary interest = $515.5 billion Excluding pension plans = $338.8 billion vs. $159.7 billion for CPS interest

16 Consumption Coverage Ratios  Ratio of CES values to adjusted NIPA household consumption expenditures (HCE) for selected estimates Owner-occupied rent Household fuels Purchases of vehicles Tenant-occupied rent Food at home Clothing & footwear Restaurants/hotels Alcohol /home Self-reported Regular housing-related expenditures well reported Large irregular expenditures well-reported “Sin” expenditures not well-reported Small frequently purchased items not well reported 2010

17 Unmatched Values ▪ Macro values with no micro counterparts  Use indicators in these cases  Examples:  Financial services furnished without payment to depositors  Use value of checking accounts & time deposits from CES as indicator to distribute expenditures  Interest income received by private employees and by public employees on pension funds  Use wages & salaries of employees participating in employer-sponsored pension plans

18 Income & Consumption Breakdowns ▪ Income quintiles  Uses equivalized household disposable income  Adjusts for differences in household size and composition  Uses Oxford (OECD) modified scale  Weights: 1.0 for household head 0.5 for each additional adult household member 0.3 for each child  Reflects how households share resources & take advantage of economies of scale  Similar to three-parameter scale used to produce equivalence-adjusted income in CPS-ASEC

19 Income & Consumption Breakdowns (cont.)  Main source of income  Employee compensation  Self-employment income  Property income  Rental income  Interest  Dividends  Transfers and other  Government social benefits  Transfers from  NPISHs  Business  Other households  Household type Restaurants/hotels Alcohol /home

20 Income & Consumption Breakdowns (cont.) ▪ Household type  Single up to 65  Single greater than 65  Single with children under 18  Two adults up to 65  Two adults with at least one greater than 65  Two adults with children under 18  Other household types  Includes children 18 or older living with parents

21 Income Distribution Comparison Shares of Aggregate Equivalence-Adjusted Income by Quintile, 2010 CPS-ASEC Household Income Disposable household Income

22 Shares of Household Income by Quintile Govt Social Benefits 2010 Earned Income Middle 4th

23 Real Mean Disposable Income by Quintile Percent change from 2006 to 2010 in real mean household disposable income by quintile 2006 = $217,452 Earned income: - $8,199 Property income: -$3,355 Gov’t social ben’s/other: +$3,576 (Minus) Taxes: -$4, = $214, = $21,807 Earned income: - $1,903 Gov’t social ben’s/other: +$1,994 (Minus) Taxes: -$2, = $24,424 Lowest 2 nd Middle 4 th Highest Total

24 Integration Issues ▪ Pension plans  Pension income not treated as income in national accounts ▪ Capital gains taxes  Capital gains not part of income in national accounts  Capital gains taxes are included in personal taxes ▪ High income households  Scaling does not capture possible effects of high income nonparticipants in household surveys

25 Alternative Treatment of Pension Plans ▪ Pension plans  Treat employer-sponsored pension plans as social insurance  Akin to treatment of Social Security  Contributions & property income earned on employer- sponsored pension plans excluded from household income  Disbursements (pension income) from employer- sponsored plans included in household income  Better alignment of income and consumption

26 Capital Gains Taxes ▪ Identify cases (in micro data) where income taxes are large relative to earned income and property income  In some cases, taxes exceed income from other sources, resulting in negative disposable income ▪ Estimate income tax payments on earned income and property income  Might use NBER TAXSIM model

27 High Income Coverage CPS-ASEC Household Income Disposable household Income 2009 Shares of Income Though there are differences in definition, this comparison suggests that CPS-ASEC estimates may not be fully capturing the high end of the income distribution.

28 High Income Coverage Interest, dividend and self-employment income of $1,000,000+ households is very similar to difference between CPS-ASEC & IRS totals. 2009

29 High Income Coverage % of returns Looked at another way, the shares of interest, dividends, and self-employment income accounted for by top 0.2% of tax filers are quite substantial