This presentation from the Congressional Budget Office summarizes two reports on the distribution of household income, federal taxes, and government spending. It finds that income is highly skewed towards the top, inequality has increased over time, and the tax system is progressive, though average tax rates are low. It also shows that examining both taxes and spending is important, as the elderly receive more in spending than they pay in taxes, and allocating public goods is challenging but necessary.

1. 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.

2. 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

3. 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

4. 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.

5. 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
0
100
200
300
Thousands of Dollars
$8
$31
$55
$90
$241
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile

6. 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
0
500
1,000
1,500
96th to 99th Top 191st to 95th81st to 90th
$132
$1,447
$181
$293
Thousands of Dollars

7. 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
0
500
1,000
1,500
Thousands of Dollars
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
Top 1 Percent

8. 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.

9. 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
0
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

10. 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

11. 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.

12. 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
0
5
10
15
Percent
Lowest
Quintile
Highest
Quintile
Middle
Quintile
Second
Quintile
Fourth
Quintile
Individual
Income Taxes
Payroll
Taxes
Corporate
Income Taxes
Excise Taxes

13. 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
0
5
10
15
20
25
30
Percent
Top
1 Percent
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
81stto90thPercentiles
91stto95thPercentiles
96thto99thPercentiles

14. 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
0
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

15. 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.

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
Average Federal Tax Rates, by Income Group,
1979 to 2011, and Projected Under 2013 Law
Social
Security
0
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

17. 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.

18. 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

19. 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

20. 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

21. 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.

22. 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.

23. 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

24. 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

25. 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

26. 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
on Debt

27. 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.

28. 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
0
100
200
300
400
500
Elderly Nonelderly
Without Children
Nonelderly
With Children
Billions of Dollars
Other
Social Security

29. 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
0
100
200
300
400
500
Elderly Nonelderly
Without Children
Nonelderly
With Children
Medicaid
and Other
Medicare
Billions of Dollars

30. 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
0
400
800
1,200
Elderly Nonelderly
Without Children
Nonelderly
With Children
Billions of Dollars

31. 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
0
10,000
20,000
30,000
Dollars per Household
Elderly Nonelderly
Without Children
Nonelderly
With Children
Transfers
Minus TaxesTaxes
Transfers

32. 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
0
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

33. 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.

34. 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

35. 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
0
200
400
600
Billions of Dollars
Elderly Nonelderly
Without Children
Nonelderly
With Children
Allocatedby
Share of
Market
Income
Allocatedby
Share of the
Population

36. 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
0
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
MinusTaxes

37. 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.