Integrating Federal Estimates of Income, Consumption, and Wealth: Policy Issues

Integrating Federal Estimates of Income, Consumption, and Wealth: Policy Issues

INSIGHTi

Integrating Federal Estimates of Income,
Consumption, and Wealth: Policy Issues
May 31, 2024
In March 2024, the National Academies of Sciences, Engineering, and Medicine (NASEM) released an
expert panel report on income, consumption, and wealth statistics. The report offered guidance on
modernizing statistical processes to support research and evidence-based policies, as well as improving
integration of economic data collected by the Commerce Department’s Census Bureau and Bureau of
Economic Analysis (BEA), the Labor Department’s Bureau of Labor Statistics (BLS), the Internal
Revenue Service (IRS), the Federal Reserve System (Fed), and other federal agencies. The NASEM
report follows other academic, federal, and international reports on improving federal economic statistics.
Estimates of income, consumption, and wealth inform government efforts to maintain macroeconomic
stability, calculate economic growth rates, evaluate the effectiveness of policies supporting low-income
and vulnerable households, and raise revenues efficiently. Economic statistics also influence views on
income and wealth inequality and the efficacy of tax and transfer programs. Those estimates support
broader initiatives to base federal policies on empirical data. The Foundations for Evidence-Based
Policymaking Act of 2018 (P.L. 115-435) directs federal agencies to employ best-available evidence when
formulating policies. The Office of Management and Budget instructed agencies to “establish habitual
and routine reliance on evidence across agency functions and demand new or better evidence when it is
needed.” Private firms also use those data to plan investments and marketing strategies.
Over time, gathering data through phone interviews and surveys has become harder. Newer sources, such
as point-of-sale scanner data, provide immediate and granular information. Researchers are refining
methods to combine transaction-level data with traditional measures to provide up-to-date
macroeconomic trend data to policymakers.
National Accounts and Economic Statistics
Income and consumption estimates are components of national accounts, which provide a comprehensive
statistical description of economic activity within a country. The United States and the United Kingdom
implemented national accounts during the Great Depression and used them in World War II resource
planning. Most countries use national accounting systems guided by international statistical standards.
Gross domestic product (GDP), which measures the value of marketed goods and services produced in a
country in a year, is the most prominent national accounts statistic.
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GDP has limitations. First, as a market-based measure, GDP excludes nonmarketed resources and
activities, such as household work or environmental quality, which also affect individuals’ well-being.
Proposals to supplement GDP with broader measures of well-being that incorporate such nonmarket
factors may trade gains in comprehensiveness with reductions in verifiability and precision. Second,
distributional changes or economic trends affecting various subgroups are not reflected in national GDP
estimates. Recent methods to create distributional national accounts allow improved estimates of changes
in the distribution of income, consumption, and wealth. Those methods combine data collected by various
federal agencies to build up estimates for separate income or wealth quantiles.
The accounting relationships that (1) consumption plus savings equals income; and (2) the cumulative
sum of saving and borrowing is wealth allow researchers to cross-check data sources. Combining data
sets, however, requires researchers to make many assumptions to reconcile differing data concepts and
definitions. For instance, taxpayers submit data to the IRS, subject to audit, to determine taxable income,
which excludes some income types such as unrealized capital gains. The Census Bureau relies on survey
responses regarding wages, salaries, and other income sources.
While the IRS focuses on tax units, other federal agencies focus on other demographic categories such as
households, families, or individuals. The IRS collects limited demographic data, which hinders analysis
of the effects of tax policies. Agencies gather data needed for their operations, which involve different
measurement concepts, collection methods, and privacy requirements. Different sources, therefore, may
provide divergent answers, for instance, about income distribution trends (Figure 1).
Diverging Estimates of Income Inequality Highlight Economic Data Issues
These challenges can lead different researchers to disparate conclusions on important public concerns,
such as income and wealth inequality and how taxes affect those distributions, even when using much the
same data sources. The gap between pre- and post-tax distribution reflects the effects of tax and transfer
programs. Economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman estimated that the share of
total pre-tax income the top 1% of tax units received increased from 11.0% in 1982 to 19.1% in 2019
(Figure 2). Economists Gerald Auten and David Splinter estimated that the top 1% share of pre-tax
income rose more modestly from 9.1% to 13.8% over the same time period. How nontaxed income and
the value and costs of public expenditures are imputed account for some of those differences.

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Figure 1. U.S. Inequality Trends: Various Income Measures, 1979-2022

Source: NASEM report, p. 1-8; Auten and Splinter (2024), BEA, CBO, U.S. Census Bureau, Global Repository of Income
Dynamics, Luxembourg Income Study (LIS), World Inequality Database, and Piketty, Saez, and Zucman (2018).
Note: The Gini index measures the divergence of a distribution of income or consumption from an equal distribution.
National Academy’s Expert Panel Recommendations
The NASEM panel’s report recommends several ways to narrow inconsistencies among economic
measurements and to close data coverage gaps by tying components of an integrated economic data
system to the budget identity that income equals consumption plus savings. Measures less tied to that
framework, such as those related to retirement, health finance, housing, and transfer payments, however,
remain essential for many purposes.
The panel lauds federal statistical agencies’ efforts to improve economic estimates and finds that data
definitions largely align with international standards. The panel urges those agencies to publish annual
distributional estimates of personal income and consumption expenditures, and to report on household
income, consumption, expenditure, and wealth trends every three years. The panel also recommends
providing greater geographic and demographic detail. The panel, like many economists, calls for
expanding access to administrative data, while minimizing privacy risks.

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Figure 2. Estimates of Top 1% Total Income Shares, 1960-2019

Source: Gerald Auten and David Splinter, “Income Inequality in the United States: Using Tax Data to Measure Long-Term
Trends,” Journal of Political Economy, forthcoming, data appendix, tab T-B9. Also see Thomas Blanchet, Emmanuel Saez, and
Gabriel Zucman, “Who Benefits from Income and Wealth Growth in the United States?” Realtime Inequality.
Issues for Congress
Congress has always sought economic data to inform its deliberations, but at times has raised concerns
about privacy, compliance costs, and budgetary priorities.
Improved data can enhance effectiveness of public and private activities, although better data may require
additional resources. Altering restrictions on administrative data matching could illuminate how federal
programs and taxation affect citizens.

Author Information

D. Andrew Austin

Analyst in Economic Policy

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