This Congressional Budget Office (CBO) paper, which was prepared at the request of the Chairman of the House Committee on Ways and Means, is the first of several papers that address methodological issues in distributional analyses. The analysis focuses on the choice of period used to assess the distribution of income and taxes and examines the effect of measuring income and taxes over periods longer than one year. It uses data from a panel of income tax returns to calculate both annual and multiyear (longitudinal) effective tax rates. But because income tax returns lack sufficient information about low-income taxpayers, the study also draws on the University of Michigan's Panel Study of Income Dynamics to extend the analysis to lower-income households.

Edward Harris, David Weiner, and Roberton Williams of CBO's Tax Analysis Division wrote the paper under the direction of G. Thomas Woodward. Dean R. Lillard of Cornell University reviewed a draft of the paper and provided valuable comments, as did John Sabelhaus, Douglas Hamilton, Paul Cullinan, and Arlene Holen of CBO. (The assistance of external participants implies no responsibility for the final product, which rests solely with CBO.)

Leah Mazade edited the paper, and Janey Cohen proofread it. Denise Williams typed early drafts of the manuscript, and Maureen Costantino both designed the cover and prepared the paper for publication. Lenny Skutnik produced the printed copies of the report, and Annette Kalicki prepared the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
January 2005