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For several years, the Congressional Budget Office (CBO) has developed estimates of the distribution of income and federal taxes in response to requests from Committees of the Congress. CBO published the original estimates, and various publications of the Committee on Ways and Means have included more recent estimates along with explanations of the methodology used to calculate them and the staffs descriptions of the patterns they reveal.¹ Policy analysts, commentators, and the media frequently reconfigure, interpret, analyze, and criticize the estimates. In the process, the interpretations and conclusions of these secondary appraisals are sometimes--and incorrectly--attributed to CBO.

A case in point: recent media stories have used CBO statistics on incomes to buttress a contention about the increasing inequality of aftertaste incomes among families. For example, The New York Times reported on March 5 that "The richest 1% of families received 60% of the after-tax income gain" between 1977 and 1989. That figure, which was attributed to both CBO and Professor Paul Krugman of the Massachusetts Institute of Technology, was actually Professor Krugman's reconfiguration of CBO data contained in a December 1991 report issued by the House Committee on Ways and Means.² Many of the commentaries that resulted criticized CBO's estimates and methodology or ascribed the conclusions in the original article to CBO.³

This memorandum seeks to clarify some of the confusion surrounding the meaning and derivation of estimates reported in the original New York Times article. It first explains what is being measured in discussions of the distribution of income gains among families and then considers alternative measures of income for looking at that distribution. A concluding section discusses limitations to analyses of incomes.

This document is available in its entirety in PDF.

1. See, for example, Subcommittee on Human Resources of the Committee on Ways and Means, U.S. House of Representatives, Background Material on Family Income and Benefit Changes, Committee Print 102-30 (December 19,1991), pp. 61-81, and Committee on Ways and Means, U.S. House of Representatives, 7997 Green Book Overview of Entitlement Programs, Committee Print 102-9 (May 7, 1991), pp. 1286-1329. CBO discussions of these issues appear in The Changing Distribution of Federal Taxes: 1975-1990 (October 1987); The Changing Distribution of Federal Taxes: A Closer Look at 1980 (July 1988); and testimony of Robert Reischauer before the Committee on the Budget, U.S. House of Representatives, July 17, 1991, and the Committee on Finance, U.S. Senate, November 26, 1991.

2. Subcommittee on Human Resources, Background Material on Family Income and Benefit Changes.

3. Clayton Yeutter, "When 'Fairness' Isn't Fair," The New York Tones (March 24, 1992), p. A21; Paul Craig Roberts, The Congressional Budget Office's Skewed Numbers," Business Week (March 23, 1992), pp. 18-19; and Alan Reynolds, The Middle Class Boom of the 1980s," The Wall Street Journal (March 12, 1992), p. A12.