Definitions of Income

Bruce Bartlett has a good reminder that definitions of income can be important when discussing the income distribution. Piketty and Saez use adjusted gross income in their research because they’re using tax return data. Bartlett points out that this does not include a number of non-taxable income sources as listed by Congress’s Joint Committee on Taxation:

Expanded Income =
Adjusted Gross Income
+ tax-exempt interest
+ workers’ compensation
+ nontaxable Social Security benefits
+ excluded income of U.S. citizens living abroad
+ value of Medicare benefits in excess of premiums paid
+ minimum tax preferences
+ employer contributions for health plans and life insurance
+ employer share of payroll taxes

What Bartlett doesn’t address is whether or not this changes the distribution of income substantially. The number of tax returns less than $20,000 (and less than $10,000) does decrease substantially, but the number over $100,000 (and $200,000) increase substantially. Is this just a shift of the distribution or does it change its shape?

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