Measuring the Effects of Benefits and Taxes on Income and Poverty

Household income statistics produced by the U.S. Census Bureau have traditionally been based on a calendar-year, pre-tax, post-transfer income measure. This definition has three major weak points: 1) it fails to account for the effect of government non-cash programmes which provide medical, housing and food assistance, 2) it fails to reflect the effect of income and payroll taxes on the distribution of income, and 3) it fails to include private sector non-cash benefits, such as employer-provided health insurance.

This paper describes efforts at the Census Bureau over the last ten years to expand the definition of income beyond the original pre-tax, post-transfer concept. This effort began with a series of exploratory reports that focused on the effect of government non-cash benefits on the number of families and persons living in poverty. A second series of studies examined the effect of taxes on the distribution of income. Research efforts were expanded and integrated in the late-1980s to create a new series of reports that have provided a comprehensive picture of the effect of taxes and non-cash benefits on income distributional measures and the prevalence of poverty. The annual release of these estimates is now a permanent part of the Census Bureau's statistical programme.