Information about the distribution of income in the United States comes from two main sources: the Bureau of the Census Current Population Survey and the Internal Revenue Service Statistics of Income. Each has its strengths and limitations.
The Annual Social and Economic Supplement to the Current Population Survey (CPS) is designed to provide national-level estimates of annual income and poverty levels. About 100,000 households are included in the sample each year. The CPS measures pre-tax money income, including income from such sources as earnings, unemployment compensation, public assistance, interest, and pensions. One limitation of the CPS for obtaining information about income is that its income figures are topcoded, meaning that the actual value is not available for people with incomes above a certain level. This circumstance prevents the calculation of accurate averages at the top of the income distribution.
The Statistics of Income (SOI) reports data collected from income tax returns. The IRS removes all identifying information from data reported in the SOI. Unlike the CPS, the SOI database includes capital gains income and records earnings at all levels. However, it will not capture individuals and families who do not file income tax returns, a situation which may result in low-income families being under-represented.
The Congressional Budget Office (CBO) attempts to address the limitations of the CPS and SOI data by combining the two. The CBO data on income are thus representative of individuals and households at all levels of income. CBO uses a comprehensive definition of income which includes all cash income, taxes paid by businesses, employees’ contributions to 401(k) retirement plans, and the value of income received in-kind (such as employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps). CBO presents information on both pre-tax and after-tax income. The CBO data on pre-tax income are not directly comparable to the CPS data because of the inclusion of additional sources of income and because CBO adjusts income for household size to rank households in the income distribution.