Household Incomes in Tax Data: Using Addresses to Move from Tax Unit to Household Income Distributions

39 Pages Posted: 8 Jan 2017  

Jeff Larrimore

Board of Governors of the Federal Reserve System

Jacob A. Mortenson

Joint Committee on Taxation, US Congress

David Splinter

Joint Committee on Taxation

Date Written: 2017-01-03

Abstract

Tax return data are increasingly the standard for tracking income statistics in the United States. However, these data have traditionally been limited by their inability to capture non-filers and to identify members of separate tax units living in the same household. We overcome these obstacles and create household records directly in the tax data using mailing address information included on tax forms. We then present the first set of tax-based household income and inequality measures for the entire income distribution. When comparing household income inequality results in the tax data to those using the March CPS, we confirm previous findings that the March CPS understates the inequality of household income. However, we also find that the previous approach of using tax units in the IRS data to proxy for households leads to an overstatement of household income inequality. Finally, using households in the IRS tax records, we illustrate how focusing on tax units rather than households alters the observed distribution of tax programs such as the Earned Income Tax Credit.

Keywords: EITC, Household Income, IRS Data, Income Inequality, Tax Unit Income

JEL Classification: D31, H24

Suggested Citation

Larrimore, Jeff and Mortenson, Jacob A. and Splinter, David, Household Incomes in Tax Data: Using Addresses to Move from Tax Unit to Household Income Distributions (2017-01-03). FEDS Working Paper No. 2017-002. Available at SSRN: https://ssrn.com/abstract=2895315 or http://dx.doi.org/10.17016/FEDS.2017.002

Jeff Larrimore (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jacob A. Mortenson

Joint Committee on Taxation, US Congress ( email )

Room 1625 Longworth House Office Building
Washington, DC 20515
United States

HOME PAGE: http://www.jacobmortenson.com

David Splinter

Joint Committee on Taxation ( email )

Room 1625 Longworth House Office Building
Washington, DC 20515
United States
202-225-3621 (Phone)

HOME PAGE: http://wwww.davidsplinter.com

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