Alternative measures of household income.

Dunbar, Ann E.

Three of the most widely used measures of household income are Bureau of Economic Analysis measure of personal income, the Census Bureau measure of money income, and the Internal Revenue Service measure of adjusted gross income of individuals. (1)

Personal income, in general, is a more comprehensive measure. For both the national and regional accounts, personal income is defined as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors' income with inventory and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance. Because the personal income of an area represents the income that is received by, or on behalf of, all the persons who live in that area and because the estimates of the earnings component of personal income is made on a place-of-work basis, state personal income also includes an adjustment for residence. Personal income includes the incomes of individuals, of nonprofit institutions that primarily serve individuals, of private noninsured welfare funds, and of private trust funds. The property income earned on life insurance and annuity reserves of life insurance carriers and earned on the assets of noninsured pension plans are also included in personal income.

Money income consists of income in cash and its equivalents before taxes and does not include the value of noncash benefits. It excludes, but personal income includes, employer contributions for employee pension and insurance funds, lump-sum payments except those received as part of earnings, certain in-kind personal current transfer receipts--such as Medicaid, Medicare, and food stamps--and imputed income. (2) Money income includes, but personal income excludes, personal contributions for government social insurance, distributions from government employee retirement plans and from private pensions and annuities, and income from regular interpersonal transfers, such as child support.

In addition, personal income at the national, state, and local area levels is presented annually on a per capita (average per person) basis. Money income at the national level is presented annually both on a per capita basis and on a median household basis; median money income for states from the Current Population Survey is presented annually as 2- and 3-year averages. (3) State personal income is not adjusted for inflation, but the national estimates of money income are available in inflation-adjusted dollars, using the consumer price index. (4)

Adjusted gross income (AGI) consists of the taxable income prior to exemptions and the standard or itemized deductions that are reported by individuals on their federal income tax return. It includes, but personal income excludes, personal contributions for social insurance, gains and losses on the sale of assets, and taxable distributions from government employee retirement plans and from private pensions and annuities. AGI excludes, but personal income includes, the income of the recipients of taxable incomes who, legally or illegally, did not file an individual income tax return. In particular, AGI excludes the income of many individuals with low incomes who are exempt from filing tax returns. Additionally, adjusted gross income excludes certain types of income that are not taxed--such as tax-exempt interest and nontaxable transfer payments, including Medicare, Medicaid, and welfare benefit payments--and it includes the taxable portion of social security benefit payments.

(1.) See also John W. Ruser, Adrienne T. Pilot, and Charles Nelson, "Alternative Measures of Household Income: BEA Personal Income, CPS Money Income, and Beyond," available at www.bea.gov/regional/index.htm; the Census Bureau's Income, Poverty and Health Insurance Coverage in the United States: 2009 report; the Internal Revenue Service's annual Individual Income Tax Returns; and Mark A. Ledbetter, "Comparison of BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross Income: New Estimates for 2005 and Revised Estimates for 2004," SURVEY OF CURRENT BUSINESS 87 (November 2007): 354-41.

(2.) Imputations are added to personal income in both the national and regional measures so that a comprehensive account of total production and its distribution can be presented. For a description of these imputations, see State Personal Income and Employment Methodology at www.bea.gov/regional/docs/ spi2008/.

(3.) Although these state-level estimates of median household income and poverty are available on the Census Web site, they are no longer published in the Census report. The Census Bureau is now focusing on annual estimates of median household income and poverty for states and smaller geographic areas with populations of 65,000 or more from the American Community Survey.

(4.) At the national level, BEA also presents real per capita disposable personal income (DPI). (DPI is personal income less personal current taxes; real DPI is DPI divided by the implicit price deflator for personal consumption expenditures.) For the sources of the prices used for this deflator, see Concepts and Methods of the U.S. National Income and Product Accounts: Personal Consumption Expenditures at www.bea.gov/national/pdf/NIPAhandbookch5.pdf.

Comparison of Alternative Per Capita Income Measures
(Dollars)

 Per capita income

 2007 2008 2009

State personal income (1) 39,392 40,166 39,138
Money income (2) 26,804 26,964 n.a.
Adjusted gross income (3) 28,289 26,985 n.a.

n.a. Not available

(1.) Bureau of Economic Analysis, available at www.bea.gov.

(2.) U.S. Census Bureau, Current Population Survey, 2008 and 2009
Annual Social and Economic Supplements, available at
www.census.gov. The Census Bureau calculates per capita money
income using the civilian noninslitutional population total as of
March of the following year. Members of the Armed Forces living
off base or with their families on post are included if at least
one civilian adult lives in the household.

(3.) Internal Revenue Service (IRS), available at www.irs.gov.
The IRS does not produce per capita adjusted gross income (AGI).
The measures shown are derived by dividing aggregate IRS AGI
(less deficit) by total population from the Census Bureau (also
used by BEA in the calculation of state per capita personal
income).