Measuring Income for Distributional Analysis

Research Report

Measuring Income for Distributional Analysis

July 25, 2013

Abstract

This document describes the income measure the Tax Policy Center (TPC) uses to analyze the distribution of federal taxes. TPC's income measure, which we call "expanded cash income" (ECI), is a broad measure of pre-tax income. We use it both to rank tax units in distribution tables and to calculate effective tax rates. Compared to narrower measures of incomesuch as AGI or cash income (the income measure used previously by TPC)ECI provides a more accurate ranking of taxpayers and better estimates of the overall burden of the federal tax system and the effect of tax policy changes.

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