INCORPORATING DISTRIBUTIONAL INFORMATION INTO THE NATIONAL ACCOUNTS by Dale W. Jorgenson November 16, 2012 BEA Advisory Committee Comments on Edward Harris.

INCORPORATING DISTRIBUTIONAL INFORMATION INTO THE NATIONAL ACCOUNTS

by Dale W. Jorgenson

November 16, 2012

BEA Advisory CommitteeBEA Advisory Committee

Comments on Edward Harris and Frank Sammartino, Comments on Edward Harris and Frank Sammartino, "Trends in the Distribution of Household Income between "Trends in the Distribution of Household Income between

1979 and 2007," Congressional Budget Office, October 2011.1979 and 2007," Congressional Budget Office, October 2011.

DISTRIBUTION OF HOUSEHOLD INCOME

Links Household Income Data from the Current Population Survey  (CPS) and Statistics of Income (SOI) with Transfer

Income from TRIM3 

Household Income in Real Terms Has Been Growing at About the Same Rate as the GDP

 Inequality Is Increasing Since Much of the Growth of

Household Income Is Concentrated on the Top Quintile and Even More on the Top One Percent

PROGRESSIVITY OF THE TAX AND TRANSFER SYSTEM

The Federal Tax and Transfer System Is Progressive and the Resulting Redistribution of Household Income

Reduces Inequality.  

Transfers Are Responsible for Most of the Redistribution of Income (60 Per Cent), While the

Federal Tax System Accounts for the Rest (40 Per Cent) 

The Payroll Tax Is Mildly Regressive

DOES THE STUDY PROVIDE A MEASURE OF ECONOMIC WELL-BEING?

Household Income and Its Distribution Do Not Provide a Measure of Economic Well-Being

(Box 1 of the Paper). 

The Distribution of Consumption Provides the Best Measure of Current Well-Being.

 The Distribution of Wealth Provides the Best Measure

of Lifetime Well-Being

SPECULATIONS ABOUT CHANGES IN THE TAX AND TRANSFER SYSTEM SINCE 2007

Changes in Progressivity of the Federal Income Tax Since 2007 Are Not Very Substantial

 The Payroll Tax Reduction Due for Expiration at the

End of the Year Is Modestly Progressive 

The Expansion of Transfer Payments in Response to the Economic Downturn Is Also Progressive

A FEW LIMITATIONS OF THE STUDY

State and Local Taxes Are Excluded from the Analysis of the Tax and Transfer System

 Capital Gains Should Be Measured on an Accrual Basis

after Inflation 

Public and Private Pensions and Associated Transfers Should Be Measured on an Accrual Basis

OVERALL EVALUATION OF THE STUDY

Integration of the CPS, SOI, and TRIM3 Data Sets Is a Very Important Contribution to the Analysis of the

Distribution of Household Income. 

The Paper Breaks Significant New Ground in Analyzing the Progressivity of the U.S. Tax and Transfer System

 The Paper Does Not Address the Integration of

Distributional Information into the National Accounts

New Architecture for an Expanded and Integrated Set of National Accounts for the United States

1. PRODUCTION

Gross Domestic Product Equals

Gross Domestic Factor Outlay

2. DOMESTIC RECEIPTS

AND EXPENDITURES

Domestic Receipts Equal

Domestic Expenditure

3. FOREIGN TRANSACTION CURRENT ACCOUNT

Receipts from Rest of World Equal

Payments to Rest of World and

Balance on Current Account

4. DOMESTIC CAPITAL ACCOUNT

Gross Domestic Capital Formation Equals

Gross Domestic Savings

5. FOREIGN TRANSACTION CAPITAL ACCOUNT

Balance on Current Account Equals

Payments to Rest of the World and

Net Lending or Borrowing

6. DOMESTIC BALANCE SHEET

Domestic Wealth Equals

Domestic Tangible Assets and

U.S. Net International Position

7. U.S. INTERNATIONAL POSITION

U.S.-Owned Assets Abroad Equal

Foreign-Owned Assets in U.S. and

U.S. Net International Position

1. THE PRODUCTION ACCOUNTOutput, Input, and Productivity

2. DOMESTIC RECEIPTS AND EXPENDITURESIncome, Consumption, and Saving

Household standard of living and its cost

Social standard of living and its cost

3. MEASURES OF SOCIAL WELFAREEfficiency, Equity, and the Standard of Living

Contributions to the Standard of Living

MEASURING SOCIAL WELFAREIN THE NATIONAL ACCOUNTS

Growth in the Standard of Living Dropped Substantially After 1973. The Predominant Share of Growth in the

Standard of Living Is Due to Efficiency. 

Growth in Equity Contributed Positively to Growth in the Standard of Living until 1973,

but Negatively Through 2006. 

Equity Dropped Considerably from 1995-2000. The Decline in Equity Was Relative Modest until

1995 and after 2000.

SHOULD SOCIAL WELFARE MEASURES BE INCLUDED IN THE NATIONAL ACCOUNTS?

 The Measurement of Social Welfare Combines Distributional Information about Consumer Expenditures with Normative Judgments.

Social Welfare Measures Like Efficiency, Equity and the Standard of Living Would Fill an Important Gap in

the National Accounts.

 Our Recommendation: Statistical Agencies Should Experiment with Satellite Systems Including

Social Welfare Measures