Statistically Matching Administrative Tax Data With Household Survey Data
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CBO’s analyses of the distribution of household income and federal taxes are based on administrative tax data from the Internal Revenue Service’s Statistics of Income (SOI) and on household survey data from the Census Bureau’s Current Population Survey (CPS). Those two data sources contain complementary information. The SOI data contain detailed income information for those who file taxes each year but lack information for those who do not file taxes; the data also lack information about nontaxable sources of income. The CPS data contain information about a wide range of nontaxable sources of income for all U.S. households, regardless of whether they file tax returns in a given year. By statistically combining the information from those two sources, CBO creates a comprehensive database of income sources for all U.S. households to serve as the foundation for its distributional analyses. This presentation provides an overview of the algorithm that CBO uses to statistically match the SOI and CPS data, and it provides some summary statistics on the characteristics of nonfiling tax units. Presentation by Kevin Perese, an analyst in CBO's Tax Analysis Division, at a Washington Center for Equitable Growth workshop on distributional national accounts.
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Statistically Matching Administrative Tax Data With Household Survey Data
- 1. Congressional Budget Office Statistically Matching Administrative Tax Data With Household Survey Data Presentation at a Workshop Organized by the Washington Center for Equitable Growth July 21, 2017 Kevin Perese Tax Analysis Division As developmental work for analysis for the Congress, the information in this presentation is preliminary and is being circulated to stimulate discussion and critical comment.
- 2. 1CONGRESSIONAL BUDGET OFFICE Why Is It Necessary to Match Tax and Survey Data? SOI Data • Tax filers • Taxable income CPS Data Nonfilers CPS Data Transfer income All income sources for nonfilers come from the CPS. “SOI” is the Internal Revenue Service’s Statistics of Income. “CPS” is the Census Bureau’s Current Population Survey.
- 3. 2CONGRESSIONAL BUDGET OFFICE A Five-Step Process 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households
- 4. 3CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households The unit of analysis in CBO distribution reports is the CPS household.
- 5. 4CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households The unit of analysis in CBO distribution reports is the CPS household. However, there can be multiple tax units in a household.
- 6. 5CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households An algorithm is used to create tax units based on CPS relationship, age, and income variables. The unit of analysis in CBO distribution reports is the CPS household. However, there can be multiple tax units in a household.
- 7. 6CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households 0 1 2 3+ Number of Children 0 1 2 3+ Married Single Nonelderly One Elderly Nonelderly Elderly 0 1+ Dependents 0 1+ Nonelderly Elderly 0 0 0Two Elderly
- 8. 7CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Total income = Wages + Interest and dividends + Business income + Rental income + Unemployment insurance + Pension income + Capital gains + Social Security benefits + Other income First, using SOI data, define total income.
- 9. 8CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Total income = 𝛽𝛽0 * Wages + 𝛽𝛽1 * Interest and dividends + 𝛽𝛽2 * Business income + 𝛽𝛽3 * Rental income + 𝛽𝛽4 * Unemployment insurance + 𝛽𝛽5 * Pension income + α * Intercept + Error Term Capital gains Social Security benefits Other income Then, in each year and each demographic cell, estimate the following regression (using SOI data): Variables that are in both the SOI and the CPS
- 10. 9CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Total income = ̂𝛽𝛽0 * Wages + ̂𝛽𝛽1 * Interest and dividends + ̂𝛽𝛽2 * Business income + ̂𝛽𝛽3 * Rental income + ̂𝛽𝛽4 * Unemployment insurance + ̂𝛽𝛽5 * Pension income + �𝛼𝛼 * Intercept Finally, calculate predicted total income in the CPS and the SOI, using the estimated regression coefficients:
- 11. 10CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Record ID Record ID 1 A 2 B 3 C 4 D E Within each demographic cell, each file is sorted from highest to lowest predicted total income.
- 12. 11CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Record ID Sample Weight Record ID Sample Weight A 1 B 1 1 5 C 1 D 3 2 3 E 3 3 5 4 3
- 13. 12CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1 5 C 1 D 3 2 3 E 3 3 5 4 3
- 14. 13CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 D 3 2 3 E 3 3 5 4 3
- 15. 14CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 1C 1 D 3 2 3 E 3 3 5 4 3
- 16. 15CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 1C 1 1D 2 D 3 Pick up the remaining weight on the first CPS record, and split the weight on the fourth SOI record. 2 3 E 3 3 5 4 3
- 17. 16CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 1C 1 1D 2 D 3 2D 1 2 3 Pick up the remaining weight on the fourth SOI record, and split the weight on the second CPS record. E 3 3 5 4 3
- 18. 17CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 1C 1 1D 2 D 3 2D 1 2 3 2E 2 E 3 And so on… 3 5 4 3
- 19. 18CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 1C 1 1D 2 D 3 2D 1 2 3 2E 2 E 3 3E 1 …until all SOI records (portions of SOI sample weights) have been exhausted. 3 5 4 3
- 20. 19CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Sample Weight Record ID Sample Weight Record ID Sample Weight A 1 1A 1 B 1 1B 1 1 5 C 1 1C 1 1D 2 D 3 2D 1 2 3 2E 2 E 3 3E 1 3_ 4 3 5 4 3 4_ 3 Nonfilers
- 21. 20CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File Record ID 1 2 A household with two tax units
- 22. 21CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Record ID Record ID Record ID 1 A 1A 2 B 1B A household with two tax units C 1C D 1D E 2D 2E
- 23. 22CONGRESSIONAL BUDGET OFFICE 1 2 3 4 5 Create CPS Tax Units Define Demographic Cells Estimate Regressions Sort and Match Files Reassemble Households Demographic Celli CPS File SOI File Merged File Household File Record ID Record ID Record ID Record ID 1 A 1A 1A-2D 2 B 1B 1A-2E A household with two tax units C 1C D 1D 1B-2D E 1B-2E 2D 2E 1C-2D 1C-2E The Household file has every combination of CPS-SOI matches in the Merged file, with each household record getting a scaled weight so that the sum of weights is the same as the original CPS household weight. 1D-2D 1D-2E
- 24. 23CONGRESSIONAL BUDGET OFFICE A Taxonomy of Tax Units 245 million tax units In 2013, there were:
- 25. 24CONGRESSIONAL BUDGET OFFICE A Taxonomy of Tax Units 245 million tax units 147 million tax-filing units 97 million nonfiling tax units In 2013, there were:
- 26. 25CONGRESSIONAL BUDGET OFFICE A Taxonomy of Tax Units 245 million tax units 84 million 147 million tax-filing units 97 million nonfiling tax units 14 million In 2013, there were: nondependent tax units dependent tax units
- 27. 26CONGRESSIONAL BUDGET OFFICE Some Results 4.8 million 2.1 million 1.1 million 5.7 million Number of Nondependent, Nonfiling Tax Units Married Single Nonelderly Elderly Nonelderly Elderly
- 28. 27CONGRESSIONAL BUDGET OFFICE Some Results Average Income of Nondependent, Nonfiling Tax Units $5,000 $10,000 $15,000 $20,000 Wages Other Income Social Security Income Other Transfers = less than $500. Married Single Nonelderly Elderly Nonelderly Elderly