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). CPS respondents tend to underreport their receipt of government transfers, and the level of underreporting has increased over time. Any CPS-based analysis of the income distribution that does not correct for that underreporting will probably underestimate income growth at the bottom of the distribution and the role of government transfers in reducing income inequality. In this presentation, CBO outlines a method to correct for underreporting in several transfer programs from 1979 through 2013 and examines the distributional effects of those corrections. The information is preliminary and is being circulated to stimulate discussion and critical comment. Presentation by Bilal Habib, an analyst in CBO’s Tax Analysis Division, at a Washington Center for Equitable Growth workshop on distributional national accounts.

1. Congressional Budget Office
Presentation at a Workshop Organized by the
Washington Center for Equitable Growth
July 21, 2017
Bilal Habib
Tax Analysis Division
Correcting for Underreporting of
Government Transfers: A Regression-Based
Approach With Preliminary Results
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. CONGRESSIONAL BUDGET OFFICE
Background

3. CONGRESSIONAL BUDGET OFFICE
CBO regularly produces a report on the
distribution of household income and
federal taxes.
This year, the agency is working to change
its analytical framework to treat means-
tested transfers as equivalent to taxes.

4. CONGRESSIONAL BUDGET OFFICE
Old Analytical Framework
Market Income
Before-Tax Income
After-Tax Income
Government
Transfers
(Includes social insurance
benefits and means-tested
transfers)
Federal Taxes

5. CONGRESSIONAL BUDGET OFFICE
New Analytical Framework
Market Income
Market Income
Plus
Social Insurance Benefits
Income After
Taxes and Transfers
(Equal to After-Tax Income)
Social Insurance
Benefits
Federal Taxes
Means-Tested
Transfers

6. CONGRESSIONAL BUDGET OFFICE
Explicit analysis of government transfers
requires a complete accounting of transfer
income.
CBO’s tax model uses the Annual Social
and Economic Supplement of the Current
Population Survey (CPS) for transfer
income data.

7. CONGRESSIONAL BUDGET OFFICE
Underreporting of transfer income in the
CPS has increased over time, as is well
documented in Wheaton (2008), Meyer,
Mok, & Sullivan (2009), and Moffitt &
Scholz (2009).
As a result, CPS-based analyses are likely to
understate income growth at the bottom
of the distribution and the role of transfers
in reducing income inequality.

8. CONGRESSIONAL BUDGET OFFICE
Reporting Rates in the CPS:
Means-Tested Transfers, 1979–2013
CPS Recipients as a Percentage of Administrative Recipients
0
20
40
60
80
100
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
73
66
53
Medicaid
SSI
SNAP

9. CONGRESSIONAL BUDGET OFFICE
CBO’s goal is to obtain a more complete
(although partially imputed) accounting of
income from government transfers in the
CPS with enough precision for quintile-
level distributional analysis.

10. CONGRESSIONAL BUDGET OFFICE
The analysis is focused on three of the
largest means-tested transfers—Medicaid,
the Supplemental Nutrition Assistance
Program (SNAP), and Supplemental
Security Income (SSI)—and the two largest
social insurance benefits—Social Security
and Medicare.

11. CONGRESSIONAL BUDGET OFFICE
Means-Tested Transfers

12. CONGRESSIONAL BUDGET OFFICE
Researchers typically use three ways to
correct for underreporting:
• Administrative matching,
• Rules-based simulation, and
• Regression-based estimation.

13. CONGRESSIONAL BUDGET OFFICE
Administrative matching offers near-perfect
accounting, but administrative microdata are
not widely available. Examples: Davern et al.
(2009); Meyer and Sullivan (2008).
Rules-based simulation offers precise estimates
at the micro level, but requires a significant
research investment. Example: Zedlewski and
Giannarelli (2015).
Regression-based estimation is tractable for
multiple programs/years but is less precise at
the micro level. Example: Moffitt and Scholz
(2009).

14. CONGRESSIONAL BUDGET OFFICE
CBO’s preliminary regression-based
estimation has three steps:
1. Use reported data to estimate the
probability of receipt for all units.
2. Impute transfer receipt based on
estimated probabilities.
3. Assign transfer income to recipients.

15. CONGRESSIONAL BUDGET OFFICE
Step 1. Predicted probabilities are
estimated using a probit model with CPS-
reported receipt as the dependent
variable.
Independent variables are based on
program rules and other characteristics
associated with program participation.

16. CONGRESSIONAL BUDGET OFFICE
Individual characteristics include age,
race, education, labor force status,
disability, marital status, and receipt of
other means-tested transfers.
Household/family characteristics include
income (as a percentage of the federal
poverty level), income composition,
household size and structure, and
geography.

17. CONGRESSIONAL BUDGET OFFICE
Step 2. Transfer receipt is imputed to
nonreporters with the highest probability
of receipt until the administrative total is
reached. This process is repeated to match
the targets for each category (e.g., children,
elderly).

18. CONGRESSIONAL BUDGET OFFICE
Percentage of Adults Receiving Benefits
0
10
20
30
40
50
0 25 50 75 100 125 150 175 200 225 250 275 300
Annual Family Income as a Percentage of the Federal Poverty Level
Medicaid Recipiency Rates, by Income, 2010
CPS (Reported Only)
CBO (Imputed Plus
Reported)
The Urban Institute’s
Transfer Income
Model

19. CONGRESSIONAL BUDGET OFFICE
Percentage of Individuals Receiving Benefits
SSI Recipiency Rates, by Income, 2010
0
5
10
15
20
25
0 25 50 75 100 125 150 175 200 225 250 275 300
Annual Family Income as a Percentage of the Federal Poverty Level
CPS
(Reported
Only)
CBO (Imputed
Plus Reported)
The Urban
Institute’s
Transfer
Income Model

20. CONGRESSIONAL BUDGET OFFICE
Distribution of SNAP Recipients, by Annual Household Income
as a Percentage of the Federal Poverty Level, 1979–2013
Percentage of Recipients
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1979 1984 1989 1994 1999 2004 2009
CPS (Reported Only)
1979 1984 1989 1994 1999 2004 2009
CBO (Imputed Plus Reported)
100
90
80
70
60
50
40
30
20
10
0
49% or Less
50%–99%
150%–199%
200% or More
100%–149%

21. CONGRESSIONAL BUDGET OFFICE
Distribution of SNAP Recipients, by Annual Household Income
as a Percentage of the Federal Poverty Level, 2005–2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2008 2011
The Urban Institute’s Transfer Income
Model
Percentage of Recipients
100
90
80
70
60
50
40
30
20
10
0
49% or Less
50%–99%
150%–199%
200% or More
100%–149%
2005 2008 2011
CBO (Imputed Plus Reported)

22. CONGRESSIONAL BUDGET OFFICE
Step 3. Transfer income is assigned to
recipients. The assignment methodology
varies by program.

23. CONGRESSIONAL BUDGET OFFICE
For SNAP and SSI, CBO derives the average
benefit per household from reported
values (by household size and income-to-
poverty ratio).
Those averages are then assigned to newly
imputed recipients and are adjusted as
needed to match administrative totals.

24. CONGRESSIONAL BUDGET OFFICE
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Average Annual SNAP Benefits per Household, 1979–2013
Constant 2013 Dollars
Administrative
Data
Reporting
Households
Newly Imputed
Households

25. CONGRESSIONAL BUDGET OFFICE
For Medicaid, CBO derives the average
cost to the government per participant
from administrative data (by eligibility
category).
Those averages are then assigned to all
recipients (CPS “reported” values are
overwritten).

26. CONGRESSIONAL BUDGET OFFICE
Average Annual Cost per Medicaid Recipient, 1979–2013
0
1,000
2,000
3,000
4,000
5,000
6,000
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Constant 2013 Dollars
CPS Averages
CBO Averages (From
Administrative Data)

27. CONGRESSIONAL BUDGET OFFICE
CBO’s regression-based approach has both
strengths and limitations.

28. CONGRESSIONAL BUDGET OFFICE
The approach is straightforward to
implement and easily scalable across
multiple programs. Distributional results
are similar to rules-based methods.

29. CONGRESSIONAL BUDGET OFFICE
It does not, however, account for false
positives in the CPS, and assumes that
nonreporters have the same characteristics
as reporters. It has a limited ability to
simulate different policy scenarios.

30. CONGRESSIONAL BUDGET OFFICE
Social Insurance Benefits

31. CONGRESSIONAL BUDGET OFFICE
CBO uses a different approach for
imputing social insurance benefits.
CBO does not perform any explicit
distributional analysis of social insurance
benefits, since they are included in the
base income measure.

32. CONGRESSIONAL BUDGET OFFICE
Receipt of social insurance benefits is
difficult to model with a regression. It is
dependent on life-cycle income/labor force
participation, it is not means tested, and
there are no income data for children in
the CPS (which is important for imputing
Social Security survivors’ benefits).

33. CONGRESSIONAL BUDGET OFFICE
Social Security Reporting Rates in the CPS, 2001–2013
0
20
40
60
80
100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CPS Recipients as a Percentage of Administrative Recipients
Disability
Survivors
Old Age
85
97
47

34. CONGRESSIONAL BUDGET OFFICE
To impute Social Security benefits, CBO
creates a pool of eligible recipients for
each type of benefit and randomly assigns
receipt until the administrative counts are
matched.
The average benefit for each benefit type
is then assigned to new recipients and
aligned to administrative totals as needed.

35. CONGRESSIONAL BUDGET OFFICE
0
20
40
60
80
100
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Medicare Reporting Rates in the CPS, 1979–2013
CPS Recipients as a Percentage of Administrative Recipients
93

36. CONGRESSIONAL BUDGET OFFICE
To impute Medicare benefits, CBO makes
no change to reported recipients.
CBO assigns the average cost to the
government per participant to all
recipients. Benefits from the Low Income
Subsidy for Prescription Drug Coverage are
allocated separately.

37. CONGRESSIONAL BUDGET OFFICE
Preliminary Conclusions

38. CONGRESSIONAL BUDGET OFFICE
Income Inequality, 1979–2013
Gini Index
0.35
0.40
0.45
0.50
Market Income Plus
Reported Social
Insurance Benefits
Market Income Plus
Imputed Social
Insurance Benefits
Plus Reported Means-
Tested Transfers
Market Income Plus
Imputed Social Insurance
Benefits Plus Imputed
Means-Tested Transfers
Market Income Plus
Imputed Social
Insurance Benefits
0.00
0.35
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
0.35
0

39. CONGRESSIONAL BUDGET OFFICE
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
0
-1
-2
-3
-4
-5
-6
-7
-8
Change in Gini Index, 1979–2013
Percentage Change Relative to Market Income Plus Imputed Social Insurance Benefits
Reported Means-Tested Transfers
Imputed Means-Tested Transfers

40. CONGRESSIONAL BUDGET OFFICE
Ratio of Means-Tested Transfers to Base Income Measure
Means-Tested Transfer Rates, by Quintile, 1979–2013
0
0.1
0.2
0.3
0.4
0.5
0.6
Quintile 1 Quintile 2 Quintile 3
0
0.1
0.2
0.3
0.4
0.5
0.6
1979 1984 1989 1994 1999 2004 2009
Quintile 4
1979 1984 1989 1994 1999 2004 2009
Quintile 5
1979 1984 1989 1994 1999 2004 2009
All Quintiles
CPS (Reported Only)
CBO (Imputed
Plus Reported)

41. CONGRESSIONAL BUDGET OFFICE
0
0.1
0.2
0.3
0.4
0.5
0.6
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Means-Tested Transfer Rates, Bottom Quintile, 1979–2013
Ratio of Means-Tested Transfers to Base Income Measure
CPS (Reported Only)
CBO (Imputed Plus Reported)

42. CONGRESSIONAL BUDGET OFFICE
Notes to Figures
■ Slides 7 and 32: The reporting rate equals the weighted sum of
recipients in the CPS (including CPS imputations) divided by the
number of recipients in the administrative data, adjusted for
recipients outside the CPS sampling frame. Where administrative
totals are available on a monthly basis, they have been converted to
reflect the total number of program participants across the calendar
year.
■ Slide 17: Adults are defined as individuals aged 18–64 who are not
disabled.
■ Slides 17, 18, 19, and 20: Individuals or households are considered
recipients if they participate in the program at any point during the
calendar year.

43. CONGRESSIONAL BUDGET OFFICE
Notes to Figures (Continued)
■ Slides 17 and 18: The Urban Institute’s Transfer Income Model
(TRIM) is a microsimulation model that uses the CPS as a basis to
simulate program rules for various transfer programs. It uses those
rules to determine program eligibility, participation, and benefits.
The current version, TRIM3, has publicly available imputations for
most major welfare programs going back to 1993. For more details,
see Zedlewski and Gianarelli (2015).
■ Slide 33: The reporting rate equals the weighted sum of recipients in
the CPS (including CPS imputations) divided by the number of
recipients in the administrative data.
■ Slide 35: Reported and imputed social insurance benefits include
Social Security and Medicare. Reported and imputed means-tested
transfers include Medicaid, SNAP, and SSI.

44. CONGRESSIONAL BUDGET OFFICE
Notes to Figures (Continued)
■ Slide 38: Social insurance benefits include Social Security and
Medicare. Means-tested transfers include Medicaid, SNAP, and SSI.
■ Slides 39 and 40: The base income for the CBO (Imputed Plus
Reported) quintiles and means-tested transfer rates is market
income plus imputed social insurance benefits. The base income for
the CPS (Reported Only) quintiles and means-tested transfer rates is
market income plus reported social insurance benefits. Means-
tested transfers include Medicaid, SNAP, and SSI.

45. CONGRESSIONAL BUDGET OFFICE
References
■ Bruce D. Meyer, Wallace K. C. Mok, and James X. Sullivan, The
Under-Reporting of Transfers in Household Surveys: Its Nature and
Consequences, Working Paper 15181 (National Bureau of Economic
Research, July 2009), www.nber.org/papers/w15181.
■ Bruce D. Meyer and James X. Sullivan, Using Two-Sample Methods
to Correct for Reporting Bias in Surveys, Working Paper 0902
(University of Chicago, December 2008),
https://tinyurl.com/y8jjnqma (PDF; 176 KB).
■ Robert A. Moffitt and John Karl Scholz, Trends in the Level and
Distribution of Income Support, Working Paper 15488 (National
Bureau of Economic Research, November 2009),
www.nber.org/papers/w15488.

46. CONGRESSIONAL BUDGET OFFICE
References (Continued)
■ Laura Wheaton, Underreporting of Means-Tested Transfer Programs
in the CPS and SIPP, (Urban Institute, February 6, 2008),
https://tinyurl.com/yd4caq7n.
■ Sheila Zedlewski and Linda Gianarelli, TRIM: A Tool for Social Policy
Analysis, (Urban Institute, May 2015), https://tinyurl.com/y7sbos8l.