clifp
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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- Oct 27, 2006
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Today's WSJ has fascinating article on retirement income which high lights one of my pet peeves the awful archaic state of government data collection.
Since it is behind the WSJ pay wall I'll quote extensively from it and provide some commentary..
It is important to note that virtually every report on income, taxes, inequality uses data from either the CPS or the IRS. IMO the IRS is vastly more reliable than the CPS data. This article highlights how inaccurate the CPS data is. (A huge part of the problem is the CPS uses techniques little different from the New Deal when it was first started, long person to person surveys).
The problem with IRS date is it isn't very broad. For instance if you are trying to understand the income of senior citizen, Roth distributions are tax free and the IRS does not collect data on them. Likewise if you are looking at the income of unemployed folks, food stamps are not taxed so the IRS collects no data. God knows how ACA subsidies are treated.
The CPS in contrast collects data on the income from both ROTH distributions and food stamps, but the accuracy is awful.
Since it is behind the WSJ pay wall I'll quote extensively from it and provide some commentary..
The rest of the article discuss other discrepancies between the CPS and the IRS data with respect to retirement income.There is a widespread perception that most Americans are inadequately prepared for retirement. The story pushed by pundits and policy makers is that the shift over the past 30 years from defined-benefit pensions to defined-contribution savings plans such as 401(k)s has dramatically reduced retirement income to supplement the benefits provided by Social Security.
Sen. Tom Harkin (D., Iowa) has introduced legislation to increase Social Security benefits and build a government-run supplemental saving plan. Sen. Elizabeth Warren (D., Mass.) has so captivated progressives with her demands to raise Social Security payments that she is touted as a potential presidential candidate in 2016.
Nevertheless, the story about the declining income prospects of retirees is not true. The story is largely based upon data from the Current Population Survey, conducted annually by the U.S. Census Bureau. Data from the Current Population Survey, or CPS, form the basis of the Social Security Administration's Income of the Aged publication series—which is widely cited as showing that Americans' inadequate retirement incomes force them to increasingly rely on Social Security benefits.
But the CPS fails to count most of the income Americans derive from 401(k) and IRA plans, as well as significantly understating the percentage of current American workers who are saving for retirement.
The CPS measures the sources and amounts of income received by American households, including income from retirement plans. The Census Bureau's definition of income, however, includes only payments made on a regular, periodic basis. So monthly benefits paid from a defined benefit pension or an annuity are counted as income, while as-needed withdrawals from 401(k)s or IRAs are not...
This definition of income obviously understates the resources available to retirees. And this understatement will only grow as more and more Americans save for their retirement through defined-contribution plans and not from defined-benefit plans.
The misperception about retirement income becomes clearer when other data are taken into account. For 2008, the CPS reported $5.6 billion in individual IRA income. Retirees themselves reported $111 billion in IRA income to the Internal Revenue Service. The CPS suggests that in 2008 households receiving Social Security benefits collected $222 billion in pensions or annuity income. But federal tax filings for 2008 show that these same households received $457 billion of pension or annuity income.
It is important to note that virtually every report on income, taxes, inequality uses data from either the CPS or the IRS. IMO the IRS is vastly more reliable than the CPS data. This article highlights how inaccurate the CPS data is. (A huge part of the problem is the CPS uses techniques little different from the New Deal when it was first started, long person to person surveys).
The problem with IRS date is it isn't very broad. For instance if you are trying to understand the income of senior citizen, Roth distributions are tax free and the IRS does not collect data on them. Likewise if you are looking at the income of unemployed folks, food stamps are not taxed so the IRS collects no data. God knows how ACA subsidies are treated.
The CPS in contrast collects data on the income from both ROTH distributions and food stamps, but the accuracy is awful.
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