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Personal income and adjusted gross income, 1980-82.

The reconciliation of the Bureau of Economic Analysis (BEA) measure of personal income and the Internal Revenue Service (IRS) measure of adjusted gross income (AGI) by type of income for 1980-81 that appeared in the April 1983 survey of Current Business is revised and extended to 1982 in this article. The revised data reflect the revision of personal income for 1980-82 released in July 1983 and the revision of AGI for 1981 by IRS. In addition, they reflect a revision in an intercomponent reallocation item and the introduction of a new intercomponent reallocation item. These items--interest distributed by regulated investment companies and disability income payments--are in lines 20 and 21, respectively, in each of the tables.

The need for the revision to the reallocation item arises because interest distributed by all regulated investment companies, not only money market mutual funds, is to be reported as dividends on tax returns, but is treated as interest in personal income. Previously, only interest distributed by money market mutual funds was reallocated (and the name of the reallocation item in the tables in the April 1983 survey reflected that coverage). The amount shown in line 20 excludes interest that is tax-exempt, such as interest received from State and municipal bonds. Tax-exempt interest distributions are included in line 9.

The needed for the new reallocation item arises because some disability income payments are reported as wages on tax returns, but are included as pensions in personal income. The Tax Reform Act of 1976 provided a disability income exclusion, under which a taxpayer who retires before age 65 on disability is entitled to exclude from gross income limited amounts of disability payments if the payments are reported as wages. (A disabled person is not permitted the exclusion for the tax year in which he attains age 65 or any subsequent years, and must report the payments as pensions.)

The AGI gap as a percentage of the BEA-derived AGI was revised up for 1980 and 1981, reflecting upward revisions in the gaps for wages and salaries, for farm proprietors' income, and for personal dividend income. The AGI gap as a percentage of the BEA-derived AGI now continues to increase through 1981, continuing the upward trend that began in 1977. This trend is reversed in 1982, reflecting a negative wages and salaries gap and a significant--17 percentage points--decline in the interest income gap.

The size and changes in the gaps for 1982 should be interpreted with caution, because IRS data on AGI and its sources reported in Statistics of Income Bulletin are preliminary. A revision in either AGI or in personal income, which is subject to revision in July 1984 for 1981-83, could alter the gaps. For wages and salaries, it could turn positive again; this was the case for 1981. The significant decline in the interest income gap in 1982 may be partly traceable to the Tax Equity and Fiscal Responsibility Act of 1982, which attempted to improve third-party information reporting of certain kinds of income, such as interest, and increased penalties for failure to file information returns. It is too early to tell whether such measure improved voluntary reporting.
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Author:Park, Thae S.
Publication:Survey of Current Business
Date:Apr 1, 1984
Words:523
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