Tuesday, April 15, 2008

Taxing the Data

by B. Strong

I'm sure that many, many bloggers have offered their opinions on the likely consequences of the economic stimulus package for the economy. I don't have anything to add here, nor to I wish to trivialize the very real impact the recession is having on people's lives and livelihoods. But, I can't help but speculating about the consequences of the economic stimulus package on the livelihoods of number crunchers everywhere.

Unpack.

It's expected that roughly 20 million "extra" returns will be filed this year, out of a baseline of roughly 141 million returns. Most of the increase is likely to come from retirees whose income is too low for them to bother filing a return in a normal year. These additional returns at the bottom of the income distribution are sufficiently numerous to affect most inequality measures (except the 90:50 ratio).

The Great Data Swami predicts that as soon as the IRS data from 2007 are released, there will be glut of journalistic and quasi-journalistic social science articles pointing out the dramatic increase in levels of income inequality in 2007 relative to 2006.[1]

Within moments, left-leaning politicians will decry the accelerating pace of change in the gap between the haves and the have-nots. Paul Krugman will become a household name even outside the Times-select-reading elite.

Mere sound-bites later, right-leaning politicians will (a) claim that inequality statistics from the 2007 tax year are meaningless; (b) advocate for tightening the restrictions on the release of aggregate statistics from tax data, on the grounds such statistics violate Americans' unassailable [2] right to privacy; and (c) proclaim that research on income inequality is as wasteful of government funds as, well, research on gender or race. Those of us who study income inequality will no longer be able to use the words "income", "inequality", or "gini" in our proposal titles.

And with that, I'm off to put the finishing touches on my tax return.

[1] All of this assumes that the annual IRS data do not adjust for non-filers in their income estimates, or at least do not do so with much accuracy. Truth be told, I'm a CPS/SIPP gal myself, and have never used the IRS tax return data. If anyone less lazy than me knows more details about the IRS data, I'm all ears. Well, eyes, at least.

[2] Except for that whole wire-tapping homeland security bit.

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Comments:
I think the Krugman column to come would actually expend a few words explaining how the rebate situation affected the data should that be the case. It's hard to say to what extent they can or would be recast -- they could exclude low-wage filers, who are supposed to use a 1040X form; retirees optionally filing 1040As might be harder to pull out from other 1040A filers.
 
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