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This memorandum supplements two recent Congressional Budget Office (CBO) memoranda describing the effects on households in different income groups of major changes in federal outlay programs and in federal taxes enacted in 1981 and 1982. The estimates presented here differ from the tax and benefit estimates presented in the earlier memoranda. The tax and benefit data have been adjusted to a different, common basis in order to sum the effects of federal policy changes on households for calendar years 1983-1985.

Estimates prepared for the two CBO studies differ in their scope and underlying assumptions and thus cannot be combined without adjustment of either one or both sets of figures. The most important differences concern the time periods examined and the definitions of the income categories used. The August 1983 CBO study, "Major Legislative Changes in Human Resource Programs Since January 1981," contained estimates of the distributional effects of certain benefit reductions in fiscal years 1982-1985. These estimates were developed by assuming that the share of households contained in each income group remained relatively constant throughout the 1982 to 1985 period. By contrast, the March 1984 CBO study, "Effects of Major Changes in Individual Income and Excise Taxes Enacted in 1981 and 1982 for Households in Different Income Categories," presents calendar year estimates of major tax changes by income group, and allows the proportion of households in each category to change over time in order to reflect the effects of inflation-induced bracket creep on tax liabilities.

Another difference is the inclusion of the Social Security Amendments of 1983 in the benefit changes analyzed but not in the tax changes. As discussed in the recent CBO memorandum describing the distributional effects of tax changes enacted during 1981 and 1982, CBO has not analyzed the effects of subsequent tax legislation such as that included in the Social Security Amendments. The amendments initiated taxation of Social Security benefits for individuals with adjusted gross incomes above $25,000 ($32,000 for couples) and increased revenues by between $6 billion and $7 billion over the 1984-1985 period. While nearly all of this tax increase will be felt by those in the middle- and high-income categories, its precise effects have not yet been determined. The August memorandum includes the impacts of most of the spending provisions of the Social Security Amendments. Consequently, the estimates presented here include the spending, but not the tax, provisions of that legislation.

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