The Top Ten Sources of Personal Income

One thing I notice about the debates on both taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy and income inequality is that a lot of people seem to have relatively hazy ideas about how income is earned in America, and how much of each kind of income there is. For example, if someone is earning $300,000 a year, where is their income likely to be coming from? How much revenue is drawn from capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. Capital gains taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. es? And how is income distributed between corporate shareholders and workers? People don't tend to have very strong priors about the answers to these questions, because they simply haven't yet learned what the relative sizes of different sources of income actually are.

That's odd, because lot of these questions are actually pretty easy to answer. The IRS is good about publishing the data. Given that – and given the recent interest in personal income inequality, I decided to write a little bit about the different kinds of income people report on their tax returns. A longer paper – Sources of Personal Income – is here, but for a brief overview, you might want to check out the top ten sources of income:

The main essence of things is that we are mostly a nation of workers, and we earn – by far – the most income from salaries and wages. And then, loosely speaking, there are three other areas that play minor roles of about $800 billion to $900 billion each: retirement income, investment income, and business income.

For more on these sources of income, take a look at the paper.

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