SOURCES OF INCOME IN 2000

Table 1, highlights various aspects of 2000 tax returns. We will begin by focusing attention on the sources of income reported in the lower panel. While Adjusted Gross Income (AGI) accelerated to a 7.9% growth compared with 6.9% the previous year, it was below the decade average. It appears that two components were the major sources of acceleration: wages and interest. Both of these reflect national figures. In early 2000 there was a large increase in wages, which many attributed to stock options and which was not repeated in 2001. With all the interest rate cuts we have seen recently, it is difficult to remember that interest rates were increasing for most of 2000. Six month CD rates averaged over 6.5% in 2000 but were less that 5.5% in 1999. Sole proprietors and partnerships were the major slow factors. Given the stock market behavior, the increase in capital gains seems a surprise, but we will treat this later.

Itemized deductions rose by 11.4 %, as reported on table 1, and the number claiming itemized deductions rose at a rate above its decade average. But looking at table 2, there does not seem to be a very significant change in the composition of itemized deductions. The one exception is medical expenses, whose share of itemized deductions rose to almost 3.5%.

As mentioned in the data description, tax returns are always a mix of returns for two years: the current tax year and returns for the previous year filed late. We have always been aware that this could cause problems with the data interpretation when the direction of the economy changed. Table 3 is a complicated table that attempts to address this issue for those who are really hard consumers of our data, but it is difficult to explain and interpret. The upper third shows the data coming from the most recent data, which included returns from 2000 and 1999. 2000 returns were 95.28% of the returns, accounted for 91.24 % of the AGI and 94.87% of the wages. By contrast only 67.55% of the capital gains amount were from the most recent year, and 32.45% were from late returns.

The middle panel reports similar data from data we received in 2000 that covered 1999 and 1998. The reader will note that for returns, AGI, and wages there are not major differences in the share from current year and previous year returns. Capital gains reported from the previous year, however, were much more important in 2001 than in 2000.

The bottom panel is even harder to explain, but it compares the growth rates or shares from two adjacent current years and the growth rates from two previous years late returns. The main point from this table is that capital gains reported timely increased only 3.86 percent between 1999 and 2000, but those reported late increased by 28.01%. Thus a significant amount of the gains reported in 2000 are really from the prior year when the market was more robust.