What is a household?

Last week, the Congressional Budget Office released the results of a study comparing average household income in 1979 to average household income in 2005.  Over this 25 year period, the top 20% of  households had a 10 point increase in their incomes (with most going to the top 1%) while the other 80% of households saw an income decline of 2-3%. 

Steve has done a great post on the CBO’s figures and taxes, and, Jim has spoken about the fluid nature of those in the “top tier” today…some of those “top tiers” of today were those in the “bottom tier” 25 years ago, and, of course, the converse is also true.

But, as the CBO is measuring household income, what is a household?

The CBO uses tax returns for its analysis, which is really all they can use.  Tax returns are filed by “household”.  In other words, a family of four with a working Mom and Dad counts as one household to the CBO.  Using this example, let’s say that Mom and Dad collectively earn $100,000 a year.  Per the CBO, were this the only household in this country, the average household income in this country would be $100,000.  But, should they divorce, they file two tax returns, and thus they become two households.  So, after the divorce, even if Mom and Dad earn what they did before the divorce, we now have two households earning $100,000, or, an average of $50,000 per household. 

In my example, the per household income has dropped dramatically, but, in reality, nothing has changed.

So, did we have more “single” households in 2005 than 1979?  Did we have more “single parent” households in 2005 than 1979?  I have no idea. 

Are the same rich getting richer?  I have no idea.

 But, without that information (i.e. comparing apples to apples, as they say), what conclusions can anyone draw?

Or, back to the beginning, what is a “household”?


5 replies
  1. Dimsdale
    Dimsdale says:

    I’d be willing to bet that the definition will change to suit any particular day (or administration’s) need.? A fluid definition is no definition at all.

  2. sammy22
    sammy22 says:

    Great example. There is a divorce, two people (plus children) live in different abodes, two sets of expenses etc, but nothing has changed! Ask Jim.

  3. sammy22
    sammy22 says:

    A “reasonable” person might say that in your example there are two households with a combined income of $100K.

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