Innovation
Federal Adjusted Gross Income
Description: Aggregate data from those filing an Arizona resident personal income tax return are available from the Arizona Department of Revenue. Federal adjusted gross income is the broadest of several measures of income that are available. It includes all sources of income, including capital gains. While federal adjusted gross income incorporates various adjustments to total income, exemptions and the standard deduction or itemized deductions have not been subtracted.
Data since 1983 are presented on the Innovation Indicators dashboard for Arizona. Federal adjusted gross income, the number of tax filers, and federal adjusted gross income per tax filer are displayed. It is the latter measure that is an indicator of individual prosperity. The figures are adjusted for inflation using the GDP implicit price deflator.
Capital gains data come from the Internal Revenue Service. Data since 1990 are displayed; the IRS is slower to release data than the Arizona Department of Revenue.
Rationale: An innovative environment should lead to improvements in productivity, which in turn should result in increases in prosperity. Each measure of prosperity (household income, per capita personal income, federal adjusted gross income, average wage) displayed on the dashboard has certain limitations. An advantage of federal adjusted gross income relative to per capita personal income is that it includes capital gains, which have become an increasingly important portion of income. This is particularly true for the high-wage jobs that may be generated in an innovative economy. However, like the other income measures, federal adjusted gross income includes components that are independent from local economic policy, such as retirement benefits.
Data Sources: Arizona Department of Revenue, abstracts of personal income tax information, and Internal Revenue Service, Statistics of Income. These data are not available online. The GDP implicit price deflator is available from the U.S. Department of Commerce, Bureau of Economic Analysis http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=Y (Table 1.1.9).
Comments on the Quality of the Data: Federal adjusted gross income is not a pure measure of income since certain expenses (such as tuition or moving expenses) have been deducted from total income. Federal adjusted gross income per tax filer also can be difficult to interpret, since it is neither a measure of household income nor of individual income. For example, some married couples file jointly, while others file separately.
The capital gains data are estimates based on taxpayers filing with an Arizona address, and therefore are not exactly comparable to the federal adjusted gross income data for residents. Thus, capital gains as a percentage of federal adjusted gross income should be viewed as indicative rather than precise figures.
