Czajka and Denmead, 2008). The mix is shifting, however, and the implication is that, without a new approach to defining and measuring retirement income from nontraditional sources, the CPS ASEC will understate the income of the elderly by an increasing amount in the years to come, which could introduce a trend toward overestimating medical care economic risk.
Theoretically, self-employment income is a net income: the revenue taken in by a business over a period of time minus the expenses incurred over the same period of time in order to generate that revenue. If a business generates inventory, then that would be factored in as well. If the business has a single owner (a sole proprietor), then all of the net income from the business should be assigned to the single owner. Alternatively, a business may have multiple partners, in which case the partnership’s net income is allocated among the partners. A given partner’s share of the net income is determined by that partner’s ownership share in the partnership.
Determining the net income from a business can be exceedingly complex. The proprietor’s tax return provides one measure, but is a tax-based measure conceptually appropriate for determining the contribution of the business to the owner’s overall economic well-being? The designers of the SIPP thought otherwise. They recognized that a business owner may draw a salary from a business, which could provide a positive income flow even if the business lost money overall. Rather than measuring just the profit or loss from a business, then, SIPP included in self-employment income the salary that the owner drew from a business. The net profit or loss was added to the salary to produce a measure of total self-employment income from that business for a given reference period.
The Census Bureau has not adopted in the CPS ASEC the SIPP approach to defining and measuring self-employment income. For this and other reasons, the CPS ASEC identifies substantially less self-employment income than the SIPP. For 2009, the SIPP estimate of aggregate self-employment income was 80 percent higher than the CPS ASEC estimate (Czajka and Denmead, 2012). Most of the difference occurred among families above 400 percent of poverty, for whom SIPP self-employment income was double that of the CPS ASEC, but SIPP was higher at all ranges of relative income above 150 percent of poverty.
Other Income Concepts
Accrued Versus Realized Income
An issue that must be addressed in defining income is whether income is counted as it is accrued or when it is realized (Nelson, 1987). Consider, for