Matt Yglesias today looked at the change in disposable personal income over the last few years, and I wanted to check that the definition of the term didn’t count “disposable income” as income less, say, mortgage and credit-card payments. If it did, then you’d expect to see disposable income go down as people pay down debt.

Turns out the definition *doesn’t* deduct debt payments, but it confuses me in other ways. Here it is:

> Personal income is the income received by persons from participation in production, from government and business transfer payments, and from government interest. Personal income includes income received by non-profit institutions serving households, by private non-insured welfare funds, and by private trust funds. Income from production is generated both by the labor of individuals and by the capital that they own. Private income not earned in production, such as from capital gains or the sale of assets, is excluded. Personal income is calculated as the sum of wage and salary disbursements, employer contributions for employee pension and insurance funds, proprietors income, property income (personal interest, dividend and rental income), and transfer payments to individuals, less personal contributions for social insurance.
>
> Disposable personal income is personal income less personal tax payments. While personal income does not include capital gains realized through the sale of assets, personal income taxes do include the taxes paid for these capital gains.

(Internal footnote omitted.)

I’m puzzled by a couple aspects of this definition:

1. “[E]mployer contributions for employee pension and insurance funds” makes it in? So when my employer contributes to my 401(k), that counts as disposable income? Okay, I can half-see that: if need be, I could raid the 401(k). But I’d pay a penalty if I did, so I hope that something less than 100% of my contribution counts toward my disposable income. But then what about the “insurance funds” part? My employer’s contribution to unemployment insurance counts toward my disposable income? The employer contribution to long-term disability? To health insurance? This would seriously inflate this measure of disposable income: as has been well-documented, health-care costs have been rising, so a lot of money that might otherwise have gone toward rising salaries has instead gone into health-insurance payments.

2. Disposable income doesn’t include capital gains? But why? That’s income I can spend, just as much as is income earned through honest toil. And if they’re not going to include capital-gains *income*, then why do they deduct capital-gains *taxes?*

I’ll look around for a more in-depth discussion of this definition. If anyone can clarify, please do.