IDEAS home Printed from https://ideas.repec.org/h/nbr/nberch/10880.html

Income Inequality and the Incomes of Very High-Income Taxpayers: Evidence from Tax Returns

In: Tax Policy and the Economy, Volume 7

Author

Listed:
  • Daniel R. Feenberg
  • James M. Poterba

Abstract

This paper uses tax return data for the period 1951-1990 to investigate the rising share of adjusted gross income (AGI) that is reported on very high income tax returns. We find that most of the increase in the share of AGI reported by high-income taxpayers is due to an increase in reported income for the one quarter of one percent of taxpayers with the highest AGIs. The share of total AGI reported by these taxpayers rose slowly in the early 1980s, and increased sharply in 1987 and 1988. This pattern suggests that at least part of the increase in the income share of high-AGI taxpayers was due to the changing tax incentives that were enacted in the 1986 Tax Reform Act. By lowering marginal tax rates on top-income households from 50% to 28%, TRA86 reduced the incentive for these households to engage in tax avoidance activities. We also find substantial differences in the growth of the income share of the highest one quarter of one percent of taxpayers, and the share of other very high income taxpayers. This suggests that the increasing inequality of reported incomes at very high levels may not be driven by the same factors that have generated widening wage inequality throughout the income distribution and over a longer time period.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Daniel R. Feenberg & James M. Poterba, 1993. "Income Inequality and the Incomes of Very High-Income Taxpayers: Evidence from Tax Returns," NBER Chapters, in: Tax Policy and the Economy, Volume 7, pages 145-177, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:10880
    as

    Download full text from publisher

    File URL: http://www.nber.org/chapters/c10880.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 285-326.
    2. Woodbury, Stephen A & Hamermesh, Daniel S, 1992. "Taxes, Fringe Benefits and Faculty," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 287-296, May.
    3. Scholes, Ms & Wilson, Gp & Wolfson, Ma, 1992. "Firms Responses To Anticipated Reductions In Tax Rates - The Tax-Reform Act Of 1986," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 30, pages 161-185.
    4. R. Quandt, 1966. "Old and new methods of estimation and the pareto distribution," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 10(1), pages 55-82, December.
    5. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1990. "Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form," NBER Working Papers 3222, National Bureau of Economic Research, Inc.
    6. Poterba, James M, 1987. "Tax Evasion and Capital Gains Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 234-239, May.
    7. Barry Bosworth & Gary Burtless, 1992. "Effects of Tax Reform on Labor Supply, Investment, and Saving," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 3-25, Winter.
    8. Paul Joskow & Nancy Rose & Andrea Shepard, 1993. "Regulatory Constraints on CEO Compensation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1 Microec), pages 1-72.
    9. Hausman, Jerry A & Poterba, James M, 1987. "Household Behavior and the Tax Reform Act of 1986," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 101-119, Summer.
    10. Lawrence B. Lindsey, 1988. "Did ERTA Raise the Share of Taxes Paid by Upper-Income Taxpayers? Will TRA86 Be a Repeat?," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 131-160, National Bureau of Economic Research, Inc.
    11. Alan J. Auerbach, 1988. "Capital Gains Taxation in the United States: Realizations, Revenue, and Rhetoric," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 595-638.
    12. Ryoo, J. & Rosen, S., 1992. "The Market for Engineers," University of Chicago - Economics Research Center 92-10, Chicago - Economics Research Center.
    13. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    14. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-392, June.
    15. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
    2. Michel Lubrano & Abdoul Aziz Junior Ndoye, 2014. "Bayesian Unconditional Quantile Regression: An Analysis of Recent Expansions in Wage Structure and Earnings Inequality in the US 1992–2009," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(2), pages 129-153, May.
    3. Nahuis, R., 1997. "On Globalisation, Trade and Wages," Other publications TiSEM f96f2ab3-c66f-438f-8a53-2, Tilburg University, School of Economics and Management.
    4. Kubik, Jeffrey D., 2004. "The incidence of personal income taxation: evidence from the tax reform act of 1986," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1567-1588, July.
    5. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1169-1213.
    6. Dan Black & Natalia Kolesnikova & Lowell Taylor, 2009. "Earnings Functions When Wages and Prices Vary by Location," Journal of Labor Economics, University of Chicago Press, vol. 27(1), pages 21-47, January.
    7. Monika Hjeds Löfmark, 2007. "Gender and time allocation differences in Taganrog, Russia," electronic International Journal of Time Use Research, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)) and The International Association for Time Use Research (IATUR), vol. 4(1), pages 69-92, September.
    8. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U. S. Wage Inequality: Re-Assessing the Revisionists," Harvard Institute of Economic Research Working Papers 2095, Harvard - Institute of Economic Research.
    9. Fitzenberger, Bernd & Kohn, Karsten, 2006. "Skill wage premia, employment, and cohort effects: are workers in Germany all of the same type?," ZEW Discussion Papers 06-044, ZEW - Leibniz Centre for European Economic Research.
    10. Maarten Goos & Melanie Arntz & Ulrich Zierahn & Terry Gregory & Stephanie Carretero Gomez & Ignacio Gonzalez Vazquez & Koen Jonkers, 2019. "The Impact of Technological Innovation on the Future of Work," JRC Working Papers on Labour, Education and Technology 2019-03, Joint Research Centre.
    11. Anders Frederiksen & Odile Poulsen, 2010. "Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading," University of East Anglia Applied and Financial Economics Working Paper Series 006, School of Economics, University of East Anglia, Norwich, UK..
    12. Naoko Shinkai, 2000. "Does the Stopler-Samuelson Theorem Explain the Movement in Wages? The Linkage Between Trade and Wages in Latin American Countries," Research Department Publications 4237, Inter-American Development Bank, Research Department.
    13. Meir Russ, 2017. "The Trifurcation of the Labor Markets in the Networked, Knowledge-Driven, Global Economy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(2), pages 672-703, June.
    14. Docquier, Frédéric & Kone, Zovanga L. & Mattoo, Aaditya & Ozden, Caglar, 2019. "Labor market effects of demographic shifts and migration in OECD countries," European Economic Review, Elsevier, vol. 113(C), pages 297-324.
    15. repec:ilo:ilowps:485325 is not listed on IDEAS
    16. Anna Sabadash, 2013. "ICT-induced Technological Progress and Employment: A Literature Review," JRC Working Papers on Digital Economy 2013-07, Joint Research Centre.
    17. Satvika Chalasani, 2007. "The changing relationship between parents’ education and their time with children," electronic International Journal of Time Use Research, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)) and The International Association for Time Use Research (IATUR), vol. 4(1), pages 93-117, September.
    18. Gould, Eric D., 2005. "Inequality and ability," Labour Economics, Elsevier, vol. 12(2), pages 169-189, April.
    19. Daiji KAWAGUCHI & Yuko MORI, 2014. "Winning the Race against Technology," Discussion papers 14017, Research Institute of Economy, Trade and Industry (RIETI).
    20. Nada Eissa, 1996. "Tax Reforms and Labor Supply," NBER Chapters, in: Tax Policy and the Economy, Volume 10, pages 119-151, National Bureau of Economic Research, Inc.
    21. Sean E. Mulholland, 2019. "Stratification by regulation: Are bootleggers and Baptists biased?," Public Choice, Springer, vol. 180(1), pages 105-130, July.

    More about this item

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:10880. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.