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Trends in US Income and Wealth Inequality: Revising After the Revisionists

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  • Emmanuel Saez
  • Gabriel Zucman

Abstract

Recent studies argue that US inequality has increased less than previously thought, in particular due to a more modest rise of wealth and capital income at the top (Smith et al., 2019; Smith, Zidar and Zwick, 2020; Auten and Splinter, 2019). We examine the claims made in these papers point by point, separating genuine improvements from arguments that do not appear to us well grounded empirically or conceptually. Taking stock of this body of work, and factoring in other improvements, we provide a comprehensive update of our estimates of US income and wealth inequality. Although some of the points raised by the revisionists are valuable, the core quantitative findings of this literature do not appear to be supported by the data. The low capital share of private business income estimated in Smith et al. (2019) is not consistent with the large capital stock of these businesses. In Smith, Zidar and Zwick (2020), the interest rate assigned to the wealthy is higher than in the datasets where both income and wealth can be observed, leading to downward biased top wealth shares; capitalizing equities using almost only dividends dramatically underestimates the wealth of billionaires relative to the Forbes 400. In Auten and Splinter (2019), business profits earned by the top 1% but not taxable (due in particular to generous depreciation rules) are classified as tax evasion; tax evasion is then allocated to the bottom 99% based on an erroneous reading of random audit data. Our revised series show a rise of inequality similar to Saez and Zucman (2016) and Piketty, Saez, and Zucman (2018) while allowing for a more granular depiction of the composition of wealth and income at the top.

Suggested Citation

  • Emmanuel Saez & Gabriel Zucman, 2020. "Trends in US Income and Wealth Inequality: Revising After the Revisionists," NBER Working Papers 27921, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27921
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    References listed on IDEAS

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    1. Jesse Bricker & Alice Henriques Volz, 2020. "Wealth Concentration Levels and Growth: 1989-2016," FEDS Notes 2020-02-20, Board of Governors of the Federal Reserve System (U.S.).
    2. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2019. "Simplified Distributional National Accounts," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 289-295, May.
    3. Annette Alstadsæter & Niels Johannesen & Gabriel Zucman, 2019. "Tax Evasion and Inequality," American Economic Review, American Economic Association, vol. 109(6), pages 2073-2103, June.
    4. Michael Cooper & John McClelland & James Pearce & Richard Prisinzano & Joseph Sullivan & Danny Yagan & Owen Zidar & Eric Zwick, 2016. "Business in the United States: Who Owns It, and How Much Tax Do They Pay?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 91-128.
    5. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2018. "Distributional National Accounts: Methods and Estimates for the United States," The Quarterly Journal of Economics, Oxford University Press, vol. 133(2), pages 553-609.
    6. Michael M. Batty & Jesse Bricker & Joseph S. Briggs & Alice Henriques Volz & Elizabeth Ball Holmquist & Susan Hume McIntosh & Kevin B. Moore & Eric R. Nielsen & Sarah Reber & Molly Shatto & Kamila Som, 2019. "Introducing the Distributional Financial Accounts of the United States," Finance and Economics Discussion Series 2019-017, Board of Governors of the Federal Reserve System (U.S.).
    7. John Guyton & Patrick Langetieg & Daniel Reck & Max Risch & Gabriel Zucman, 2020. "Tax Evasion by the Wealthy: Measurement and Implications," NBER Chapters, in: Measuring and Understanding the Distribution and Intra/Inter-Generational Mobility of Income and Wealth, National Bureau of Economic Research, Inc.
    8. Gerald Auten & David Splinter, 2019. "Top 1 Percent Income Shares: Comparing Estimates Using Tax Data," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 307-311, May.
    9. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, Oxford University Press, vol. 131(2), pages 519-578.
    10. Gallin, Joshua & Molloy, Raven & Nielsen, Eric & Smith, Paul & Sommer, Kamila, 2021. "Measuring aggregate housing wealth: New insights from machine learning ☆," Journal of Housing Economics, Elsevier, vol. 51(C).
    11. Joshua H. Gallin & Raven S. Molloy & Eric R. Nielsen & Paul A. Smith & Kamila Sommer, 2018. "Measuring Aggregate Housing Wealth : New Insights from an Automated Valuation Model," Finance and Economics Discussion Series 2018-064, Board of Governors of the Federal Reserve System (U.S.).
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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