Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data *

Abstract

This paper combines income tax returns with macroeconomic household balance sheets to estimate the distribution of wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations’ tax records. We find that wealth concentration was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The top 0.1% wealth share has risen from 7% in 1978 to 22% in 2012, a level almost as high as in 1929. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of the economy’s labor income. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth inequality in recent decades is due to the upsurge of top incomes combined with an increase in saving rate inequality. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.

Challenges to Societal Progress - Pull-back in Response to Disparities

“…The increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy.‖ (Saez, Zucman 2016).…”

“…Pension wealth has continued to increase, but not enough to compensate for a surge in mortgage, consumer credit, and student debt. The key driver of the declining bottom 90% share is the fall of middle-class saving, which may partly owe to the low income growth, to financial deregulation leading to some forms of predatory lending, or to growing behavioral biases in the saving decisions of middle-class households (Saez, Zucman 2016).…”

Involvement of a Capitalist Crisis in the 1900-30 Inequality Trend Reversal

“…Before 1913 the change in inequality was given as a weighted geometric average of the change in EF and the change in the top 1% fraction of wealth (Williamson and Lindert 1980), with a weighting of 3 applied to EF. After 1913 the change in inequality was the geometric average of the change in EF, top 1% income share (Piketty and Saez 2007) and top 0.1% wealth share (Saez and Zucman 2016), with a weighting of 4 for EF. The index was smoothed with an exponential average (α = 0.2).…”

“…Research over this time has shown that inequality underwent a dramatic decline from high levels before 1930 to a nadir around 1980, from which it has returned to its level in the twenties, suggesting that inequality may be cyclical (Piketty and Saez 2007;Saez and Zucman 2016). If so, a trend change to falling inequality could happen again, the prospect of which is intriguing politically as well as academically.…”

Masked Instability: Within-Sector Financial Risk in the Presence of Wealth Inequality

“…However, reports have been made that the Great Recession exacerbated the uneven wealth distribution in the United States (e.g., Kochhar and Cilluffo 2017;Wolff 2014), and, at the same time, wealth inequality has been addressed as an increasing social problem by both organizations and scholars (e.g., Congressional Budget Office 2016; Organization for Economic Cooperation and Development 2016; Saez and Zucman 2016). Concerns about wealth inequality is not a phenomenon restricted to the United States as can be seen from the frenzied worldwide reaction to the publication of Capital in the Twenty-First Century by Piketty (2014).…”