I promised that this was the last post I would write this
week dwelling on rising inequality at the top, and I do want to shift to the
comparatively under-appreciated lack
of rising inequality in the bottom half of incomes. But bear with me, as this turned into two
To review, in my first post on high-end inequality, I showed how outsized gains at the top are mostly concentrated in the top half of the top one percent and noted that these gains came even as the poor and middle class became significantly better off. In my last post, I demonstrated that some potential shortcomings of these estimates do not seem to actually alter conclusions about the rise in inequality. In my next two posts, however, I want to nevertheless flag some important sources of ambiguity about the data on top incomes that are available.
First, there is some question as to how robust some of the key results for early decades in the Piketty/Saez series are. You can use the figures they have made available to compute the average income of the bottom 90 percent or 99 percent of tax returns over time. In the chart below, the red line gives the trend in the bottom 90 percent's average income, pegged to 1917 levels. It shows an implausible 91 percent increase over the three-year period from 1940 to 1943. As the chart indicates, a lot happened during these years that might affect the Piketty/Saez estimates. From 1939 to 1946, federal income taxes went from being something only the rich paid to something nearly everyone paid. This fact matters because the low filing rates in the first part of the decade force Piketty and Saez to compute their figures differently than they do in later years. Until 1944, Piketty and Saez determine the share of income received by the top ten percent (or top one percent) of tax returns by comparing the income they report to an aggregate figure drawn from national statistics collected outside the IRS. They are forced to do so rather than compute total income received from the tax return data itself, which isn't informative in years when few people filed.