Wealth Inequality in the United States since 1913

Emmanuel Saez (UC Berkeley)

Gabriel Zucman (LSE)

Wealth Inequality in the United States since 1913 – Introduction

US Income inequality has increased sharply since the 1970s

Mixed existing evidence on wealth inequality changes

=> Is inequality increase driven solely by labor income?

We capitalize income tax return data to estimate new annual series of US wealth concentration since 1913

Key result: Wealth inequality has surged but phenomenon is concentrated mostly within the top .1% (=wealth above $20m)

Wealth Inequality

Wealth Inequality

Outline of the talk

I.The capitalization method

II. The distribution of wealth

III. Robustness and comparison with existing estimates

IV. Decomposing wealth accumulation: income and saving rates

The capitalization method

To obtain wealth, we divide capital income by the rate of return

How the capitalization technique works:

Start from each capital income component reported on individual tax returns

Compute aggregate rate of return for each asset class (using Flow of Funds and aggregate tax data)

Multiply each individual capital income component by 1/rate of return of corresponding asset class

Simple idea, but lot of care needed in reconciling tax with Flow of Funds data

Key assumption: uniform return within asset class

=> Need detailed income components to obtain reliable results

Aggregate income and wealth

Aggregate wealth

W = Total assets minus liabilities of households at market value

Excludes durables, unfunded DB pensions, non-pro ts

Source: Flow of Funds since 1945, Goldsmith, Wol (1989), Kopczuk and Saez (2004) before

Aggregate income

NIPA since 1929, Kuznets (1941) and King (1930) before 1929

Wealth Inequality

Family unit

Top 1% = Top 1% of all family units [as in Piketty and Saez]

Distributional data: income tax returns

Consistent, annual, high quality data since 1913:

Composition tabulations by size of income 1913-

IRS micro- les with oversampling of the top 1962-

Various additional IRS published stats (estates, IRAs, trusts, foundations)

Detailed income categories:

Dividends, interest (+ tax exempt since 1987), rents, unincorporated business pro ts (S corporations, partnerships, sole prop.), royalties, realized capital gains, etc.

A lot of income flows to” individual income tax returns

Mutual funds, S corporations, partnerships, holding companies, trusts, etc.

See full PDF here.