Recently I have been scrutinizing the data produced by Piketty and Saez on the evolution of top incomes in the United States (“Income Inequality in the United States 1913-2002”)
Their data can be downloaded directly here in Excel format that covers 1913-2012.
Their analysis is not 100% comparable to the CBO for several reason:
- They are analyzing family income (not households, as the CBO does, and not individual earners, and not necessarily even tax units)
- They do not adjust their rankings by unit size (the CBO divides household income by the square root of the household size).
- Their “income” is essentially identical to IRS’s AGI figures. (Unlike the CBO et. al, they do not include health benefits, payroll taxes, corporate income taxes, etc)
- They also are forced to make a lot of assumptions to create a historical series stretching back this far (again, unlike the CBO)
- Their “real” incomes are deflated with the CPI, whereas the CBO use the PCE index.
So while this data set has its issue and probably isn’t very relevant to income distribution per se, it is a useful and probably relatively accurate picture of the distribution of 90th percentile of top AGIs.
My thesis here is that most of the apparent divergence that we have seen over the past several decades is a function of several things:
- A changing tax code and, especially, top marginal rates
- A large increase from the mid-80s of business owners converting to or starting up as pass-through entities instead of C Corporations (e.g., S Corporations, LLCs, etc). [Note: This is probably substantially a result of the fact that these pass-through entities started paying lower effective rates relative to similar investments in C Corporations).]
- A significant change in the household composition and types of income earned at the lower end (fewer people per household, a smaller proportion of income as cash wages, increase in payroll taxes, etc)
The data from P&S provide some pretty powerful evidence for my first two arguments.
The following charts probably sum this up best:
[This is all income EXCEPT for capital gains index in real dollar terms, indexed to the year 1917]