My Home About Me

The debate about income inequality statistics rages on, with a terrific dialog on the subject hosted at Cato Unbound. The star of the show is Alan Reynolds, who has committed the heresy of questioning the validity of the Picketty/Saez and CBO data that, despite manifest flaws, is always cited as definitive. Here's a note from Alan on the latest round:

Everyone keeps missing the point. For example:

David Wessel, Wall Street Journal February 15 says, "It's simple: Taking all federal taxes into account -- including payroll as well as income taxes, and allocating corporate profits and taxes paid on them to those who hold shares -- the CBO says those in the bottom fifth pay an average of $4.50 in taxes for every $100 they take in. Those in the top 1% pay $31.10 in taxes for every $100 they take in."

That's wrong. The CBO does not allocate corporate profits to those who hold shares. The CBO doesn't know who owns shares, but they're trying to estimate who owns capital (including capital that isn't taxed, like IRAs and munis and homes).

Robert Frank, in the Wall Street Journal February 15 says, "The nation's richest 1% controlled 51% of the country's individually held stocks in 2004, the latest period measured. That was up from 41% in 1989."

That's wrong. Only about 38% of stock is still individually held, and it's falling fast. Most of the indivdiually held stock is taxable, but most IRAs, 529s & 401ks are in mutual funds and won't be taxable for a long time, if ever.

After fixing those mistakes, the CBO data show the top 1% with about 11% of pretax income and not a rising share at that.

Since their after-tax estimate was already flat from 1988 to 2003, the top 1% has a falling share of net income.

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