Do we really live in an “age of inequality”?

“Piketty, Saez, and Zucman estimate that the top 1 percent earned 9.1 percent of national income in 1960, rising dramatically to 15.1 percent by 2019. Auten and Splinter, by contrast, show a very small increase: 8.1 percent in 1960 to 8.8 in 2019. The share is now actually lower, they find, than it was in the mid-1960s.

Auten and Splinter reach similar conclusions about the top 10 and top 0.1 percent: per their estimates, the former grew from 29.2 to 29.7 percent from 1960 to 2019, the latter from 2.5 to 3 percent.

How can two research teams, both looking directly at US tax data, reach such different conclusions? It’s not that one group are craven “inequality deniers,” to borrow an ugly term that Piketty has slurred Auten and Splinter with, or that the other group is “thoroughly discredited,” as billionaire libertarian economist Cliff Asness has described Piketty, Saez, and Zucman. The disagreement is, at root, about how to deal with the limitations of tax data, by far the best source of information on who earns what in America.  
Neither side has a monopoly on truth. On some issues, Auten and Splinter made judgment calls that seem more reasonable to me; on others, Piketty, Saez, and Zucman do; on still more, it’s wildly unclear which assumptions are most appropriate to make.”  

“No one factor explains more than 1.6 points of this disagreement, and even those are offset by a couple of areas (like dealing with owner-occupied housing and Social Security) where Auten and Splinter make decisions that show a larger increase in the top 1 percent’s share than PSZ.”

“Both teams show that income inequality has increased in the US in the past half-century. While Auten and Splinter show at most modest increases in the top 1 percent’s share of income after taxes, they do find substantial increases before taxes. Moreover, that’s only one way to measure inequality. The most comprehensive measure is something called the Gini coefficient, which attempts to summarize the whole scale of inequality across the income spectrum, not just at the very top. An increase in the coefficient means that inequality has risen.

Before taxes and government safety net programs, Auten and Splinter estimate that the Gini coefficient for the US grew 25 percent since 1962 and 23 percent since 1979. After taxes and transfer programs, the increases are 10 percent since 1962 and 16 percent since 1979. More progressive tax and spending policy reversed some of the increase, but the increase is real and significant.

To give a sense of the scale here, the after-tax/transfer figure grew from 0.355 in 1979 to 0.417 in 2019, a 0.062 increase. If that number means nothing to you (it means nothing to me!) then consider that this increase is akin to the gap between the US and countries like Australia, Spain, and Switzerland today. That is, if this increase in inequality hadn’t happened, the US would be close to many other rich countries as opposed to the rather unequal outlier it is today.

You can also see signs of a general increase in inequality across some other measures. Take wealth, for instance. A recent rigorous attempt by economists Matt Smith, Owen Zidar, and Eric Zwick to track wealth inequality (that is, the gap in net worth, rather than income, between rich and poor) in the US over recent decades shows a pronounced increase”

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