Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data *

TLDR

The paper estimates the distribution of wealth in the United States since 1913 by combining income tax returns with macroeconomic household balance sheets. We estimate wealth by capitalizing reported incomes of individual taxpayers while accounting for non‑taxable assets, using the combined tax and balance‑sheet data. We find that wealth concentration was high at the start of the twentieth century, fell from 1929 to 1978, and has risen steadily since, with the top 0.1 % share climbing from 7 % in 1978 to 22 % in 2012, top holders being younger and earning a larger share of labor income, the bottom 90 % share peaking mid‑1980s then declining, and recent inequality driven by rising top incomes and saving‑rate inequality, all of which align with Survey of Consumer Finances and estate‑tax data.

Abstract

Abstract This paper combines income tax returns with macroeconomic household balance sheets to estimate the distribution of wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations’ tax records. We find that wealth concentration was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The top 0.1% wealth share has risen from 7% in 1978 to 22% in 2012, a level almost as high as in 1929. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of the economy’s labor income. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth inequality in recent decades is due to the upsurge of top incomes combined with an increase in saving rate inequality. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.