

The Financial Times could not believe it. "How would you feel if you found out that US income inequality had not risen over the past 60 years; the rich had not taken the lion’s share of economic growth since the 1980s; and the poorest half of US society had about the same share of total income in 2020 as they had in 1960? I suspect many, like me, would feel pleasure tinged with skepticism," it wrote.
Yet this is what emerged from a very serious study authored by economists Gerald Auten and David Splinter, members of the Treasury Department and the Congress respectively. It has just been accepted by the University of Chicago's Journal of Political Economy ("Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends").
The authors started from the same data used by French economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman − collectively nicknamed "PSZ" − but reached the opposite conclusions. Figures from US tax returns, which have given fodder to the PSZ hypothesis on US inequality since Ronald Reagan's conservative revolution, showed that the share of pre-tax income (including capital gains) earned by the richest 1% had risen from 9% of the total in 1960 and 1979 to 19.4% in 2019.
Except that Auten and Splinter have now made some important technical and methodological corrections to these gross figures. The technical ones have involved the impact of the 1985 tax reform and the number of households, which is different from that of tax returns and has evolved differently with the collapse of the marriage rate − which has not affected the rich. Meanwhile, their methodology has reintegrated employer contributions, taxes, financial transfers and state benefits.
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Ultimately, they reached the conclusion that the income share of the richest 1% had only risen from 7.4% to 8.8% over 40 years. "Using only market income from tax returns, Piketty and Saez argued that the top 1% share of income more than doubled since 1962. This analysis, however, did not include transfers and other income sources not reported on individual tax returns, nor did it account for the effects of major tax reforms and changes in marriage rates. Thus, it gave a distorted view of income inequality levels and trends," the authors concluded. "In other words, increasing transfers and tax progressivity offset increases in top income shares of pre-tax income," they wrote.
As a result, the working class has fared much better than expected. "PSZ estimated that average real pre-tax incomes of the bottom 50% remained virtually unchanged between 1979 and 2019," wrote the authors. "In contrast, our analysis shows that real pre-tax incomes increased by more than one-third and real after-tax income by two-thirds." Auten and Splinter calculated that in proportion, the share of income held by this 50% of Americans had declined less than expected (5.1% before tax and 3.1% after tax).
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