Piketty, Saez & Zucman Find Error In Auten & Splinter In Measuring Income Inequality In The United States

Thomas Piketty (Paris School of Economics), Emmanuel Saez (UC-Berkeley; Google Scholar) & Gabriel Zucman (Paris School of Economics & UC-Berkeley; Google Scholar), Income Inequality in the United States: A Comment:

Auten and Splinter [Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends, 132 J. Pol. Econ. 2179 (2024)] provide estimates of income inequality in the United States, starting with income observed in tax returns and making adjustments to account for untaxed income. We uncover an error in the allocation of untaxed income. The growing amount of partnership income exempt from taxation (due to increasingly generous fiscal depreciation rules) is allocated by Auten and Splinter (2023) not to owners of partnerships but to owners of sole proprietorships, who are much less rich. This creates a bias in the level and rise of the top 1% income share. We trace the remaining difference with the top 1% income share of Piketty, Saez and Zucman (2018) to assumptions made by Auten and Splinter (2024) about the distribution of untaxed business income, untaxed capital income, and non-cash notional income. After clarifying these assumptions and confronting them with existing evidence, the Auten and Splinter (2024) estimates become similar in level and trend to those of Piketty, Saez and Zucman (2018).

Delighted to release this paper on Auten & Splinter’s work, painstakingly going through their code & assumptionshttps://t.co/xmhGWDwOcv

We uncover key mistakes—and show that once fixed, their methodology implies the same rise of inequality as in Piketty-Saez-Zucman

🧵 pic.twitter.com/h2WNkNEbOI

— Gabriel Zucman (@gabriel_zucman) July 30, 2024

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