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Booming_wealth_inequality_in_the_United_States
It is well known that income inequality has increased a lot in the United States: top wages and entrepreneurial incomes have surged since the 1980s. Yet currently available evidence suggests that wealth concentration has not grown nearly as much. The "working rich" might not have had enough time yet to accumulate a lot of wealth, perhaps because they have low saving rates, face high tax rates, or have low returns on assets. Along with my co-author Emmanuel Saez, we try to assess whether this view is well-founded in a working paper published by the National Bureau of Economic Research at the end of 2014 (Saez and Zucman, 2014).

Currently available measures of wealth concentrations rely either on survey data (the Survey of Consumer Finances of the Federal Reserve Board) or on estate tax return data (Kopczuk and Saez, 2004). In this research we try to measure wealth another way. We use comprehensive data on the capital income (dividends, interest, rents, business profits, etc.) reported by taxpayers to the Internal Revenue Service. We then capitalize this income so that it matches the amount of wealth recorded in the Flow of Funds, the aggregate household balance sheets that records all the wealth of U.S. families.

We find that there has been an upsurge in wealth inequality in the United States over the last three decades. By our estimates, the share of total household wealth owned by the top 0.1 per cent of families - 160,000 families with total assets net of debts of more than $20 million in 2012 - has increased from 7 per cent in the late 1970s to 22 per cent today. As Figure 1 shows, the top 0.1 per cent wealth share is now almost as high as in the late 1920s.

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Figure1. Click to see larger image

Strikingly, the increase in wealth concentration is limited to the very top-end of the distribution. Fortunes of dozens of millions of dollars have been growing much faster than average over the last decades, but those of a few millions, much less so. In fact, as shown by Figure 2, the fraction of total U.S. wealth held families between the top 1 per cent and the top 0.5 per cent - that is, with assets between $4 million and $6.5 million in 2012 - is no higher today than in the late 1970s. It is only above $6.5 million, and especially above $20 million (top 0.1 per cent) and $110 million (top 0.01 per cent) that wealth has been growing faster than average.

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Figure2. Click to see larger image

The flip side of such rising wealth concentration is the stagnation in middle class wealth. There is a widespread view that a key structural change in the US economy has been the rise of middle-class wealth since the beginning of the twentieth century, in particular because of the rise of pensions and home ownership rates. And indeed our results show that the bottom 90 per cent wealth share gradually increased from the 1920s to the mid-1980s to a peak of 36 per cent in 1986. But in a sharp reversal of past trends, the bottom 90 per cent wealth share has fallen since then. Although average wealth per family has continued to grow since the mid-1980s (by about 60 per cent), the average wealth of families in the bottom 90 per cent has stagnated. As a result, the bottom 90 per cent wealth share is now 23 per cent, the lowest point since 1940.

Wealth inequality has been rising particularly fast since the financial crisis. The bottom 90 per cent wealth share collapsed between mid-2007 (28.4 per cent) and mid- 2008 (25.4 per cent) because of the crash in housing price. The recovery was then uneven: over 2009-2012, real wealth per family declined 0.6 per cent per year for the bottom 90 per cent, while it increased at a rate of 5.9 per cent for the top 1 per cent and 7.9 per cent for the top 0.1 per cent. In particular, the Great Recession reduced bottom 90 per cent average family wealth to $85,000 in 2009 from $130,000 in 2006. In 2012, average family wealth for the bottom 90 per cent is still only $83,000. In contrast, wealth among the top 1 per cent increased substantially between 2009 to 2012, regaining most of the ground lost during the Great Recession.

Despite our best efforts, we still face limitations when measuring wealth inequality. The development of the offshore wealth management industry, changes in tax optimization behavior, indirect wealth ownership (eg, through trusts and foundations) all raise formidable challenges. Because of the lack of administrative data on wealth, none of the existing sources offer a definitive estimate. We see our paper as an attempt at using the most comprehensive administrative data currently available, but one that ought to be improved in at least two ways: by using both additional information available internally at the Internal Revenue Service as well as new data that the US Treasury could collect at low cost. A modest data collection effort would make it possible to obtain a better picture of the joint distributions of wealth, income, and saving. In turn, this information would be of great relevance to evaluate proposals for consumption or wealth taxation.