CONFERENCE ON INEQUALITY IN MEMORY OF GARY BECKER · This conference is in memory of Gary Becker and will explore various measures of inequality and pose the question whether or not

CONFERENCE ON INEQUALITY IN MEMORY OF

GARY BECKER

FACTS AT A GLANCE

September 25–26, 2014Hoover InstitutionStanford University

Conference on Inequality in Memory of Gary Becker

This conference is in memory of Gary Becker and will explore various measures of inequality and pose the

question whether or not it is increasing. In exploring this question and examining policy implications, pre-

senters will draw, where possible, on research on human capital and intergenerational mobility. Presenters

will address the key policy question of what to do, with particular attention during the discussion to those

at the bottom of the income distribution and the overall effects on economic growth.

“Since Rousseau, many intellectuals have been opposed to inequality per se. Most people, however, distinguish deserving from undeserving inequality. Clearly, much of the income and wealth inequality in any country would be considered deserving because it results from greater abilities and dedication. Governments are expected to reduce obstacles to deserving wealth. Unfortunately, they create many of the undeserved sources of inequality themselves.”

Gary S. BeckerContrived Inequality

Hoover Digest, Summer 2013

1

Note: Pre-tax, pre-transfer income, including realized capital gains, and excluding all government transfers.Data Source: Piketty and Saez 2003 updated through 2012.Figure 2 – Decomposing the Top Decile US Income Share Into Three Groups, 1913-2012.

Top Income Shares Were Flat From the 1940s to the 1980sTop Income Shares Were Flat From the 1940s to the 1980s

Data Source: Piketty and Saez 2003 updated through 2012. Figure 2 – Decomposing the Top Decile US Income Share Into Three Groups, 1913-2012.

Note: Pre-tax, pre-transfer income, including realized capital gains, and excluding all government transfers.

0%

5%

10%

15%

20%

25%

1917 1922 1927 1932 1937 1942 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

Shar

e of

Agg

rega

te In

com

e

90th to 95th percentile 95th to 99th Percentile Top 1 Percent

2

Note: Household, pre-tax, post-transfer “money” income.Data Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements.

The Highest Quintile’s Income Share Has Grown Since the 1980sThe Highest Quintile’s Income Share Has Grown Since the 1980s

Data Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Note: Household, pre-tax, post-transfer “money” income.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Perc

ent o

f Agg

rega

te H

ouse

hold

Inco

me

Highest Quintile

Lowest Quintile

Second Quintile

Middle Quintile

Fourth Quintile

3

Note: Unit of analysis is tax filer. Pre-tax, pre-transfer income including capital gains.Data Source: Saez, “Income Inequality in the United States, 1913-1998,” Updated to 2012, Table A6.

The Top 1 Percent’s Incomes Have GrownFaster Than Other Income Groups

The Top 1 Percent’s Incomes Have Grown Faster Than Other Income Groups

-10%

40%

90%

140%

190%

240%

Perc

ent C

hang

e in

Inco

me

Sinc

e 19

80

Bottom 90 Percent 90th to 95th Percentile 95th to 99th Percentile Top 1 Percent

Data Source: Saez, “Income Inequality in the United States, 1913-1998,” Updated to 2012, Table A6. Note: Unit of analysis is tax filer. Pre-tax, pre-transfer income including capital gains.

4

Note: Household, size-adjusted, market income.Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011, Figures 5 and 11.

Rising Gini Coefficient Shows Growing Income InequalityRising Gini Coefficient Shows Growing Income Inequality

Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011, Figures 5 and 11.

0.45

0.50

0.55

0.60

Note: Household, size-adjusted, market income.

5

Notes: Household income. 2010 dollars using CPI-U-RS. Includes realized capital gains.Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011.

Mean Incomes Growing Faster Than Median IncomesMean Incomes Growing Faster Than Median Incomes

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011. Notes: Household income. 2010 dollars using CPI-U-RS. Includes realized capital gains.

Mean Market Income

Median Market Income

6

Notes: Household income. 2010 dollars using CPI-U-RS. Includes realized capital gains. Transfers include all cash and in-kindgovernment assistance. Fungible value of government-provided health insurance calculated by Census Bureau.Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011.

Federal Taxes and Transfers Reduce the GapBetween Mean and Median Income

Federal Taxes and Transfers Reduce the Gap Between Mean and Median Income

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Notes: Household income. 2010 dollars using CPI-U-RS. Includes realized capital gains. Transfers include all cash and in-kind government assistance. Fungible value of government-provided health insurance calculated by Census Bureau. Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011.

Mean Market Income Plus Transfers Minus Federal Taxes

Median Market Income Plus Transfers Minus Federal Taxes

7

Source: Kaplan and Rauh, “It’s the Market: The Broad-Based Rise in the Return to Top Talent,” Journal of Economic Perspectives27 (Summer 2013), Figure 4.

Share of Income Accruing to the Top 1 PercentShare of Income Accruing to the Top 1 Percent

0

5

10

15

20

25

Shar

e of

Agg

rega

te In

com

e

Before Taxes and Transfers (Piketty-Saez) After Transfers, Before Taxes (CBO) After Taxes (CBO)

Source: Kaplan and Rauh, “It’s the Market: The Broad-Based Rise in the Return to Top Talent,” Journal of Economic Perspectives 27 (Summer 2013), Figure 4.

8

Note: Fungible value of health insurance for Medicaid, Medicare, and CHIP valuations calculated by Census Bureau.Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011, Figure 13.

Transfers as a Share of Market Household Income Are FlatTransfers as a Share of Market Household Income Are Flat

0

1

2

3

4

5

6

7

8

Perc

ent o

f Hou

seho

ld M

arke

t Inc

ome

Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011, Figure 13. Note: Fungible value of health insurance for Medicaid, Medicare, and CHIP valuations calculated by Census Bureau.

Social Security

Other

Medicare, Medicaid, and CHIP

9

Note: Fungible value of health insurance for Medicaid, Medicare, and CHIP valuations calculated by Census Bureau.Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011, Figure 14.

Higher Quintiles Receiving Larger Share of TransfersHigher Quintiles Receiving Larger Share of Transfers

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Share of Aggregate Transfers

Second Quin4le

Third Quin4le

Highest Quin4le

Fourth Quin4le

Data Source: CBO, “Trends in the Distribution of Household Income Between 1979 and 2007,” 2011, Figure 14.

Lowest Quin4le

Note: Fungible value of health insurance for Medicaid, Medicare, and CHIP valuations calculated by Census Bureau.

54%

36%

16%

22%

12%

13% 9%

8%

10%

19%

10

Data Source: CBO, “The Distribution of Household Income and Federal Taxes, 2010,” 2013.

Income Tax Rates Have Fallen Across QuintilesIncome Tax Rates Have Fallen Across Quintiles


-10

-5

0

5

10

15

20

25

Aver

age

Inco

me

Tax

Rat

e

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile

11


Within the Top Quintile, Income Tax Rates Have Also FallenWithin the Top Quintile, Income Tax Rates Have Also Fallen

-‐10

-‐5

0

5

10

15

20

25

Average Income Tax Rate

81st to 90th Percentiles 91st to 95th Percentiles 96th to 99th Percentiles Top 1 Percent


12

Note: Includes income, social insurance, corporate, and excise taxes.Data Source: CBO, “The Distribution of Household Income and Federal Taxes, 2010,” 2013.

Total Federal Tax Rates Have Also FallenTotal Federal Tax Rates Have Also Fallen

0

5

10

15

20

25

30

Aver

age

Fede

ral T

ax R

ate

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile

Data Source: CBO, “The Distribution of Household Income and Federal Taxes, 2010,” 2013. Note: Includes income, social insurance, corporate, and excise taxes.

13


Total Federal Tax Rates Within the Top Quintile Are Also Lower


15

20

25

30

35

Aver

age

Fede

ral T

ax R

ate

81st to 90th Percentiles 91st to 95th Percentiles 96th to 99th Percentiles Top 1 Percent

Total Federal Tax Rates Within the Top Quintile Are Also Lower

Note: Includes income, social insurance, corporate, and excise taxes.

14


Top Quintile Paying a Greater Share of Income TaxesTop Quintile Paying a Greater Share of Income Taxes

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Shar

e of

Inco

me

Taxe

s

BoKom 80 Percent

Top 20 Percent


15


Top Quintile Paying a Greater Share of Total TaxesTop Quintile Paying a Greater Share of Total Taxes

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Shar

e of

Fed

eral

Tax

es

Top 20 Percent

Bottom 80 Percent


16


Share of Federal Income Taxes Paid byTop 1 Percent Has Doubled

Share of Federal Income Taxes Paid by Top 1 Percent Has Doubled


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Shar

e of

Inco

me

Taxe

s

39%

25%

14%

15%

18%

17%

13%

17% 91st to 95th Percentiles

96th to 99th Percentiles

Top 1 Percent

81st to 90th Percentiles

17


Share of Federal Taxes Paid by Top 1 Percent Has IncreasedShare of Federal Taxes Paid by Top 1 Percent Has Increased

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Shar

e of

Fed

eral

Tax

es


96th to 99th Percentiles

Top 1 Percent



24%

17%

12%

16%

14%

14%

11%

16%

18

Source: Emmanuel Saez, 2013 Arrow Lecture, Stanford University. Series is pre-tax, cash market income including realizedcapital gains and excluding government transfers.

Top Marginal Tax Rates Inversely Correlated withPre-Tax Top Income Shares

Top Marginal Tax Rates Inversely Correlated with Pre-Tax Top Income Shares

Source: Emmanuel Saez, 2013 Arrow Lecture, Stanford University. Series is pre-tax, cash market income including realized capital gains and excluding government transfers.

19

Note: Top tax brackets shown for 1960 to 2010 are lowest bracket for top marginal tax rate out of married, single, or head of household filing statuses. Where top brackets do not split evenly by IRS data, a proportional share of tax filers is calculated. Tax filers paying top rate is therefore an estimate of the maximum number of individuals paying the top marginal tax rate.Data Sources: IRS Statistics of Income, Individual Income Tax Returns. Historical marginal federal tax rates from The Tax Foundation,“Federal Individual Income Tax Rates History.”

Few Filers Are in Top Tax Brackets WhenMarginal Tax Rates Are High

Few Filers Are in Top Tax Brackets When Marginal Tax Rates Are High

Year Total Tax Filers Estimated Tax

Filers Paying Top Rate

Percent of Filers Paying

Top Rate

Top Marginal Tax

Rate

Top Tax Bracket (Nominal Dollars)

1920 7,600,000 33 0.0005% 73% $1,000,000

1930 3,700,000 6,200 0.17% 63% $100,000

1940 14,600,000 1 0.00001% 79% $5,000,000

1950 53,100,000 4,900 0.009% 91% $200,000

1960 61,000,000 5,800 0.01% 91% $200,000

1970 74,300,000 77,300 0.10% 70% $180,000

1980 93,900,000 559,400 0.60% 70% $107,700

1990 113,700,000 64,200,000 56.5% 28% $16,225

2000 129,400,000 6,800,000 5.3% 39.1% $144,175

2010 142,900,000 7,100,000 4.9% 35% $186,825

Data Sources: IRS Statistics of Income, Individual Income Tax Returns. Historical marginal federal tax rates from The Tax Foundation, “Federal Individual Income Tax Rates History.”

Note: Top tax brackets shown for 1960 to 2010 are lowest bracket for top marginal tax rate out of married, single, or head of household filing statuses. Where top brackets do not split evenly by IRS data, the appropriate proportion is calculated. Tax filers paying top rate is therefore an estimate of the maximum number of individuals paying the top tax bracket.

20

Note: Income is pre-tax, pre-transfer income. Includes capital gains and excludes all government transfers.Data sources: Australia (Atkinson and Leigh, 2007), Canada (Saez and Veall, 2005), France (Piketty, 2001), Netherlands (Salverda andAtkinson, 2007), Sweden (Roine and Walderstrom, 2010), United Kingdom (Atkinson, 2007), and United States (Piketty and Saez, 2007).Collected at World Top Incomes Database.

Growth in the Share of Income of the Top 1 Percent is Unique toUnited Kingdom, United States, and Canada

Growth in the Share of Income of the Top 1 Percent is Unique to United Kingdom, United States, and Canada

0

5

10

15

20

25

30

1914 1922 1930 1938 1946 1954 1962 1970 1978 1986 1994 2002 2010

Shar

e of

Agg

rega

te In

com

e

United States United Kingdom Canada Australia France Sweden Netherlands

Data sources: Australia (Atkinson and Leigh, 2007), Canada (Saez and Veall, 2005), France (Piketty, 2001), Netherlands (Salverda and Atkinson, 2007), Sweden (Roine and Walderstrom, 2010), United Kingdom (Atkinson, 2007), and United States (Piketty and Saez, 2007). Collected at World Top Incomes Database.

Note: Income is pre-tax, pre-transfer income. Includes capital gains and excludes all government transfers.

21

Notes: Figure is the ratio of high income (80th-95th percentile) to low income (5th-20th percentiles) labor earnings, before-tax income,after-tax income, and consumption expenditures. Estimates of earnings and consumption from Consumer Expenditure Survey.Source: Aguiar and Bils, 2011, Figure 1.

U.S. Consumption Inequality Is Growing,But Slower Than Income Inequality

U.S. Consumption Inequality Is Growing, But Slower Than Income Inequality

0

2

4

6

8

10

12

Rat

io o

f Ave

rage

Hig

h to

Ave

rage

Low

Inco

me

Source: Aguiar and Bils, 2011, Figure 1.

Notes: Figure is the ratio of high income (80th-95th percentile) to low income (5th-20th percentiles) labor earnings, before-tax income, after-tax income, and consumption expenditures. Estimates of earnings and consumption from Consumer Expenditure Survey.

Earnings

Before Tax Income

After Tax Income

Consumption

22

Varying Estimates on Consumption InequalityVarying Estimates on Consumption Inequality

Findings on the change in consumption inequality relative to income inequality

Krueger and Perri (2005) Consumption inequality is growing, but not as quickly as income inequality

Attanasio, Hurst, Pistaferri (2012) Consumption and income inequality are growing at the same rate

Aguiar and Bils (2013) Estimates are between Krueger & Perri and Attanasio, Hurst & Pistaferri

23

Notes: Saez-Zucman data is derived from IRS data and typical returns on various asset classes. Kennickell data is the Surveyof Consumer Finances.Source: Saez and Zucman, “The Distribution of US Wealth, Capital Income and Returns Since 1913,” March 2014, Slide 57.

Estimates of U.S. Wealth Inequality FollowSame Trend as Income Inequality

Estimates of U.S. Wealth Inequality Follow Same Trend as Income Inequality

Source: Saez and Zucman, “The Distribution of US Wealth, Capital Income and Returns Since 1913,” March 2014, Slide 57.

Notes: Saez-Zucman data is derived from IRS data and typical returns on various asset classes. Kennickell data is the Survey of Consumer Finances.

Shar

e of

Wea

lth H

eld

by T

op 1

0%

24

Note: Estimates are derived from IRS data and typical returns on various asset classes.Source: Saez and Zucman, “The Distribution of US Wealth, Capital Income and Returns Since 1913,” March 2014, Slide 57.

Like Income Inequality, Wealth Inequality IsDriven by the Wealthiest 0.1 Percent

Like Income Inequality, Wealth Inequality Is Driven by the Wealthiest 0.1 Percent

Source: Saez and Zucman, “The Distribution of US Wealth, Capital Income and Returns Since 1913,” March 2014, Slide 57. Note: Estimates are derived from IRS data and typical returns on various asset classes.

25

Source: Thomas Piketty, Capital in the 21st Century, Figure 10.6. Top World Incomes Database.

U.S. Wealth Inequality Surpassed Europe in 1960U.S. Wealth Inequality Surpassed Europe in 1960

Source: Thomas Piketty, Capital in the 21st Century, Figure 10.6. Top World Incomes Database.

26

Source: Miles Corak, “Income Inequality, Equality of Opportunity, and Intergenerational Mobility,” Journal of EconomicPerspectives, Summer 2013, Figure 1.

Income Inequality Inversely Correlatedwith Intergenerational Mobility

Income Inequality Inversely Correlated with Intergenerational Mobility

Source: Miles Corak, “Income Inequality, Equality of Opportunity, and Intergenerational Mobility,” Journal of Economic Perspectives, Summer 2013, Figure 1.

27

Notes: Graph shows probability of reaching top quintile at age 26, sorted by parents’ income quintile. Solid lines are from matched SOI sample using 1971-82 birth cohorts. Dotted lines are from population-based sample for 1980-86 birth cohorts.Source: Chetty et al., “Is the United States Still the Land of Opportunity? Recent Trends in Intergenerational Mobility,” Presentation, Slide 33

Chetty Finds U.S. Intergenerational Mobilityis Relatively Constant

Chetty Finds U.S. Intergenerational Mobility is Relatively Constant

29 Source: Chetty et al., “Is the United States Still the Land of Opportunity? Recent Trends in Intergenerational Mobility,” Presentation, Slide 33.

Notes: Graph shows probability of reaching top quintile at age 26, sorted by parents’ income quintile. Solid lines are from matched SOI sample using 1971-82 birth cohorts. Dotted lines are from population-based sample for 1980-86 birth cohorts.

Top Quintile

0

5

10

15

20

25

30

35

Prob

abili

ty o

f Rea

chin

g To

p Q

uint

ile o

f 26

Year

Old

s

Middle Quintile

Top Quintile

28

Source: Katharine Bradbury, “Trends in U.S. Family Income Mobility, 1969-2006,” Federal Reserve Working Paper, October 2011,Table 2.

Bradbury Finds Declining U.S. Intergenerational MobilityBradbury Finds Declining U.S. Intergenerational Mobility

Source: Katharine Bradbury, “Trends in U.S. Family Income Mobility, 1969-2006,” Federal Reserve Working Paper, October 2011, Table 2.

Percent of Highest Quintile Who Move Down

Percent of Lowest Quintile Who Move Up

Percent of Highest Quintile Who Move to Middle, Second, or Lowest Quintile

Percent of Lowest Quintile Who Move to Middle, Fourth, or Highest Quintile

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

29

Notes: * denotes significant difference from the United States. Data for the United States come from National Longitudinal Surveyof Youth. Individuals measured were born between 1957 and 1964, parental incomes measured in 1978, and current individualearnings measured between 1996 and 2002.Source: Jantti et al. 2006, Tables 4 and 12.

Lowest Quintile in the U.S. Is Less Mobile Than Other CountriesLowest Quintile in the U.S. Is Less Mobile Than Other Countries

Percent of men whose fathers were in the lowest quintile of the earnings distribution Remained in the lowest

quintile Climbed to second,

third, or fourth quintiles Climbed to the highest

quintile Denmark 25%* 61% 14%* Finland 28%* 61% 11% Norway 28%* 60% 12%* Sweden 26%* 63% 11% United Kingdom 30%* 57% 12%* United States 42% 50% 8%

Source: Jantti et al. 2006, Tables 4 and 12.

Notes: * denotes significant difference from the United States. Data for the United States come from National Longitudinal Survey of Youth. Individuals measured were born between 1957 and 1964, parental incomes measured in 1978, and current individual earnings measured between 1996 and 2002.

30

Notes: * denotes significant difference from the United States. Data for the United States come from National Longitudinal Surveyof Youth. Individuals measured were born between 1957 and 1964, parental incomes measured in 1978, and current individualearnings measured between 1996 and 2002.Source: Jantti et al. 2006, Tables 4 and 12.

Top Quintile in the U.S. Has Similar Mobility to Other CountriesTop Quintile in the U.S. Has Similar Mobility to Other Countries

Percent of men whose fathers were in the top quintile of the earnings distribution Dropped to the lowest

quintile Dropped to second,

third, or fourth quintiles Remained in the highest

quintile Denmark 15%* 45% 36% Finland 15%* 50% 35% Norway 15%* 50% 35% Sweden 16%* 47% 37% United Kingdom 11% 60% 30% United States 10% 55% 36%

Source: Jantti et al. 2006, Tables 4 and 12.

Notes: * denotes significant difference from the United States. Data for the United States come from National Longitudinal Survey of Youth. Individuals measured were born between 1957 and 1964, parental incomes measured in 1978, and current individual earnings measured between 1996 and 2002.

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CONFERENCE ON INEQUALITY IN MEMORY OF GARY BECKER · This conference is in memory of Gary Becker and will explore various measures of inequality and pose the question whether or not

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