Inequality and the Piketty Accounting Error – WSJ

Mr. Piketty based his theory on a historical argument taken from his own empirical work with fellow economist Emmanuel Saez. When Congress and President Franklin D. Roosevelt hiked the top marginal income-tax rate to 91% during the New Deal and World War II, they allegedly broke up the concentration of the capital stock at the top of the income ladder. Inequality declined to a midcentury trough, where it remained until the Reagan tax cuts in the 1980s. Inequality then rebounded to form a centurylong U-shaped pattern. The solution, then, is to restore tax rates to their FDR levels.

But the Piketty-Saez theory is less a matter of history than an accounting error caused by their misunderstanding of World War II-era tax statistics. That s the main conclusion of a new analysis of top income concentration in the U.S. between 1917 and 1960, which we recently published in the Economic Journal.

via www.wsj.com

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