Top wealth in America: new estimates under heterogeneous returns
What is this research about and why did you do it?
How rich are the richest Americans? A thorough answer to this question is necessary to address public concern over rising inequality, whether the distribution of resources is fair, and how policy ought to respond. Evaluating tax policies that target the rich depends upon the quality of top wealth estimates. Measuring the concentration of wealth also matters for economic analysis of growth, savings, and capital accumulation.
How did you answer this question?
This paper uses administrative tax data to estimate top wealth in the United States. We assemble new data that links people to their sources of capital income and develop new methods to estimate the degree of return heterogeneity within asset classes. We value the population of pass-through firms using firm-level characteristics and apportion this wealth using firm-owner links. We combine this new data on fixed income and pass-through business returns with refined estimates of C-corporation equity, housing, and pension wealth to deliver new capitalized wealth estimates that build upon the pioneering methods of Saez and Zucman (2016) and Piketty, Saez and Zucman (2018).
What did you find?
Overall, although we estimate a large degree of return heterogeneity, accounting for this heterogeneity does not change the fundamental story for top wealth shares and their growth— wealth inequality is high and has risen substantially over recent decades. From 1989 to 2016, we find that the top 1%, 0.1%, and 0.01% wealth shares increased by 6.6, 4.6, and 2.9 percentage points, respectively, to 33.7%, 15.7%, and 7.1%. Furthermore, we find that pass-through business and C-corporation wealth account for most of the wealth at the top of the distribution. In contrast, pensions and housing account for almost all wealth of the bottom 90%. P90-99 portfolios are more balanced across asset classes.
This figure plots the share of total household wealth for different wealth groups from 1966 to 2016.
What implications does this have for the research on wealth concentration or economic inequality?
We find a large role at the top for pass-through business and C-corporation wealth, low and stable concentration of fixed income wealth, and equity concentration that rises sharply with wealth—these facts all point to a central role for entrepreneurs and other stockholders for top wealth accumulation.
What are the next steps in your agenda?
We are investigating entrepreneurial wealth accumulation, how tax policy affects global investment behaviour of firms, and the importance of inherited wealth and the role of family firms versus self-made entrepreneurs.
This paper can be cited as follows: Smith, M., Zidar, O., and Zwick, E. (Forthcoming) "Top wealth in America: new estimates under heterogeneous returns." Quarterly Journal of Economics.