Top marginal rates and income distribution



A little aside prompted by the top marginal rate graph I posted yesterday. If you graph it together with the share of income of the top 10% of the population (data available in Emmanuel Saez’s webpage), you see that as the top marginal rate goes up in the 1930s the income share of the wealthiest individuals falls, and vice versa in the 1980s. Not rocket science. And clearly there are several other factors that explain the down and up change in the income share of the wealthiest, from the strength of unions after the Wagner Act and their current struggles (e.g. in Wisconsin), to the education boost of the GI Bill and the current increases in the cost of public education, to the political changes in the Republican Party after the rise of the conservative movement.

PS: I excluded the earlier years of the 20th century, because of the sharp increases in top rates during World War I.

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