Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns

52 Pages Posted: 28 May 2004 Last revised: 26 Jul 2010

See all articles by Daniel R. Feenberg

Daniel R. Feenberg

National Bureau of Economic Research (NBER)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: December 1992

Abstract

This paper uses tax return data for the period 1951-1990 to investigate the rising share of adjusted gross income (AGI) that is reported on very high income tax returns. We find that most of the increase in the share of AGI reported by high-income taxpayers is due to an increase in reported income for the one quarter of one percent of taxpayers with the highest AGIs. The share of total AGI reported by these taxpayers rose slowly in the early 1980s, and increased sharply in 1987 and 1988. This pattern suggests that at least part of the increase in the income share of high-AGI taxpayers was due to the changing tax incentives that were enacted in the 1986 Tax Reform Act. By lowering marginal tax rates on top-income households from 50% to 28%, TRA86 reduced the incentive for these households to engage in tax avoidance activities. We also find substantial differences in the growth of the income share of the highest one quarter of one percent of taxpayers, and the share of other very high income taxpayers. This suggests that the increasing inequality of reported incomes at very high levels may not be driven by the same factors that have generated widening wage inequality throughout the income distribution and over a longer time period.

Suggested Citation

Feenberg, Daniel R. and Poterba, James M., Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns (December 1992). NBER Working Paper No. w4229. Available at SSRN: https://ssrn.com/abstract=270367

Daniel R. Feenberg (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
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Cambridge, MA 02142
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617-253-6673 (Phone)
617-253-1330 (Fax)

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