...Thomas Piketty and Emmanuel Saez, ... half of that increase happened in just two years, 1987 and 1988. ...Brad writes
Increases in the top 1 percent's income after the 1986 Tax Reform came from more business income being reported on individual tax returns, rather than corporate tax returns. The share of the top 1 percent income coming from business profits jumped from 11 percent in 1986 to 21 percent in 1988, ... How and why that happened is a textbook example of why tax return data cannot be used to measure income distribution...
29% of 17% is 5% as the tax-return-estimate based share of business income reported by the top one-hundredth. If the tax law were different today, a good chunk of that 5% would be reported as capital income, and a smaller chunk as labor income. The estimates the people I talk to come up with is that the 1986 Tax Reform boosted the long-run measured share of the top one-hundredth relative to the true share by between 0 and 2 percentage points, leaving between 7 and 9 percentage points as the true underlying increase in the income share of the top one-hundredth.I write